In my post, Hollywood Agents & Fundraising, I compared Hollywood talent agencies to tech venture capital firms. I deduced that the timeline for payouts makes it economically infeasible for the same model to exist in Silicon Valley.
Feasibility aside, from a founder’s point of view, could an agent-like service actually be useful? I think the answer is yes, and there could be other ways to deliver that. This post will outline my thought process for “founder agents”. It turns out that the closest thing in tech is the advisor role.
To start, let’s review the fundraising sales cycle:
- Create a narrative to tell your story
- Identify prospective customers
- Develop warm leads through outbound strategies (email drip or referrals)
- Meet with leads and give a full presentation
- Negotiate terms with committed leads
- Sign paperwork and transfer money
Let’s also establish an assumption based on the current culture: VCs want to work directly with founders. Venture capital is a bet on a person and the future. They need all the data points they can get. This assumption eliminates an agent from being able to help with Step 4.
Of the remaining parts, Steps 2 and 3 are the most time-consuming. Time is the scarcest resource of a founder, so if these steps were outsourced, their time savings would represent a ton of value. For Steps 1 and 5, expertise and advice can drive better outcomes, but help for this is more common. Based on this, an “agency” could focus on the following:
Primary
Create introductions and queue up meetings for founders. It would be similar to how sales development creates leads for sales reps to close.
Secondary
Provide tactical advice throughout the fundraising process. Help create the right story and fight to give founders the best terms.
If there is value created, how could someone get paid for the service? I’m a firm believer in aligned incentives. Charging a flat-rate, upfront fee to founders limits their horizon and is misaligned. The same applies to taking a percentage of the raised funds. This is why we don’t see a traditional agency model in tech.
This leaves three possible options:
- Get an advisor share grant
- Set up a side fund
- Referral bonus or kickbacks from VCs
Advisor shares
This is a textbook use for an advisor. An advisor with access becomes far more valuable than someone who just has knowledge. This could not be a full-time job, but I know a couple people who advise companies on the side and focus on this.
Set up a side fund
By offering this service, you would see a lot of deal flow and could create space in the best rounds. You could raise a fund and this would be your lead generation. You would no longer be an “agent” though, but yet another VC trying to sell the founder-friendly story. If you did this full-time, your income would be management fees.
As a side thought, a VC looking to get deal flow should offer a free service to do this. It would be hard to make the economics work, but it could work as an acquisition funnel. Help test the waters and there’s no risk of missing out on high-potential deals.
Referral Kickbacks
I have no idea if this is a thing, but I do know that VC is all about deal flow and getting space into rounds. This might be the only way to be a true “agent”. Since I have not heard of this, I will assume this option can’t work.
From the paths that work, it’s clear that we have roles and titles in place. The first path is the closest thing to a “founder agent”. If you are taking advisor shares for your contributions, you are an advisor.