CONTRIBUTED BY
Andrew Ledbetter
andrew.ledbetter@dlapiper.com

For a variety of reasons, many emerging companies are not in a position to easily identify venture capital funds, banks, or angel investors from whom to raise money or to identify a potential acquirer for their business.  Publicly soliciting investors in a registered offering might involve prohibitive costs and an uncertain outcome.  The entrepreneur may not have adequate personal wealth to fund the company, not be fortunate enough to have rich relatives or friends, or not be looped in to the right circles to meet financially sophisticated potential investors.  Such small businesses sometimes turn to “finders” to help them locate potential sources of financing or acquirers.

What is a “Finder”?

Defining a “finder” is difficult.  This report of an ABA Task Force on Private Placement Broker-Dealers describes a “finder” as a person who:

• brings together buyers and sellers for a fee;
• who has no active role in negotiations;
• who may not bind either party to the transaction; and
• who may not offer or sell or buy the security.

Legitimate finders should strictly be intermediaries who merely introduce parties and then step back.  However, giving the finder a fee, which is commonly tied to a successful closing, can often create an incentive for the finder to do more.  This can raise challenging legal issues under the securities laws.Continue Reading Will Using a “Finder” Ruin My Deal?