Brokers, Advisors and Finders—Oh My!: The risks associated with hiring unregistered financial intermediaries

03/01/2009

Before the better mouse-trap can make it to market and before the “killer-app” can change the world, the entrepreneur will need funding to make it so. Unfortunately, early-stage financing is not easy to obtain. As most company founders can attest, locating (and obtaining) funding for a start-up venture is frequently the highest hurdle that they have had to overcome in order to successfully launch a business.

While there are many sources of financing, each such source has its own associated problems and risks:

  • Friends and family resources are often quickly tapped well before the capital needs of the newly formed business are satisfied.
  • The use of credit card financing and family savings can leave the entrepreneur with significant personal financial risk--not to mention an angry spouse!
  • Financing from professional investors (VC’s, private equity investors, hedge funds) is quite alluring, but is extremely difficult to obtain if the company does not fit the appropriate investment profile.
  • “Angel” financing (investment by wealthy individuals who have learned of the potential opportunity) is frequently sought, but is difficult to obtain unless the entrepreneur has an extensive network of relationships that can lead to proper introductions to the angels.

Excerpted from Law Reports Banking and Finance, Vol. 2 No. 3, March 2009 © Bloomberg Finance L.P. 2009. Originally published by Bloomberg Finance LP. Reprinted by permission. The full article appears in the PDF below.

For more information contact Jason Villalba.

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