28 Sep Working with Going Public Advisors: Part VI – Raising Money

By far the most common reason companies seek to go public is to access capital for growth. It is also very likely the first thing a going public advisor will discuss, namely his or her ability to assist you in bringing in that needed financing. So a critical question to ask the potential advisor is: Can you assist me in raising money, and if so how would you do so and are you properly licensed if required? Please direct me to recent past companies you have successfully raised money for.

Sadly, many well-intentioned advisors raise money in a fashion that requires them to be registered with a broker-dealer to do so, but they are not so licensed. The SEC does go after folks who do so improperly, and the company faces the risk of being required to rescind a fundraise if investors were misled about the legal ability of the advisor to advise. In fairness, typically this tends to arise more often when an investor complains or fraud is alleged.

Even if an advisor is licensed, or is able to assist with fundraising legally without doing so, you want to assess the likelihood they will succeed in their endeavors. Make sure you can have a conversation with CEOs that the advisor recently assisted in raising money. Ask the CEOs: how much was raised? how much were you hoping to raise? did the advisor limit his disclosures to those prepared by the company? Watch out for this one: the advisor says he plans to raise $3-5 million, but wants to have a $500,000 minimum so you don’t have to wait for other money to be raised. This might be fine, but make your plan then assuming you will raise no more than $500,000.