Founders are right to be sceptical about introducers. The category contains some genuinely useful firms and a great many people who will take a fee for sending an email.
So here is the honest version: what an introducer does, what it should cost, and how to tell the two apart.
What the role is
An introducer connects a business raising capital with investors who might fund it. That is the whole function.
An introducer does not advise you on whether to invest, does not manage your money, and does not arrange the transaction. Those are regulated activities in most jurisdictions and a different business entirely. An introducer who describes themselves as an adviser is either regulated to do it, or is being careless with a word that matters.
What the work actually consists of
The introduction is the last five per cent. The work before it is:
- Working out which instrument suits the business, which frequently changes the plan the founder arrived with
- Getting the documentation into a state that survives scrutiny — the memorandum, the financials, the security chain, the public record
- Identifying which investors actually buy this kind of risk, in this size, in this sector, in this jurisdiction
- Preparing the founder for the questions that will be asked
- Managing the process through diligence, where most raises stall
A firm that skips to the introduction is selling you its contact list. That is worth something, but it is worth much less than it usually costs.
How introducers are paid
Two components, in most arrangements.
An upfront fee
Covers the preparation work, which is real and happens whether or not the raise completes. It is also, frankly, a filter: a firm with no upfront fee is incentivised towards volume, and volume in this business means sending weak propositions to good investors.
A success fee
A percentage of funds raised, paid on completion. This aligns the introducer with the outcome rather than the activity.
Be wary of arrangements that are success-fee-only with a very high percentage. They sound attractive because you pay nothing if nothing happens — but they tend to produce a scattergun approach, and the reputational cost of being marketed badly to investors lands on you, not on the introducer.
What to ask before you sign
- Are you regulated, and for what? If not regulated, say so plainly.
- What exactly do you do before the introduction, and what does it produce?
- Which investors do you actually have relationships with, in this instrument and this size?
- What is the fee, when is it payable, and what happens if the raise does not complete?
- Do you take a fee from the investor side as well? If so, disclose it in writing.
- Who else have you raised for, and may I speak to one of them?
The last question is the most informative. A firm that cannot produce a reference for a completed raise has told you what you need to know.
The conflict worth naming
An introducer is paid when money moves. You are better off when the right money moves on the right terms.
Those are not the same thing, and the gap is where the damage happens — the pressure to accept a term you should have argued, or to take an investor who will be difficult later.
A good introducer will tell you when a deal is wrong for you. That costs them the fee, which is precisely why it is the thing to look for.
When you do not need one
If you already know the investors who buy your kind of risk, you do not need an introducer. You need good documentation and a clear head.
Most founders are not in that position, which is the entire reason the category exists.
Related reading
- How long does it take to raise capital?
- What goes in an information memorandum
- Choose the instrument before you choose the investors
Mark Johnson is a Director of BDM Wealth Management, which introduces capital raising opportunities across bonds, loan notes, IPOs and SEIS/EIS. To discuss a raise, get in touch.
BDM Wealth Management is an introduction business and is not regulated. This article is general information, not financial, tax or legal advice, and does not constitute an offer or invitation to invest. Capital is at risk and you may get back less than you invest. For high-net-worth and sophisticated investors only. Take independent professional advice before making any investment decision.