We recently had a very interesting question from a client, which showed one perspective in the community. They asked “why do investors dislike advisors?”! I was shocked at the question but did think that in my three decades of corporate finance advisory, there were a few occasions when tense moments arose between me and clients or the investors.

Perhaps those most memorable for me have been when the advisor fee gets “discussed” after closure of the transaction. On one occasion it was particularly poignant as the entrepreneur was effusive in their praise for our efforts during the transaction but changed their tune when the investor put pressure on them not to pay our fees, once closure was achieved.

One of the key roles of an advisor is to achieve the best price and terms possible and we do exactly that. But on more than one occasion a transaction has been cancelled due to pushing things too far, usually at the behest of a client who is adamant that a better deal can be struck – but right at the end of negotiations.  This may well lead the potential investor to feel that the advisor or client is unethical. But I think that this is indicative of ethics (personal or corporate) and not reflective of a general relationship characteristic.

Tense moments aside, I would like to look at this question from a slightly different view point –  that being why investors like advisors!

In our experience, the first reason is that without advisors they would be unlikely to have as much exposure to interesting, well crafted and positioned investment opportunities. Samantha is a fund manager that I’ve known for many years and she puts this very well in the article on her fund’s investment into LightWare.

We may sometimes have initial difficulty in gaining access to a specific prospective investor if we don’t know them, but almost always achieve that access eventually. It is true to say that as the personal reach of an advisor grows, their ability to approach new investors is enhanced.

Once a relationship is established, we take the time to know what the particular investor is looking for and may indeed get to know them personally. This means that the investor knows that if we pass something to them, it meets their hurdles (ticket size, holding percentage, portfolio balance, and other points that are not on their web site). So well prepared and clean propositions are key.

Secondly, advisors bring rigour and process to a transaction. Although investors may not like the fact that they are effectively in a competitive situation, they do value the fact that the story is clear and the process is equally clear, with set timelines, etc. They also know (again professional relationship) that advisors are not going to create uneven playing fields for them. We may use the fact that two parties are interested to gain some leverage but we are never dishonest with potential investors – again because they would not pick up the phone next time.

Thirdly, I should of course reiterate a point that I’ve made many times – the ability for an intermediary to be the “bad guy” by insisting on certain terms is also crucial and in fact will in the end create a clean relationship without a history of difficult negotiations. This means that a set of rules is clear for both parties, which at the end of the day is better than having rules which are unclear because no-one wanted to “grasp the nettle” for fear of destroying a longer term relationship. Does this cause the investor to dislike the intermediary, no, I don’t think so.

Whether or not investors like advisors, the reason for their continued existence is their role. You may have read our blog article about why a technopreneur needs an advisor, and the associated article on whether one needs an advisor at all.

Whilst there will always be tensions between investors and advisors, this is generally a healthy one and ultimately to the benefit of both the technopreneurs and the overall industry.