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For a company raising money, there seem to be many

individuals that claim to be...
For a company raising money, there seem to be many individuals that claim to be able to help businesses raise money by helping with plans including financial models and pitch material, suggestions on deal structure and even locating investors. But, there seems to be a fine line between that and actually being able to pitch to investors and collect money from investors directly. What rules apply, with special emphasis on the collection of fees up front vs. after engagement and the incentives offered and paid during and after the planning and raising process. Thanks in advance.
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Answered in 12 minutes by:
9/22/2017
DamienJD
DamienJD, Attorney
Category: Business Law
Satisfied Customers: 5,135
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Hello: My name is ***** ***** I am an attorney. Please give me a moment to review your question. I may ask some questions to clarify issues.

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This sounds like you want to know the difference of when a company would pay a finder's fee to find investors and whether that "finder" is required to have a security's broker's license. Possibly, you can clarify so I can see if I can help you.

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Customer reply replied 10 months ago
basically, I need to know what actions require a broker's license.

Here is the general rule: If the "finder" is receiving compensation based on commission, then the finder must have a license. If the finder is paid on an hourly or flat fee basis, then the finder does not require a license.

For example, according to the SEC, each of the following individuals and businesses may need to register as a broker, depending on a number of factors:

  • "finders," "business brokers," and other individuals or entities that engage in the following activities:
    • Finding investors or customers for, making referrals to, or splitting commissions with registered broker-dealers, investment companies (or mutual funds, including hedge funds) or other securities intermediaries;
    • Finding investment banking clients for registered broker-dealers;
    • Finding investors for "issuers" (entities issuing securities), even in a "consultant" capacity;
    • Engaging in, or finding investors for, venture capital or "angel" financings, including private placements;
    • Finding buyers and sellers of businesses (i.e., activities relating to mergers and acquisitions where securities are involved);

If you need further help, just let me know.

DamienJD
DamienJD, Attorney
Category: Business Law
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Customer reply replied 10 months ago
Your name threw me off for a second because I know an attorney also named Damien, in Florida, with a similar last name.The 'may need' to register is where I find this a bit confusing and makes it sound risky. Basically, the offer I have on the table from a 'consultant' is that they will take an initial upfront 'consulting fee' and then a deferred consulting fee in the form of 10% of the amount raised. They will not make the actual pitches and will not handle the legal agreements outside of making recommendations on how they might be structured.I assume that is legal, based on what I've heard, but I suppose the only way you can know if you are breaking the law sometimes is to push the boundaries and then have someone tell you that you broke the law. Very difficult.

Hi Gary: Many consultants/finders operate in a grey area. Most likely if the SEC scrutinized these types of agreements, it would find that a broker's license was/is required. Anytime someone receives a commission, it could lead to SEC scrutiny.

Best regards.

P.S. You can always request me for future questions by putting my name first on the question.

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