Fundraising is a critical activity for entrepreneurs, especially as they navigate the different stages of their company's growth—from startup to scale-up to maturity. One of the fundamental decisions in this process is whether to undertake fundraising independently or require the assistance of advisors and individuals external to the company, such as placement agents or M&A advisors. This decision involves evaluating various factors such as network access, prior experience or process expertise, cost implications, resources at hand and the specific needs based on the company’s stage of development. In this post, we'll delve into the pros and cons of each approach, offering insights from real life situations to help entrepreneurs make an informed choice for their own specific case.

Decision factors

First, we’re mapping all the different factors to use in order to determine the optimal decision when it comes to understand whether the capital raise should require the help of a third party. We’re identified several factors to consider:

• Cost: Assessing the financial implications of hiring an advisor versus handling fundraising independently.

• Network Access: Evaluating the reach and connections we have internally compared to those of an advisor. In this dimension, the importance of the strength of the established relationships is an important element on its own.

• Control and Involvement: Determining the balance to have between direct involvement in the fundraising process against delegating to an advisor.

• Expertise and Experience: Comparing the knowledge and negotiation skills of entrepreneurs versus professional advisors.

• Time and Focus: Weighing the time commitment required for DIY fundraising against the efficiency of using an advisor, although experienced and quality advisors would prepare the ground for investors to hear you out rather than pitching on your behalf.

• Learning and Development: Considering the learning opportunities for entrepreneurs handling fundraising independently vs. stumbling several times along the path before finding the right way to approach investors.

• Strategic Guidance: Assessing the value of strategic insights provided by experienced advisors versus going on your own.

• Potential Conflicts: Identifying possible conflicts of interest with advisors focused on commission or that might be representing competitors.

• Dependence: Evaluating the potential reliance on advisors versus maintaining independence.

Assessing Pros and Cons

Once the decision factors are clearly outlined, it's essential to weigh the specific pros and cons of each approach—whether fundraising independently or through an M&A advisor—against these factors. The pros and cons can vary significantly based on the stage of the company (startup, scale-up, or mature) and the specific circumstances of the entrepreneur. For example, while a startup might benefit from the cost savings and learning experience of DIY fundraising, a mature company might find the strategic guidance and network access of an advisor invaluable.

Take a more detailed look at how DIY fundraising compares to hiring an M&A advisor across different stages of company maturity in Figure I.

Figure I: Table of Comparison:

| Extraction Method | Characteristics | Flavor Profile | Origin |
|-------------------|-----------------|----------------|--------|
| Espresso | Concentrated shot using high pressure. Extracted quickly, typically in 25-30 seconds.<br><br>Requires specialized equipment and finely ground coffee. | Intense flavor with a rich crema on top.<br><br>Full-bodied and robust, often used as a base for milk-based drinks. | Originated in Italy in the early 20th century.<br><br>Now popular worldwide, especially in cafes and restaurants. |
| Pour Over | Manual brewing method where hot water is poured over ground coffee in a filter.<br><br>Gravity draws the water through the grounds, allowing for control over brewing variables. | Clean taste with bright acidity.<br><br>Light to medium body, often highlighting the coffee's subtle flavors and aromas. | Popularized by the Hario V60 from Japan and the Chemex from Germany.<br><br>Variations of this method exist globally, each with unique characteristics. |
| French Press | Immersion method using a metal mesh filter. Typically involves a steeping time of about 4-5 minutes.<br><br>Simple design with a plunger mechanism to separate grounds from brewed coffee. | Full-bodied with a rich mouthfeel.<br><br>Often contains some sediment, which contributes to its robust flavor profile. Allows natural oils to remain in the coffee. | Invented in France in the 1850s.<br><br>Gained widespread popularity in the 1960s and remains a favorite for its simplicity and rich results. |
| Cold Brew | Long steeping time of 12-24 hours using room temperature or cold water.<br><br>No heat involved in the brewing process, resulting in a distinct extraction profile. | Smooth taste with low acidity.<br><br>Slightly sweet flavor profile, often less bitter than hot brewed coffee. Concentrate can be diluted or used in various coffee drinks. | Traditional roots in Kyoto, Japan, where it was known as "Kyoto-style" coffee.<br><br>Modern popularity surged in the United States in the 2010s, becoming a staple in many cafes and homes. |
| AeroPress | Pressure brewing method using a paper microfilter.<br><br>Quick extraction in about 1-2 minutes. Compact and portable design. | Clean cup with a balanced flavor.<br><br>Offers versatile brewing options to suit different taste preferences. Can produce a coffee similar to espresso or a longer, American-style cup. | Invented in the United States in 2005 by Alan Adler.<br><br>Quickly gained a cult following among coffee enthusiasts and travelers for its versatility and compact design. |
| Moka Pot | Stovetop brewing device using pressure.<br><br>Features a unique three-chamber design that forces hot water through coffee grounds. | Strong, espresso-like coffee with a rich flavor.<br><br>Can be slightly bitter if not brewed carefully. Often used as a base for milk-based drinks at home. | Invented in Italy in 1933 by Alfonso Bialetti.<br><br>Remains a staple in many Italian households and has gained popularity worldwide as an affordable alternative to espresso machines. |
| Siphon | Vacuum brewing method using a two-chamber glass apparatus.<br><br>Heat and vapor pressure drive the brewing process, creating a visually striking brewing method. | Clean, crisp taste that highlights delicate flavors.<br><br>Often described as having a tea-like body and clarity. Prized for its ability to bring out nuanced flavors in high-quality coffees. | Invented in Germany in the 1830s.<br><br>

Real life example

Consider the case of a serial entrepreneur in Germany who was looking to raise funds for his fourth venture, a biotech firm. Despite being a seasoned entrepreneur with three successful startups under his belt, he decided to go the DIY route. After spending months on the fundraising process, he received several term sheets, but the valuations were lower than expected. Recognizing that he could bring another perspective, he solicited the assistance of an M&A advisor.

The M&A advisor, leveraging their network and expertise, expanded the reach of the entrepreneur to a larger investor base. Within weeks, the entrepreneur received term sheets with valuations that were twice as high as those he had initially secured on his own. Additionally, the advisor's network brought in 30% more investment capital than the entrepreneur had managed to secure independently.

This example, among many other cases across our professional experiences, underscores the potential benefits of involving an experienced advisor, even for seasoned entrepreneurs. It demonstrates how professional support can significantly enhance both the valuation and the amount of capital raised, proving that in some cases, the added cost of an advisor can more than pay for itself.

Conclusion

Deciding between fundraising independently or hiring an M&A advisor involves carefully considering various factors such as cost, network access, control, and expertise. Startups may benefit from the cost savings and learning experience of DIY fundraising, while scale-ups and mature companies often find the strategic guidance and extensive networks provided by an advisor indispensable.

While there are additional dimensions to consider, business owners should make this decision based on their unique circumstances and context. By doing so, they can navigate the fundraising landscape effectively and secure the capital needed to drive their business forward.