Why Outsourcing Fundraising is a Bad Idea

Many startups and entrepreneurs want to outsource fundraising. In theory, this is a good idea because it means you’ll have more time for your company’s business development while backers raise money at the same time. But in practice, outsourcing has caused more harm than good in these cases: investors are less likely to commit if they can’t see face-to-face with the founder; founders get burned when their outsourcer raises funds elsewhere without approval or neglecting accounting responsibilities that normally fall on them; and investments don’t always go where they should be going. If you’re considering crowdfunding rewards as an alternative form of funding, remember that investing directly into your project will provide better returns over all!

Outsourcing fundraising is a bad idea because of the lack of accountability and control. It’s hard to track where your funds are going and when they’re being spent.

Tuesday in Ask the VC, Brad Feld provides a really helpful response to an essential subject, a debate that also fits here on this blog. First and foremost, the question:

Q: As an early-stage startup trying to secure a seed round of less than $500k to help us develop, what are your opinions on outsourcing fundraising to a firm like Vfinance so that I can concentrate on operating the company? Are there any disadvantages?

Then comes the response:

A : (Brad) This is a terrible plan. It is not something you should do. Despite the fact that fundraising–especially for an early-stage company–can become a full-time job, it is critical for the founders to do so.

You must make fundraising a top priority. Obviously, you’re seeking $500k to be able to employ a few individuals to assist you leverage your time more effectively while you attempt to get your firm off the ground. If you don’t devote enough time and effort to this, you’ll find yourself in a classic chicken-and-egg situation: you don’t have enough money to build up your team, but you don’t have enough time to go raise the money because you’re too busy doing everything else since you don’t have the team.

Take a deep breath and recognize that at this point, fundraising must become the most essential thing you’re doing. Find an early investor or adviser who is familiar with you, loves you, and has a network of other investors and advisors. Request that this individual assist you in making introductions to additional angel investors. Manage these introductions like a sales process: after you’ve built up a list of possible investors, spend the most time with the ones who seem most interested. They are investing as much in you as they are in the company and concept at this early stage, so make sure you are at the forefront of this endeavor.

This is a great way to start each day. Fundraising should be the first thing you do every day until you’ve completed it. It will get simpler if you accept full responsibility for it and make it a top priority.

Thank you, Brad, for a really informative article.

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