Beware of Finders
Many entrepreneurs work with “finders” who promise to help them attract investors, usually in exchange for a large monthly retainer and a percentage of the capital raised. More often than not, finders are not properly licensed as a securities broker, and are operating in violation of federal (and often state) securities laws. Beware of finders.
Why should you care? Among other things, your investors can demand a return of their capital (and possibly hold you personally liable) if you use an unlicensed broker to raise capital on your behalf. And there are many stories of finders who simply disappear as soon as you hand them a big fat retainer check.
The story is decades old. They say that they have raised millions of dollars for dozens of companies, but due to confidentiality, they can’t disclose any of these names. They say they love your idea and can raise you millions of dollars “no problem.” Then they ask for about a $20,000 retainer, which is minuscule compared to all the money they will raise for you. But they don’t raise money. It’s all a lie.
For additional details, read the The Secret World of Finders in the March 2005 edition of Inc. Magazine.
Bottom line: Retain a good corporate/securities attorney well before you start looking for capital, and follow their advice very carefully. If you do choose to hire a finder, check with the National Association of Securities Dealers and with your state’s securities regulators to verify that your finder is properly licensed and to see if there are any recent complaints against them.
Cayenne intentionally distances itself from this activity, which results in its clients receiving more agnostic advice. Even if the contract says it is on a “best efforts basis,” when the fundraiser demands a substantial retainer and does not perform, it can feel like a scam. There are vultures that prey on new entrepreneurs, and Cayenne helps its clients avoid corporate finance scams. Contact us today for straight answers if someone is trying to take advantage of you.