TLDR:
A finder’s fee is compensation paid to an intermediary who facilitates a business transaction, such as connecting a startup with an investor, acquirer, or strategic partner.
Finder’s Fee Structures
Finder’s fees can be structured in various ways depending on the transaction type: flat fees for introductions, percentage of deal value (typically 1-5% for M&A, 2-10% for venture introductions), equity warrants, or success fees paid only upon transaction completion. In the securities context, the SEC requires that anyone receiving transaction-based compensation for finding investors must be registered as a broker-dealer, which means unregistered finders accepting success fees for introducing investors to securities offerings may be violating US securities law.
Avoiding Finder’s Fee Disputes
Broker-Dealer Considerations
In the US, persons receiving transaction-based compensation for facilitating securities transactions may be required to register as broker-dealers under the Exchange Act. Founders paying a “finder’s fee” to an unregistered intermediary for arranging investor introductions risk both regulatory enforcement and contract unenforceability (the underlying securities transactions can be voidable by investors). The SEC’s no-action positions on finders are narrow and stage-specific.
Documentation and Disclosure
Finder arrangements should be documented in writing with clearly defined scope (which counterparties qualify, what events trigger payment, what happens if multiple finders make competing claims, when payment is due, and how disputes are resolved). Buyers and investors should be told of any finder arrangement during diligence, both to avoid contractual disputes and because the existence of a finder fee may affect the buyer’s view of the seller’s negotiation leverage.