First of all, the FA industry is mixed, and the ecosystem is relatively chaotic. In fact, China's early-stage investment industry has only been started for more than ten years. Many ecosystems have not been established very well, and participants in all aspects of the market are not particularly mature. In this "grassroots" ecosystem, many FAs have grown wildly with serious information asymmetry in the primary market. In the past few years of the biotech bull market, many FAs focusing on the biomedical field can complete several projects a year even if their level is poor.
Therefore, the evaluation of the quality of FA cannot only look at its performance in the bull market, but also needs to be carefully identified in the capital winter. Secondly, the FA industry also has its unique value in the primary market ecosystem.
The role of FA in financing is mainly reflected in:
- Sharing the energy of financing for the founder. The financing of early-stage projects has formed a relatively fixed process. What to do at which step and how to mediate between different institutions are very challenging for the founder's skills and experience in financing. When faced with this situation, the founders of the early stage of entrepreneurship are often at a loss. They will feel that almost all of their time is occupied by financing, but they still have no idea. In this case, if the founder chooses to cooperate with a relatively high-quality FA to promote financing, the speed and quality of financing will usually be improved.
- Obtain broader, more accurate and timely information. Unlike the public market, the primary market is characterized by serious information asymmetry, which is also the soil on which many small and medium-sized market participants survive. In addition, due to the particularity of the industry, investment institutions in the primary market often have their own characteristics depending on the personal style and investment preferences of their managing partners. Therefore, most start-up projects need to raise funds not only if the project itself is good enough, but also to find the right investors.
Founders who have just started financing often lack resources and information about investors, and a FA with many years of experience can make up for the founders' shortcomings in this regard. An experienced FA will carry out targeted investor docking based on the characteristics of the company, modify the financing BP and other materials based on the understanding of the market, and prepare various materials for the meeting according to the requirements of relevant institutions. From this perspective, FA can speed up the financing process with the information it has, so it is reasonable to charge a certain fee. From the above analysis, it can be seen that a competent and responsible FA can indeed play a booster role in the early financing process of the project. However, the reality is that incompetent FAs account for the majority, which leads to many entrepreneurs not only failing to enjoy the pleasure of being boosted when financing, but often delaying the financing rhythm under the control of FA's clumsy methods.
An unprofessional FA brings huge disadvantages to start-ups, which are specifically manifested in:
- Inadequate work. Many FAs will brag about the sky when pitching, but once they get the exclusive FA agreement, they start to play badly. Such FAs often get many projects that are difficult to finance because of their insufficient level. These projects occupy a lot of their working time. Therefore, even if a good project cooperates with such a FA, the financing rhythm will be dragged down because the FA cannot allocate more time to this project.
- Failure to update market information in a timely manner, taking a lot of detours. Timely information is one of the most important assets of all parties involved in the primary market, and FA is no exception. Unqualified FAs find it difficult to get first-hand dynamic information due to their own level. This is reflected in the financing process, which is often reflected in the hesitation of not fully understanding the characteristics of start-ups, and the inaccurate understanding of investors' investment stages, preferred tracks, and investment styles, which makes it impossible to quickly facilitate transactions.
- FAs violate professional ethics to seize the interests of the company. Investors bring not only funds to the company, but also various commercial resources; more importantly, once investors invest, they will be able to legitimately access various confidential information of the company. If investors with ulterior motives cooperate with FAs with bad intentions, this phenomenon is very terrible. What's more, some experienced FAs can even take advantage of the founders' lack of experience in financing and take advantage of various loopholes to seize the company's interests.
It can be seen from this that founders, especially scientists who have no previous business experience, must be cautious when choosing partners in entrepreneurship.
- When facing FAs and investors, you must do enough background checks. For example, you can get the contact information of 3-5 projects that the FA has recently worked on, and ask the founders of these projects what the FA's ability and quality level is.
- The selection of FA is crucial until the final signing of the agreement. The founder should be personally responsible for leading this matter, and do not let other roles (such as COO, financing director, etc.) take the lead to avoid agency problems. In addition, founders should note that not all FAs are suitable to support angel round financing. Since the transaction amount is usually small but the transaction difficulty is not low, the value of angel round projects is not high in the eyes of most FAs, and they are not suitable and unwilling to cooperate with angel round projects. Fortunately, with the lack of original projects in the primary market, some FAs have already made forward-looking arrangements for angel round projects.
Determine your needs
First, clarify your investment goals and risk tolerance. This will help you determine the type of investment advisor you need. For example, if you need long-term savings and retirement planning, then you may need an investment advisor who focuses on financial planning. If you need high returns in the short term, then you may need an advisor who focuses on stock trading.
Find potential investment advisors
You can find potential investment advisors in the following ways:
Ask friends, family or colleagues for recommendations.
Search for investment advisor lists or ratings online.
Contact local banks or brokerage firms and ask if they have available investment advisors.
Evaluating Potential Investment Advisors Before choosing an investment advisor, you should evaluate them.
Professional Qualifications: Make sure the investment advisor has the necessary licenses and certifications.
Experience and Track Record: Check the investment advisor's experience and past investment performance.
Investment Approach: Understand the investment advisor's investment approach and strategy and make sure they match your investment goals and risk tolerance.
Services and Fees: Understand the services provided by the investment advisor and the fees charged.
Communication Style: Choose an investment advisor whose communication style matches yours to ensure a good working relationship.
Establishing a Relationship Once you have found the right person, you can sign a contract with the investment advisor to formalize the relationship. Before signing the contract, be sure to read the terms of the contract carefully to ensure that you understand all the terms and conditions. Finally, remember that the investment advisor is only providing advice and the final investment decision should be made by you. Before making any major investment decisions, you should fully understand the investment risks and seek the advice of other professionals when necessary.
