Is the Finders Compensation Fixed or a Percentage of Money Raised?
Perhaps no factor is more important when engaging a finder than compensation. Companies usually engage finders for the sole purpose of raising money, and do not engage them to provide financial or other consulting services. As a result, issuers usually pay finders a transaction fee based on the amount of capital he or she is responsible for bringing to the company, usually paid in either securities or cash (or a combination of both) as a percentage of the money raised (usually 5% to 10%). The Paul Anka no-action letter and California authority could not be clearer that success-based compensation is the primary characteristic of broker-dealer activity. The safest course is to pay the finder a fixed fee regardless of the outcome of his or her efforts. However, this poses a practical challenge to the start-up company raising money precisely because it lacks operating capital. One solution is to guarantee the finder a fixed fee payable at the close of the financing. This way, the finder’s
