“I’ve been roaming around,

What value is there in an introduction?  In a LinkedIn, Facebook, Twitter, Plaxo business world, essentially zero. Then why do people pay fees (therefore implying some value) in an introduction, aka a finder’s fee?  I’m sorry if this post is going to anger some of you out there that make money on finder’s fees for investment and/or acquirers. It’s just that I don’t see much value in finding someone, especially when they are hiding in plain view.

Finding someone is not where the value lies in a transaction today.  Convincing them to buy, advising on the best structure and shepherding the mass of lawyers, shareholders, board members and management through a process, is where the value lies.  It used to be valuable to know people.  Before the Internet, before PDAs and smart phones, there was a recipe card flipping device know as a Rolodex. Relationships with the people in that Rolodex were worth a lot because in an un-connected world, simply making a connection was gold.

Asynchronous communication, in the form of e-mail and voice mail, was the start of the end of the Rolodex.  With the new technology, you could reach out to people you don’t know, make a case for why they need to talk to you and get a response at a later time.  If you are under 45, try and imagine a desk with a phone on it that has no voice mail and no computer and a big pile of mail... no “e”... letters.  Now imagine your productivity if you had to be near that phone at that desk or dictating a response to a letter to conduct any business.  If you knew 100 people very well in those days, you were a master networker.  On the flip side, if you were looking for deals, you spent 6 hours of your day on the phone calling people and leaving short paper messages to call you back.

Today, you can find the person you want to contact and get your pitch in front of them easily.  You can blast your idea to thousands in a microsecond, if that’s your strategy. The value in any introduction today is solely based on respect.  If you are respected by the person you are making the intro to, they will look at the subject of your intro in earnest.  VCs and angels always value deals introduced to them by people they know and respect.  If they don’t know you or (worse) think you are buffoon, the intro is made, but you won’t get serious attention.  FINDING people has no value. RESPECT and TRUST have value, but still does not get you a completed transaction.

Why am I on about this subject?  Two reasons: 1) We should be encouraging introductions, not setting up barriers by charging for them and 2) the myth that is still out there that my line of work (investment banking advisory services) is all about who we know.

Fees get in the way of a clean, simple introduction.  If you are getting a fee, you are an advisor and as the receiver of the introduction, I expect a lot more from you.  I feel a lot better giving and receiving connections when there is not a promise of being paid for simply knowing someone.

Introductions should be about good social responsibility and serendipity... It is how I have seen things work in the Silicon Valley.  If you are making an introduction here are some common sense points to remember:

·         Know the filters of who you are approaching and only show them what they can work with.

·         Always, always check with the person you are making the intro to first.  Never do a blind connection.

·         An introduction is just that... it is not a completely vetted, stake my mother’s life on it, sure thing. It should be delivered and received as such.  It doesn’t matter if it doesn’t work out.

·         Once the intro is made, step out of the loop and let the connected parties figure out if there is common ground.

The business of completing transactions (financing, M&A, strategic partnerships) is hard work.  Whether you are doing it yourself or using a paid professional advisor, the entire process is arduous.  Indeed, the M&A process for you may be the most significant transaction of your entire life.  It is very important in today’s environment to set up a proper process and run it flawlessly to get the most value from a transaction. Step one of twenty steps is getting in front of the right people.  The introduction is not the critical step on the path.  If you pay a professional advisor, you are paying for their transactional expertise and advice... not for introductions.

In today’s M&A environment in technology, it is relatively easy to find the buyer.  Private equity firms reach out all the time to people like me looking for interesting technology companies in Western Canada.  Strategic corporate M&A folks will gladly hand interesting product ideas to the appropriate business units.  Large technology companies have no problem calling me back when I present an interesting opportunity. The key is knowing their filters (remember the introduction tips) and getting the right deals in front of them.  But an advisory firm should not be hanging there hat on who they know... this is a different world now. 

In the end, no one can deliver enough value on just an introduction.  If you are paying, you should expect a lot more than the first step in a process.  We should all make the introductions and expect one thing in return: a promise to return the favour someday.