Brokers and Finders in Startup Offerings

85 Pages Posted: 16 Jan 2020 Last revised: 6 Nov 2023

Date Written: November 25, 2021

Abstract

This study uses Form D filings to uncover new facts about brokered startup offerings. Sixty percent of brokers are FINRA-registered, whereas the remaining 40%, often referred to as "finders,'' are unregistered. Issuers with fewer sophisticated investors and a higher number of brokers in their local geographical area are more likely to use brokers. While venture capital firms (VCs) seldom participate in brokered offerings, non-accredited investors are often involved in offerings involving finders. Leveraging the issuer's proximity to brokers as an instrument, the data show that both types of broker help issuers to raise capital. However, issuers that use finders are less likely to successfully exit via an IPO or acquisition and more likely to close post funding. This finding suggests that finders might be channeling capital to lower-quality issuers by involving non-accredited investors. In essence, brokers appear to ease startups' fundraising challenges in the absence of VC backing, but the overall efficiency of such capital allocation remains a topic for further exploration.

Keywords: Brokers, Finders, Startups, Private placements, Venture capital, IPO, Acquisition, Retail investors, Entrepreneurial finance, Regulation D, Form D, BrokerCheck

JEL Classification: L26, M13, G24, G29, G34

Suggested Citation

Yimfor, Emmanuel, Brokers and Finders in Startup Offerings (November 25, 2021). Available at SSRN: https://ssrn.com/abstract=3511164 or http://dx.doi.org/10.2139/ssrn.3511164

Emmanuel Yimfor (Contact Author)

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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