Clients often ask us to review proposed consulting or finder’s agreements intended to connect our clients with potential individuals, family offices, or institutional investors to fund their promising young enterprises. In some instances, this “finder” may simply be an individual who is able to make helpful and valuable introductions to funders.1 In others, it may be a more established financial intermediary engaged in active capital raising. In all such cases, the proposed intermediary expects to be compensated for any successful effort but is not registered with the SEC as a licensed broker-dealer.
Such unregistered “finders” are limited in the extent to which they can lawfully perform the work and be paid the compensation desired. If the finder does not satisfy the applicable regulatory requirements, the company that engages him not only faces the prospect of having the entire sale or all (or portions) of the investment rescinded by the buyer or investors, but may be subject to “aiding and abetting” liability proceedings brought by regulatory authorities.
Several 2025 enforcement actions of the U.S. Securities and Exchange Commission reaffirm its view that “finders” involved in soliciting investors are required to register and are subject to regulation as brokers. Settlements in those actions imposed penalties for alleged unregistered broker-dealer activity with respect to investments in private companies. The “finders” engaged in a range of broker-dealer activities, such as identifying and soliciting investors, providing investors with marketing materials, and connecting investors with companies that were raising financing. This is consistent with the SEC’s historical position that engaging in activities designed to induce or facilitate securities transactions—such as soliciting investors, negotiating deals, promoting investment opportunities or receiving any type of transaction-based compensation —is broker activity. For further discussion on this topic, please refer to our earlier Client Alert available HERE.
Regrettably, practitioners like us have been unable to provide definitive clarity on whether such an engagement might violate applicable broker-dealer registration laws and regulations. This is due to the murkiness of the definition of a “finder,” which arguably allows some intermediaries to proceed without registration, and the binary nature of the definition of a “broker-dealer” under applicable securities laws. This regulatory uncertainty leads ventures to have to proceed at their own risk or alternatively seek to fashion complex arrangements that inevitably do not align well with the interests of either party.
Fortunately, the SEC and its Small Business Advisory Committee seem poised to create clarity in the near future. It is poised to clarify its finder regulations, utilizing the SEC’s historical work over the past 50 years (including releases, no-action letters prosecutions, recommendations and reports), the efforts of the Treasury Department, FINRA, the American Bar Association and others, together with judicial decisional law over roughly the same period.
SEC Action to Clarify and Change Finder Law in 2025
On July 22, 2025 Paul S. Atkins, Chairman of the SEC, delivered remarks at the Small Business Capital Formation Advisory Committee Meeting.2 He stressed the need to facilitate capital raising of amounts under $5 million and the difficulties of generating interest from VC firms and other institutions in these relatively small deals. He encouraged the committee members to address the role and regulation of finders and broker-dealers in these small capital raises.
Later the same day, SEC Commissioner Hester M. Peirce delivered remarks to the same committee.3 Commissioner Peirce noted that finders “play a crucial role, particularly for small businesses, by connecting entrepreneurs and investors. As a result, well-intentioned friends, colleagues, and industry acquaintances may find themselves unwittingly acting as broker-dealers and therefore subject to an onerous regulatory framework ill-suited for the connections and introductions these individuals facilitate.” She also observed that “the Commission has failed to provide clarity in this area…” She also noted that in October 2020, the Commission proposed an exemptive order which would have permitted natural persons to engage in certain limited activities on behalf of issuers without registering as brokers (the “2020 Proposal”).4
Key Points of the 2020 Proposal
The 2020 Proposal Commissioner Peirce mentioned included a convenient table by the Office of the Advocate for Small Business Capital Formation listing approximately 30 types of permitted and prohibited activities for Tier I and Tier II Finders.5 The 2020 Proposal would have permitted transaction-based compensation for both Tier I and Tier II Finders and would have required both types to be individuals (not entities) and refer accredited investors to privately held (not publicly traded) issuers.
Tier I Finders were categorized as individuals who participate in no more than one capital raise in any 12-month period. That tier may only provide investor contact information to the issuer and may not engage in any other activities.
Tier II Finders were categorized as individuals who participate in more than one capital raise in any twelve-month period. These finders would be permitted to engage in additional solicitation activities on behalf of an issuer; however, the solicitation-related activities would be limited to:
- providing investor contact information to issuers;
- identifying, screening, and contacting potential investors;
- distributing issuer offering materials to investors;
- discussing issuer information included in any offering materials; and
- arranging or participating in meetings with the issuer and investor.
but Tier I and II Finders would be prohibited from:
- Structuring the transaction or negotiating the terms of the offering;
- Engaging in general solicitation;
- Handling customer funds or securities;
- Binding or purporting to bind the issuer or the investor;
- Participating in the preparation of sales materials;
- Performing independent analysis of the sale;
- Engaging in due diligence;
- Assisting in or providing financing for investment purchases; and
- Providing advice as to the valuation or financial advisability of the investment.
Other requirements and limitations (e.g. anti-fraud protections, written disclosures and agreements, statutory disqualification) would have been included. Both Tier I and Tier II Finders would have been required to enter into written agreements with the issuer. Tier II Finders would also have been required to notify investors of the finder-issuer relationship (in detail) and obtain written acknowledgements of receipt of notification from each investor prior to the investors’ investment.
Reading the Tea Leaves
Of course, we cannot provide any assurances of outcome of the work of the Committee and the SEC Commissioners, but here are our “best guess” predictions.
- We believe the 2020 Proposal is an excellent starting point and reflects the development of finder law over the years. It also includes some common-sense (and rather favorable) delineations of who qualifies as a finder as opposed to a securities broker, who has substantially heavier duties and responsibilities to clients. We expect the Committee to adopt the 2020 Proposal with updated refinements.
- We do not expect a full rulemaking process. This administration likes to act quickly; the 2020 Proposal is a sound 50-year evolution of finder law (and appropriate regulatory relief), and the 2025 derivative will very likely be an enhanced version of the 2020 Proposal.
- We expect a thoughtful, difficult Committee discussion of a blanket exemption for offerings under $5 million. The investor protections contemplated by the 2020 Proposal are important and impose minimal requirements on finders. Under some form of $5 million cap exemption, the investor protection provisions will likely remain, but some of the 2020 Proposal’s restrictions on finder activities (such as structuring or negotiating the offering, participating in preparing sales materials and due diligence) may be loosened for offerings under $5 million.
- We do not expect an exemption for secondary offerings.
- We expect the exemption will be provided to both natural persons (as contemplated by the 2020 Proposal) and entities (not permitted under the 2020 Proposal).
- Until the SEC formally takes a different position to the contrary, however, issuers and finders should expect the SEC to continue to enforce its historical views of what “finder” activities are tantamount to “broker” activities, paramount among which is transaction-based compensation. (See above and our previous alert).
Other Important Considerations
The foregoing discussion does not address the so-called “M&A Brokers” exemption –applicable at the Federal level only — enacted by the Consolidated Appropriations Act, 20236 at page 1080. Please refer to our Client Alert on this subject available HERE.
Prince Lobel will be following developments regarding “finders” closely, at both the Committee and Commission levels, as well as guidelines and interpretative releases.
If you have any questions about finder’s agreements and how they may apply to you, please reach out to Russel Hansen, Max Riffin, John Bradley, John Chu, or any member of the firm’s Business Transactions practice group.
[1] Perhaps the most (in)famous example being the famous singer, Paul Anka, whose marketing efforts involved nothing more than furnishing the Ottawa Senators NHL hockey team the names of potential investors in return for a transactional-based finder’s fee. The Senators would then contact investors to assess their interest. Anka would not participate in any negotiations and would not even have any contact with the investors concerning their investment in the team, either before or after the club contacted them. In 1991, the Commission granted no-action relief. Paul Anka, SEC No-Action Letter (July 24, 1991).
[2] SEC.gov | Remarks at the Small Business Capital Formation Advisory Committee Meeting
[3] SEC.gov | Finders/Seekers: Exemption Features