Raising capital is one of the most critical milestones in a startup’s journey. Founders often turn to investment bankers (IBs) to help bridge access to investors, structure the raise, and manage communication. But what many fail to recognize is that choosing the wrong or inexperienced banker can damage—not accelerate—the fundraising process. In fact, an ill-prepared or inefficient IB can close doors with investors that may have otherwise been open.
Traditionally, the role of an IB was to structure deals, negotiate terms, and drive meaningful outcomes. However, in today’s ecosystem, the term “investment banker” has become diluted. Every professional dealing with start-ups claims to be an IB. While they can serve as outreach partners (sometimes useful at very early stages), they are not professional dealmakers. As the business grows, startups need seasoned, experienced bankers who focus on deal structuring and closure, not just mass outreach.
Here are some real instances and lessons for founders to consider before handing over their fundraising mandate.
1. Cold Outreach Without Research
We once received a mail from an IB asking us to lead a $15M round for a startup. The problem? What’s the typical cheque size ? A simple check on our investment thesis would have revealed this mismatch. Instead, the lazy approach signaled poor professionalism, and we ignored the deal entirely. Ironically, had the IB approached us for a co-investment after securing a lead investor, the deal could have sparked interest.
This highlights a simple truth: misaligned outreach reflects poorly on the startup, not just the banker. Investors assume that if the IB hasn’t done basic homework, perhaps the founder hasn’t either.
2. Spamming Investors to the Point of Annoyance
Some bankers adopt a “spray and pray” model—cold emailing dozens of investors, then following up relentlessly. We’ve seen cases where multiple team members (even post informing them of a dedicated POC) at our firm received the same deal, even after we had already passed on it. Eventually, we blacklisted certain IBs for this behavior. Unfortunately, startups tied to them suffer from guilt by association. Even if the company is promising, the IB’s poor reputation leads to the deal automatically landing into spam.
Founders must remember: once engaged, your IB becomes your representative. Their behavior directly impacts how investors perceive you.
3. Lack of Attention to Detail
In one instance, an IB emailed our entire team—including employees who had left three years ago. Such oversight screams carelessness and lack of a research-oriented mindset. Needless to say, we didn’t take the IB—or the deal—seriously. Fundraising is about trust and credibility. If your banker can’t get the basics right, investors are unlikely to bet on your company.
4. Overselling and Misrepresenting
Another common pitfall is when IBs oversell a startup—claiming revenue pipelines that don’t exist, inflating metrics, or exaggerating investor interest. While this may get a first call, it almost always backfires in diligence. The founder’s credibility takes the hit, not the banker’s. Worse, investors may become skeptical of future rounds even if the business shows improvement.
5. Weak Storytelling and Positioning
Sometimes the IB isn’t dishonest, just ineffective. We’ve seen cases where a strong founder’s story was poorly packaged, with no clear articulation of the problem solved, competitive advantage, or scale of opportunity. The result? Investors never engaged beyond the first call. A weak narrative presentation by an IB can make even a good business look average.
6. Unrealistic Valuation Anchors
Some IBs push founders to set sky-high valuations, believing it will “test the market.” But when every investor passes citing valuation concerns, the company is left with reputational damage. Even months later, investors remember it as “the startup that wanted 5x more than market reality.” Resetting that perception is hard, and it delays fundraising.
Founders Taking a Back Seat
A mistake many founders make is assuming that once the IB is engaged, fundraising becomes “their job.” That is a dangerous illusion. Investors expect the founder to be deeply involved. If the banker is running the show independently, you risk losing control over the narrative, mismatched expectations, and reputational damage. Founders should:
- Be looped into all key investor communications.
- Review and approve investor target lists.
- Actively track feedback and iterate the pitch.
Think of your IB as a support for yourself—not a replacement.
The Industry’s “Floodgate” Problem
Too many IBs operate on a volume game. They sign a mandate, open the floodgates, spam as many investors as possible, use automated tools for follow-ups, and only loop founders in when there’s some traction. This approach might create noise but rarely builds meaningful relationships. Worse, it risks your startup being tagged as “over-shopped,” a serious red flag in investor circles.
Choosing the Right Banker
The wrong banker can hurt you in both the short and long term. To avoid this:
- Do a background check: Speak to other founders who’ve worked with them and investors they’ve approached.
- Evaluate fit: Does the IB understand your sector, stage, and story?
- Stay engaged: Treat the process as founder-led, with the IB as support—not the other way around.
Fundraising is not just about securing capital. It’s about building long-term credibility with investors who may back you through multiple rounds. The right IB can amplify your story; the wrong one can close doors permanently. As a founder, that choice—and its consequences—ultimately rests with you.
Bonus: 5 Questions to Ask Before Signing an IB Mandate
- Relevance – Have they successfully raised for startups at your stage, sector, and cheque size?
- Reputation – What do other founders and investors say about them? Are they respected, or blacklisted by some funds?
- Process – Do they focus on structured outreach and deal closure, or just broad cold emailing?
- Involvement – Will they work in sync with you (with transparency and regular updates), or do they run the process solo?
- Value-Add – Beyond introductions, can they help with storytelling, positioning, valuation, and term sheet negotiations?
If you don’t get clear and credible answers to these, think twice before signing the mandate.
Author,
Karan Gupta
