Finding a Straight Shooter for Your Investor Hunt

When Italian-based shoe company Due Farina decided to relocate to Brazil in March 2006, it needed extra funding fast. An industry colleague introduced the owners Marina Rosin and Fabiana Rigamonti to U.S. company Wellfleet Partners, a boutique investment, merchant banking and venture capital firm.

Due Farina, valued at around half a million dollars at the time by Rosin's estimate, was having difficulty securing financing, so it paid Wellfleet a $3,000 sign-up fee to find it an investor.

Rosin was unfamiliar with the broker world at the time, but says she "didn't have a good feeling about it all."

Wellfleet, who was not asked about its dealings with Due Farina but declined to speak with TheStreet.com when contacted, did schedule meetings with a few potential investors, but none that were interested in working with a company like theirs, says Rosin.

"We ultimately felt like a waste of time to anyone [Wellfleet] was presenting us to," says Rosin. After about two months, Harry Dannenberg, their business counselor at Score NYC, advised Rosin to end her dealings with the company.

Now based out of Brazil, Due Farina is still searching for an investor in order to take the business to the next level, and is asking three main questions:

Is the Fee Fair?

Rosin initially felt Wellfleet should have taken a commission only after securing an investor, considering her company's size and limited funds.

But Kenneth Yager, managing director of consulting firm Morris-Anderson, says an upfront fee is common practice and $3,000 is nominal.

For a company south of $50 million in value, a typical nonrefundable retainer should run around $25,000 to $50,000 for the duration of the engagement, says Benjamin Chang, principal of a private merchant bank, and usually involves the merchant bank putting together a document describing the merits of the investment and a roster of potential institutional investors.

Dannenberg's clients, most of which are just beginning to work through banks or get capital investors from family and friends, come with bigger risk so brokers and investors tend to demand a larger initial fee, he says.