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Fundraising Finders Fee

Leslie Karnauskas's Profile

Fundraising Finder's FeeI am trying to find out what the standard finders fee might be for fund raising in the range of $1M to $5M. Can anyone tell me what current market rates for fees might be please. Thanks!

Answers

Rick Marchese
Title: Director
Company: Able Pacific, Singapore
(Director, Able Pacific, Singapore) |

Hi Leslie,

I am not sure about that end of the market. We usually offer 10% of more of the incoming fee to OUR firm but I am not sure if those economics work on a $1m to $5m deal, but might.

Are you a placement agent or a company looking to DIY? If you are a company looking to do a DIY fund raise you might be better off hiring an advisor. The issues with small fund raises is that as an advisor you have to do everything (due dili, valuation, marketing, investor screening, negotiating, etc) that you do for larger deal so the "fixed costs" so to speak are higher, hence a higher fee percentage. They may charge you 10% of total proceeds with a floor and if they decide to use finders, they set the terms and it just comes out of their set fee from you.

If you do use brokers/finders be aware of confidentiality issues and them going off the reservation or taking a shotgun approach as your PPM could end up becoming the worst kept secret in the marketplace. I know of one placement agent who used some finders and had his own deals come around full circle back to him - small world huh?

I personally prefer to use gatekeepers/screeners who can make a phone call or introduction to High Net Worth Investors or Family Offices which we have identified but do not have a relationship. These people can usually get us a meeting and we would pay them contingent on an investment from that party.

I hope that helps. Feel free to contact me directly if you like.

Rick

Sarah Jackson
Title: Associate Editor
Company: Proformative
(Associate Editor, Proformative) |

Proformative offers 400+ online business courses with free CPE, many on Corporate Finance.

John Argo
Title: Consultant
Company: Independent Advisory Services
(Consultant, Independent Advisory Services) |

This can be a tricky area as a lot of "finders" are trying to function as a broker-dealer for which they are not legitimately licensed. Often, parties will turn a blind eye. Sometimes they don't. I know equity investors who won't invest, as it's a premium that's taken out of their investment that they intend for your use. I have seen quarterly retainers matched with a 5% (to 10%). Watch out for clauses that requires payment on a deal they don't broker.

Jonathan Turkel
Title: Managing Director
Company: The Telmarc Group Inc.
(Managing Director, The Telmarc Group Inc.) |

Leslie
I have been involved with many private placements over the years. While there is no standard fee , in my experience 8-10% is typical of small offerings, with the percentage decreasing as the size of the offering increases. Thus in your example you might suggest a sliding scale of fees . Most importantly please note that the SEC and most states take the position that a person receiving success -based commissions or finders' fees in connection with any offering of securities must be a registered broker/ dealer . Payment of finders' fees to a non registered person or firm is a violation of the Federal securities laws (and the securities laws of many states) and could subject the recipient to an SEC administrative position and other penalties . Moreover, such payment will likely adversely affect the exemption from registration of that offering by the company, will adversely affect the ability of the company to obtain a legal opinion that its securities were validly issued , could subject the company to SEC enforcement action and could require the company to offer rescission to the investors.
Jonathan

Gary Honig
Title: President
Company: Creative Capital Associates Factoring Co..
LinkedIn Profile
(President, Creative Capital Associates Factoring Company) |

This does sound like you are on the receiving end of the raise and are inquiring what you might pay. Many go down that road, I would sincerely seek out a few people who have raised equity and talk with them about making this move.

But generally I would tell you, if your attorney doesn't know the answer to this question and can't give you advice about it - you have the wrong attorney for closing an equity deal.

Topic Expert
Joseph Ori
Title: CEO
Company: Paramount Capital Corporation
(CEO, Paramount Capital Corporation) |

The typical fund raising fees for my firm are 3%-5% for an equity investment, 2.5% for a joint venture and 1% for debt.

Chris Shumate
Title: Accounting Manager
Company: Dominion Development Group, LLC
LinkedIn Profile
(Accounting Manager, Dominion Development Group, LLC) |

Is it possible to have this looked at from a perspective of finding a book of business, instead of finding investors? There's been intelligent answers already on potential implications of brokering a deal with someone who isn't licensed.

Aren't there standards on how much commission someone can receive if they bring in a certain amount of revenue/book of business? How would this be much different? I am sure it is, but for the sake of my education, let's hear it.

Jon Placa
Title: Director of Finance and Operations
Company: NarrativeDx
LinkedIn Profile
(Director of Finance and Operations, NarrativeDx) |

I would strongly advise against using an investor "finder" during a seed/series A investment.

From an investor's point-of-view a "finder" will be asked "why aren't you investing in Company X?" - opening up a can-of-worms of discussion and ultimately sabotaging your investor relationship. Furthermore, finder's incentive is usually based on the amount of money you raise - over-funding in the early stages of a company will hurt future investments.

I would advise getting an investor to lead the round; an investor with "skin-in-the-game" will encourage other investors to join and ultimately close the round while efficiently maintaining a proper Cap Table

John Herndon
Title: Senior Consultant
Company: NOWCFO
(Senior Consultant, NOWCFO) |

Finders fees are illegal according to the Jobs Act, the broker or investor must be registered with the SEC before discussions even get to a beginning point.

Michael De Marco
Title: CEO TrackerGO CRM
Company: Michael De Marco
(CEO TrackerGO CRM, Michael De Marco) |

I am looking to do a fund raiser for my CRM product. Is it within bounds for a CFO to ask for a retainer fee plus a 5 percent equity stake to find an investor.

Michael De Marco
Title: CEO TrackerGO CRM
Company: Michael De Marco
(CEO TrackerGO CRM, Michael De Marco) |

Additionally, if anyone is knowledgeable about how I may procur a seed for wrap up a product mine which is 95 percent complete please let me know

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