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What is a Venture Capital Broker?

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  • Written By: Patrick Roland
  • Edited By: R. Halprin
  • Last Modified Date: 06 December 2016
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A venture capital broker acts as a middle man to bring together entrepreneurs and investors with start-up money. This job requires a variety of financial, business, and communication skills to meet and connect these two parties. Brokers are not traditionally part of venture capital firms and charge a fee for their services. In addition, this profession is looked at with some skepticism because it has an unfortunate history of scams, but there are ways to establish legitimacy.

Many times a start-up company has a great idea for a product or service and investors have the money to invest, but the two parties don't know how to find one another. The primary duty of a venture capital broker is in bringing these two groups together to create a productive partnership that helps fund the new business and make the investors' money back plus profit. A broker needs to be able to understand the complex structure of business partnerships, the exact needs of the start-up company, the expectations of the investors, and have strong communication skills to put it all into terms each party understands. Brokers do not necessarily have specific educational requirements for the job, but a business degree provides a good foundation for developing these talents. Also, a venture capital broker must also have connections in both the investing and entrepreneurship worlds to constantly find new business.

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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 generally charges a lump sum for services instead of a percentage of profit. This can either 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.

Scandal and negative perceptions are a problem for a venture capital broker because there is, unfortunately, a sense that some of these individuals are scam artists. Past scandals have involved so-called brokers inventing a start-up company and swindling money from investors. Fortunately, there are two methods that help brokers prove their legitimacy to prospective clients: certification and references. Venture capital broker certification is available in the U.S. from the Financial Industry Regulatory Authority (FINRA) and consists of a test to ensure the broker understands the responsibilities and complexities of the job. Providing references from investors and start-ups a broker has previously worked with is another way to establish legitimacy.

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anon352715
Post 1

I have been reading several of your blog posts about VC's and VC brokers and would like to pick your brain about a few things if that is OK with you.

If there is an investment firm seeking to invest in companies who have viable projects in various sectors of infrastructure, would it be logical for them to go through a VC broker?

If the VC broker had clients seeking investments for projects that fit their criteria of the investor, in your opinion would they be more inclined to work with the broker?

What if the investment was in a different Country/Continent from the investment firm? would the dynamics of business dealings change?

Do investment firms ever pay a VC Broker? Why not?

Would the Lehman Formula ever apply to a broker in any situation?

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