If you are an entrepreneur and you need to raise money, you will inevitably find people who want to help you raise money through their amazing connections and relationships with major investors. You can decide to deal with these people as you want, but you should be aware of the facts.
First, if they want money in exchange, the transaction is illegal unless they have a series 7 license and I have never come across someone engaged in this activity who has a series 7. If you ask them about this, they will usually tell you that they are not charging a fee for raising money, but for facilitating an introduction. My securities lawyer tells me that in the unlikely event that the SEC wants to take notice of the situation, this will not hold up in court. I say unlikely because the SEC almost never goes after these guys, but that does not make it legal and it does not mean the SEC might change their mind. When your startup becomes successful want to do an IPO or be acquired by a public company do you want to have an illegal securities transaction looming in your past, even if the chance it will be a problem for you is small?
Now let’s look at the likelihood that these people will be successful for you. They say they have all these valuable relationships with big-time investors. If you had these relationships, would you just send them dozens of business plans trying to get them to invest in all sorts of random companies? Of course not! If these people really were your friends or associates, they would stop taking your calls after the second or third time you shilled some inappropriate risky investment to them for your own personal gain. Therefore it is very unlikely that their “connections” are strong at all. The success rate of these people is often very low, and many people who have tried to sell these services to me I suspect have a 0% success rate. It is not uncommon for them to request an up front non-refundable fee to cover their expenses! Sometimes they will also want equity! Would you pay up front for your dinner if you only had a 10% chance of ever getting it? I didn’t think so.
I suggest you make real connections with real connected people. If you really impress one of these people, you might get an introduction to an investor and they will not want you to pay them for it. They are getting value because they are providing value to their connection by making the introduction. How do you meet these people? That is probably a whole other topic. Happy hunting.