Monday, May 25, 2009

How to pay someone for investors without breaking the law.

Having a hard time finding investors? Pay a commission!

What? Pay a commission? To someone? Anyone? Isn’t that illegal?

Well, kind of.

Yes, it is true that in order to sell securities you must be licensed by FINRA in order to receive a commission as a broker-dealer or an agent that sells securities on the behalf of an issuer. To find someone to do it for a startup or smaller venture is particular difficult as the major B/D’s and agents will sell only publicly traded securities or sell major projects ($25 million or more).

However, let’s say you know an individual that might have the drive to go out, network for you, and drum up some investors from their existing network, there are ways to pay them a commission for bringing you investors and selling your securities.

Here are some generalities that are not applicable to all states. You should consult with an attorney or someone in the know before attempting this. The individual selling your securities:
1.) Must exclusively sell for you and your business.
2.) May need to take some kind of exam in the state in which they wish to sell the securities and will be restricted to that state or those states in which they qualify. (Not all states require an exam and exemptions from exams may apply.)
3.) Must fill out a form U-4, pay the filing fee (approx. $75), and have it approved.
4.) Must not be otherwise disqualified from selling securities.

There is also a designation granted by FINRA for the selling of private securities.
I will cover this in a future article.

If anyone or any company approaches you with an interest in funding your company or finding investors for you, be sure of the following:
1.) A real, bonafide broker or agent will not charge an upfront fee for ANYTHING. The broker or agent may insist that you have a Private Placement Memorandum (PPM) written prior to fundraising, as this is required. They may want to write your PPM for a fee. Before agreeing to this, be sure they have actual experience in writing a PPM and that the fee is reasonable. (I always recommend using an attorney for such things, but hey, that’s just me.)
2.) Ask the agent or broker if they are licensed and what their license is.
3.) Check the broker or agent out at’s broker check – make sure their license is real and they don’t have any disciplinary marks.
4.) Find out where they plan to search for investors.

Remember, whether you hire someone you know or someone you don’t know, their actions will have an effect on you legally. You will be responsible for how they represent your company, so choose wisely!

Want to learn more? Visit

1 comment:

  1. jillian,

    I was thinking about having a company represent me to raise capital. most of what I can find, they charge a flat fee or a monthly retainer to pitch my plan or get me in front of investors. none of them see to me licensed for securities. Is this legal? Are they breaking the law by representing my plan without a license... am I if I hire them?