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Finders for Raising Capital

Finders for Raising Capital

By Peter W. Rothberg

All that glitters is not gold. Isn't that what your Grandmother said? Well, it's true in life...including when you're raising capital for your new business.

Be very wary of people who propose to help you raise capital for your new venture...but especially if they are not securities brokers licensed by FINRA under Securities and Exchange Commission rules. Nothing says that people can't volunteer their industry or high-net-worth individual contacts to you in order to facilitate your fundraising. It's when they want to get paid for those contacts, and paid on a sliding scale that looks like a commission, that you have to worry. Under SEC rules and the laws of many states, only licensed securities brokers can receive a commission for facilitating your fundraising activities. So, remember the old adage about quacking ducks- SEC lives by it.

Don't try to torture the compensation to be received by the "finder" for lending his or her contacts so that it resembles something else but still functions like a paid fee that's calculated based upon the amount of capital that those contacts contribute to your venture. Also be wary of complicated "consulting arrangements" that try to accomplish the same thing. If it quacks...it is!

The SEC also gets concerned when insiders of your company are part of the fundraising process. Under SEC rules those insiders can't get paid separately for their fundraising, either, whether the compensation is commission based or not, unless they are licensed brokers.

So watch out!

Peter Rothberg handles a wide variety of corporate matters, including private equity, venture capital, mergers and acquisitions, capital markets, joint venture and technology commercialization transactions as a Partner with Reitler Kailas & Rosenblatt LLC.

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