A venture capital broker brings together entrepreneurs and investors with seed money, requiring financial, business, and communication skills. Brokers charge a fee for their services and must establish legitimacy due to past scams. Certification and referrals help prove legitimacy.
A venture capital broker acts as an intermediary to bring together entrepreneurs and investors with seed money. This job requires a variety of financial, business and communication skills to meet and connect these two parties. Traditionally, brokers are not part of venture capital firms and charge a fee for their services. Furthermore, this profession is viewed with some skepticism because it has an unfortunate history of scams, but there are ways to establish legitimacy.
Often a start-up company has a great idea for a product or service and investors have money to invest, but the two parties don’t know how to meet. The primary duty of a venture capital broker is to bring these two groups together to create a productive partnership that will help finance new businesses and recover investors’ money plus profit. A broker needs to understand the complex structure of business partnerships, the exact needs of the start-up company, investor expectations and have strong communication skills to put everything in terms that each party understands. Brokers don’t necessarily have specific educational requirements for the job, but a business degree provides a good foundation for developing these talents. In addition, a venture capital broker must also have connections in the world of investment and entrepreneurship in order to constantly find new businesses.
A venture capital broker is usually an independent third party rather than a member of the investment team or the start-up itself. As a result, the broker often charges a fixed amount for services rather than a percentage of profit. This can be a flat fee or a percentage of the money raised. Venture capital firms traditionally do not employ brokers because the fee would negatively affect the bottom line.
Scandals and negative perceptions are a problem for a VC broker because, unfortunately, there is a feeling that some of these individuals are scammers. Previous scandals have involved so-called brokers inventing a start-up company and swindling investors out of money. Fortunately, there are two methods that help brokers prove their legitimacy to potential clients: certification and referrals. The venture capital broker certification is available in the US by FINRA (Financial Industry Regulatory Authority) and consists of a test to ensure that the broker understands the responsibilities and complexities of the job. Providing references from investors and start-ups that a broker has previously worked with is another way to establish legitimacy.
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