A venture capital broker acts as a go-between for entrepreneurs and investors looking for seed money. To meet and connect these two parties, this job requires a variety of financial, business, and communication skills. Brokers are typically not affiliated with venture capital firms and charge a fee for their services. Furthermore, because of its unfortunate history of scams, this profession is viewed with some skepticism, but there are ways to establish legitimacy.
Many times, a startup company has a great product or service idea, and investors are willing to invest, but the two parties don’t know how to find each other. A venture capital broker’s primary responsibility is to bring these two groups together to form a productive partnership that will help fund the new business while also returning the investors’ money plus profit. A broker must be able to comprehend the complex structure of business partnerships, the specific needs of a startup company, and the expectations of investors, as well as possess strong communication skills to translate it all into terms that each party can comprehend. Although there are no specific educational requirements for brokers, a business degree is a good starting point for developing these skills. In order to constantly find new business, a venture capital broker must have connections in both the investing and entrepreneurship worlds.
Rather than being a member of the investment team or the start-up itself, a venture capital broker is usually an independent third party. As a result, rather than charging a percentage of profit, the broker usually charges a flat fee for services. This can be a set fee or a percentage of the total amount raised. Traditionally, venture capital firms have avoided using brokers because the fee would have a negative impact on their bottom line.
Scandal and negative perceptions are a problem for a venture capital broker because, unfortunately, there is a perception that some of these people are con artists. So-called brokers have been accused of inventing a start-up company and defrauding investors in the past. Fortunately, two methods exist to assist brokers in demonstrating their legitimacy to potential clients: certification and references. The Financial Industry Regulatory Authority (FINRA) offers venture capital broker certification in the United States, which consists of a test to ensure that the broker understands the job’s responsibilities and complexities. Another way to establish legitimacy is to provide references from investors and start-ups with whom the broker has previously worked.