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Private Placements for Broker-Dealers

Posted on January 25, 2019 at 1:20 AM

Some startups try to engage a registered broker-dealer to help them raise capital in a private placement offering.

Who is a registered broker-dealer?

A registered broker-dealer is a financial intermediary registered with the SEC and Financial Industry Regulatory Authority (FINRA). “Broker” means that the firm can sell securities for clients and “dealer” means the firm can sell securities for itself. Money is earned with fee-based services and from commissions on capital raised.

How can a broker-dealer help?

Not all broker-dealers work on private equity offerings. But a broker-dealer who likes your private placement may have investors and investment networks with lists of pre-qualified Accredited Investors. They also may have ties to investment banks, venture capital firms or private equity firms. Also, some broker-dealers assist you in crafting a PPM, term sheet, pitch deck, and other documents. They may even be willing to make presentations on your behalf.

Finally, investors’ perceptions may be altered in favorable way. They may assume there is less risk if the financial intermediary has done its own due diligence before agreeing to work with the issuer.

Why doesn’t everyone use broker-dealers?

First, they do not want to work on most private placements. Second, they have to be paid.

More questions? Email [email protected]

Categories: S.E.C., Regulation D, Public versus Private

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