In this Fast Funding Info, Nate Dodson breaks down the definition of a finder’s fee, and how to build a referral system to help you fund your next investment project.
Check out more Fast Funding Info, like the difference between Regulation D rules 506(b) and 506(c) here
Check out the SEC’s Crowdfunding bulletin here
If you’re trying to raise capital for your investment project, generally you want to get it done as quickly as possible. Oftentimes, you’re wanting to work with your friends or relatives, not just for them to invest, but for them to be able to refer their friends and their network to help you fund your project. And we are always asked ‘well—can we pay them?’ And the short answer is ‘no, unless…’ There are restrictions on paying a commission, a percentage of what gets invested, that’s really limited to broker-dealers. However, you can work with people to be ‘finders.’ What a finder means is they can deliver to you prospective investors but they don’t participate in the investment presentations; they’re also not receiving a commission. However, you can pay a finder’s fee for an introduction and that’s generally a flat fee based on the introduction alone. And regardless of whether or not that investor actually contributes funds and invests, or they walk away, the finder has already done the service by making the introduction.