This rule is now written after a couple interactions with “middlemen” or “deal brokers”. For the most part, our industry works off of the FSBO – “For Sale by Owner” – model. Occassionally, we are passed deals by professional brokers whose job it is to make the market for a startup and later stage company. Because brokers/middlemen take a commission from the deal (sometimes a heafty one!), this is a less attractive option for an early stage VC.
In our firm, we also view it as a sign of some degree of weakness – any entrepreneur worth their salt has to first and foremost be a good salesperson. If they can’t manage the fundamentals of marketing and selling their idea to investors, they are likely to run into problems when selling it to future investors, customers, and talented employees they want to bring on board.
Rule # 5366: Steer clear of any business that is brought to your attention through an intermediary who requests a finder’s fee for a potential investment, especially if they use the term, “What’s in it for me?”