When a startup considers paying a “finder” for investor introductions, I usually have the same conversation with founders. It goes something like this.
A typical conversation about a finder
Startup: A finder knows a lot of investors and will introduce us if we pay 6% of any capital we raise through those introductions.
Me: That can be a serious issue. If someone is regularly paid to help raise capital for your company, they may be acting as a broker under federal or state securities laws, which often requires registration. Regulators have increased scrutiny of unregistered activity. More importantly for founders, using an unregistered broker can jeopardize your private placement exemptions and create problems you do not want to discover during diligence for your next round.
Startup: But how does everyone else do it?
Me: Other people doing it does not make it legal or low risk. Lack of enforcement in a particular case is not a stamp of approval. The reality is that a lot of unregistered “brokers,” as that term is defined by the SEC, operate in the startup ecosystem.
Why a finder is risky
Paid finders are one of the startup world’s open secrets. If someone offers to help you raise seed capital only in exchange for a percentage of what you raise, treat it as a major red flag.
In practice, these arrangements tend to fail in one of two ways: the finder does not deliver meaningful introductions, or the introductions are to people who are not active early-stage investors and who slow the process down with unusual requests.
You may feel like fundraising will consume an obscene amount of time, and it often does. You may also feel like you do not know any investors. Even so, raising capital is not something you can outsource. Founders have to own the story, build relationships, and run the process.
A finder may claim to have a Rolodex of wealthy people, but it is often chock-full of people who do not typically invest in early-stage startups. Even when a finder produces an investor, that investor may be unfamiliar with venture norms and may ask for highly investor-favorable terms that can complicate a future financing.
Legal and financing implications
The worst-case outcome is not just an expensive fee. You can end up with a messy financing, a distracted team, and avoidable securities-law risk. In a later priced round, investors and their counsel may ask whether any unregistered brokers were used, what fees were paid, and whether rescission rights or exemption problems exist. Even if you can resolve the issue, it can slow diligence and weaken your negotiating position.
What to do instead
Build your own investor pipeline: ask existing supporters for warm intros, attend relevant founder and operator communities, and keep a simple CRM of outreach and follow-ups.
Work with reputable counsel on your fundraising plan and compliance basics, including who can be paid, how, and under what structure.
If you want help sourcing investors, focus on value-add advisors who will help you refine the pitch, make selective introductions without transaction-based compensation, and coach you through the process.
FAQ for founders
Q: Is it ever okay to pay someone a percentage of the money they introduce? Often, no. Paying transaction-based compensation for capital raising can trigger broker issues. If you want help, focus on non-transaction-based advisory support, or work with properly registered and compliant intermediaries where appropriate. Example: Paying an advisor a fixed monthly fee to help refine your pitch and make a handful of introductions is generally less risky than paying 5% to 8% of all proceeds they “source.”
Q: What should I ask if someone claims they can raise money for us? Start with registration and role clarity: Are you a registered broker-dealer, or associated with one? What exactly will you do, and who will talk to investors? How are you compensated? What is your track record raising money for startups at our stage? Example: If the person avoids the compensation question or insists on being paid only if money closes, that is a sign to pause and get counsel involved.
Q: What can go wrong later if we used an unregistered finder? In a priced round or an acquisition, diligence may uncover the arrangement, and investors may ask for extra reps, indemnities, or a fix before closing. At minimum, it can slow the deal. In some cases, it can create rescission risk or complicate your reliance on securities exemptions, depending on the facts and jurisdiction. Example: Your Series A lead asks for copies of any agreements related to fundraising and flags a 6% success-fee contract, delaying signing while lawyers assess exposure.
Q: I do not have an investor network. What is the safest way to get introductions? Leverage warm paths: existing angels, other founders, operators in your space, accelerators, and customers. Build a simple outreach funnel and ask for targeted intros rather than broad blasts. If you work with an advisor, prioritize someone who is willing to help you improve your narrative and who is compensated for time and expertise, not for closed capital. Example: Make a list of 25 founders one stage ahead of you, ask each for two relevant investor intros, then follow up with a short monthly progress update to keep the relationship warm.
Ryan RobertsStartup Lawyer
Ryan Roberts is a startup lawyer at Roberts Zimmerman PLLC with more than two decades of experience advising startups and venture capital investors. He is the author of “Acceleration” and StartupLawyer.com.
