I am aware that at one point, you were looking to raise capital, and possibly still are.
You may have come across various companies claiming to help you raise capital.
While I cannot name these companies, know that I have worked at one of them, and honestly, it’s a borderline scam.
Let me break it down for you.
The Offer: These companies promise you investment or investor connections through cold outreach using their database. They charge a fixed setup fee and a percentage success fee.
Here’s why this is a borderline scam, and if you still want to proceed with them, steps you can take to secure yourself.
- No Guarantees: They offer little to no guarantees about their results. If you push them, they might promise a 5-10% response rate (depending on the company). This includes all responses, even negative ones and out-of-office replies. They also won’t specify the number of investors in their database because they don’t know themselves (more on this in point 7).
- No References/Testimonials: They have very few founders who can be referenced. If you ask for references, they will cite NDAs and confidentiality agreements. Any number you ask for that they don’t have data on will be answered with a generic confidentiality response.
- Random Numbers Quoted: The sales team is encouraged to quote random numbers when caught off-guard. If you ask for their success rates, you’ll hear different numbers ranging from 30-60%. These numbers have no real basis and are not actively tracked.
- Hazy Legal Contracts: The contract will be clear about their approach to reaching out to investors but will never include specifics (how many investors, emails per month, guaranteed responses, etc.). They almost never provide concrete deliverables in their emails.
- Upselling via Document Reviews: They often ask for your investor documents to review. They will suggest changes and push you to hire them to create your documents. This is their primary sales tactic, showing expertise in document creation to trick you into believing they are equally good at investor connections.
- Redacted Case Studies with No Proof: If you ask for case studies or testimonials, you won’t get much. You may get redacted case studies with vague company personas. Anyone can create such documents, so take them with a pinch of salt.
- No Access to Database or Email Tool: Almost no one has access to their database, as it’s the company’s most important IP. This means everything is automated, and campaign managers have little to no power to change things. For example, if you wanted to know the investors they would email before sending out the email, they wouldn’t be able to tell you since even the campaign manager doesn’t know.
- Crunchbase/Pitchbook as Sales Tactic: They often suggest suitable investors for you, but these investors are almost never from their own database. They use Crunchbase, Pitchbook, or similar websites to filter and share names to give you confidence.
How to Secure Yourself:
- Ask them to include all guarantees they promise (response rates, number of potential investors) in the contract.
- Do not pay via WIRE. Always ask for a credit card or Stripe invoice. This allows you to easily get a refund if things go sour.
- Opt for a service where you get the data and can reach out on your own. This is often better and easier.