Placement agent, finder, in-house IR or flat-fee investor acquisition: how sponsors pay to fill a raise

The line you hold each option up to

Section 15(a) of the Securities Exchange Act of 1934 is about brokers. Here is how the law defines a broker. It is any person engaged in the business of effecting transactions in securities for the account of others. Put simply, it is someone whose job is making securities deals for others. Section 15(a) says a broker must register. It is against the law to do this work without it. The law gives no checklist for "engaged in the business." But the SEC and the courts look at the same things. Does the person solicit investors? Do they take part in deal talks? Do they give advice on the merits? Do they handle the funds? Above all, how are they paid? Do they get transaction-based compensation? That is a fee that depends on whether money is raised. Or it depends on how much.

That last factor matters most. It is the one you cannot argue around. Say a person gets a cut of what investors put in. That person has a salesman's stake in the result. The SEC has seen that stake as the clearest sign of a broker. It has done so time after time. Now take a person paid a flat fee for a set job. They never talk about the deal. They never touch the money. That person has a much better claim to be a vendor and not a broker.

Placement agents and broker-dealers

A placement agent is a registered broker-dealer. Or it is a person associated with one. The issuer hires the agent to find and solicit investors. (The issuer is the company selling the deal.) The agent may take a success fee under the law. That is a fee based on what it raises. It can do this because it is registered and supervised. It must also follow FINRA rules. FINRA is the group that oversees broker-dealers. The fee is disclosed in the deal papers. It is also disclosed on Form D. For private real estate, quotes run to several percent of the money raised. The published industry range is 6 to 8%. On a $10 million raise, that is $600,000 to $800,000. It is most often set up as a cost of the offering. So the equity pays it. The sponsor's own budget does not.

Placement agents fill a real need. They serve larger sponsors who deal with big funds and firms. Their investors are often institutions and family offices. They are less often single accredited investors found through ads. (An accredited investor is a person who meets the SEC's income or net worth test.) Say you raise from single people. Then there are trade-offs. One is the price. Another is the smallest raise an agent will take on. The last is whose investor it is when the raise is done. The agent's ties to its investors are the agent's to keep.

Finders

A "finder" is an unregistered person. They bring investors to an issuer for a fee. Many in real estate think a finder may take a cut of the raise. They think it is fine if the finder only makes intros. The SEC's view does not back that up. In 2020 the SEC put forward an exemption for certain finders. It came with conditions. It was for finders who raise money from accredited investors. The money had to be for private firms. It was never adopted. Over the years, SEC staff have sent no-action letters. A few let very narrow finder setups go ahead. Most said no. The general rule still stands. Say a person is paid transaction-based compensation to solicit investors. That person is acting as a broker. They must be registered. Or they must be associated with a registered broker-dealer.

Here is what that means for you. Say any kind of vendor wants a cut of the raise. It could be a marketing agency or a consultant. It could be a friend with a network. Ask where they are registered. If the answer is nowhere, the risk is yours as much as theirs.

Hiring your own IR person

Many sponsors fix the response problem by hiring for it. They hire an investor relations manager or associate. That person calls leads and runs follow-up. They also keep the investor list. Published ranges for the job run about $90,000 to $140,000 a year. That is fully loaded, with benefits and overhead. The cost is fixed. You pay it whether a raise is open this quarter or not. And the hire does not fix the rest of the system. You still buy and run the ads. You still build the compliance approval workflow. You still set up the CRM and the phones. (A CRM is the software that tracks your leads.) And you still write the scripts and oversee the calls. Some sponsors have a fund program that raises all the time. For them, an in-house hire can be the right long-term answer. And a well-run outside team hands over a written process. The new hire can then take it on.

Counsel sometimes raises one point about how this is set up. Rule 3a4-1 gives a safe harbor from broker registration. A safe harbor is a set of conditions. If you meet them, you are clear of the rule. Take an employee of the issuer who sells its securities. They can rely on it, but they must meet its conditions. Here is one. They are not compensated by commissions or other transaction-based pay. They must also do one of two things. They can limit their work in the ways the rule describes. Or they can do substantial other duties for the issuer. That is one reason you should never pay your own people a cut of what they raise, either.

Flat-fee investor acquisition

The fourth model is a firm that runs the ads. It also runs lead response and appointment setting. It charges a flat monthly fee. No part is tied to money raised, investors won or appointments held. That is true at any level of results. The fee scales with the ad spend it manages. It is a running cost, not a slice of the deal. You keep 100% of what is raised. And all that gets built is registered to you. It stays with you. That means the CRM and the phone number. It means the recordings and the investor list, too.

There is a compliance reason for this model, as well as a business one. Picture a vendor on a flat fee. It never talks about the deal. It never handles funds. It never checks accredited status. It never gives advice. By design, that vendor sits on the vendor side of the broker line. The contract can spell this out in an express clause. The clause says: no transaction-based compensation. That is also the term that lets securities counsel sign off. Your securities lawyer can approve the setup as it is, with no redraft. The limit is just as built in. A flat-fee firm cannot promise capital. What can it put in writing? A minimum number of investor appointments held. It can also put a fix in writing, called a remedy. Ascent's remedy is to keep working at no fee until it hits the minimum.

A flat fee is the only fee model that lets a marketing vendor stay a vendor.

Side by side

Choosing

Are you raising money from institutions at scale? Then talk to a placement agent. Does your fund program raise all the time? Do you have a proven lead flow? Then you may be ready for an in-house hire. Now say you raise from single accredited investors under Rule 506(c). That rule lets you advertise a private raise. But every buyer must be accredited. And you must take reasonable steps to check. Say you also have counsel engaged. And your ad budget is $15,000 a month or more. A flat-fee investor acquisition firm is built for that sponsor. The fit check on Ascent's main page will tell you if you fit. It will also tell you if you don't. Whatever you choose, there is one term to never sign with a marketing vendor. It is a fee tied to money raised.