Using Finders to Assist in Financings Can Impose Significant Risks on Your Company


You have a great new idea and you need capital in order to build your new company. Unfortunately, finding venture capitalists or high net worth “angels” who may be interested in investing in your business is not an easy task. Like many entrepreneurs who find themselves in this predicament, the idea of retaining a “finder” to assist you in locating potential investors can look promising. However, using a finder who is not a registered broker/dealer can create significant risks for your company.

In this article, we provide a brief summary of liabilities and penalties that may result from the use of an unlicensed broker-dealer, as well as guidelines for companies considering using professionals to assist in fundraising. We also provide guidance to individuals or entities attempting to safely operate as finders. It is important to note, however, that the interpretation of the Securities and Exchange Commission (SEC) regulations is broad and often difficult to apply. We recommend that you consult with your legal counsel before retaining any individual or entity to assist in fundraising or acting as a fundraiser.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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