Investment bankers typically raise capital using one of two formulas.  These formulas are referred to as the Lehman Formula, or Double Lehman Formula, and are calculated via the incremental dollar value of the capital raise - typically a percentage descending from 5-10% for the first five million, and thereafter a 1-2% percentage of the remaining capital raise. 

The first million dollars raised using a “finder”, “investment banker”, “broker” is 5%-10%, the second million dollars raised is 4%-8%, the third million dollars is 3%-6%, the fourth million dollars is 2%-4%, and the fifth million and beyond is 1%-2% of the capital raise.  The lower percentage is the “Lehman Formula”, the higher percentage is the “Double Lehman Formula”.

For example, a five million dollar capital raise would cost a company or individual $150,000-$300,000 in investment banking fees depending on whether the Lehman Formula (5-1%) or the Double Lehman (10-2%) was used.  In some instances companies can be charge double these amounts, but generally speaking these higher amounts are typically charged for smaller dollar amount capital raises.

                           Lehman         Double Lehman

$1,000,000     $50,000        $100,000

$2,000,000     $40,000        $80,000

$3,000,000     $30,000        $60,000

$4,000,000     $20,000        $40,000

$5,000,000     $10,000         $20,000

                            $150,000      $300,000

There is another solution for raising capital that is not well known, but is highly successful.  The consulting method to raise capital.  Using the same sources of capital as an investment banker or broker, Lantern Capital Advisors and it’s team of consultants work alongside the company to identify financial institutions and present the business plan and corporate financial model to those same institutions.  The client pays Lantern for the time and experience of our consulting team, and the end result of a successful capital raise is a quarter (or less) of the investment banking formula and has no bank end fees or conflicts of interests.  Lantern typically works with existing, profitable companies, so our clients know they can qualify to raise capital, and they understand our value.

Read:

Download the PDF white paper Investment Banking Fees Examined as seen on CFO.com

Visit the Lantern Capital Advisors Website for more information on  Investment Banking Fees

-Jennifer Mooney is the Chief Operating Officer for Lantern Capital Advisors and has spent her career working with growing companies to develop and implement corporate strategy and technology initiatives.  Jennifer’s background includes management consulting for Deloitte Consulting, Arthur Andersen, and IMRglobal and new media/web development for Hydrogen Media.  Jennifer has been a frequent speaker to entrepreneurs, and loves speaking and writing about effective e-commerce strategies and disruptive technologies.