New SEC “Finders”​ Definition and Its Impact on Raising Capital for Early Stage Companies


On October 7, 2020, the Securities & Exchange Commission (SEC) published its proposed rule exempting under certain circumstances people they define as “Finders” from the requirements of the SEC´s broker-dealer compliance regime.

Practically speaking, this means that if the proposed rule is adopted in its proposed form, early stage companies and startups will be able to pay commission-based compensation to those referral sources who help them raise capital for their businesses through referrals and contacts.

This is a big development. Compare this to the existing rule that would be modified by this proposal which currently prohibits incentive-based compensation or commissions to finders and referrers. As things currently stand, early stage companies and startups are severely hamstrung in their capital-raising efforts. They basically need to hire expensive brokers with appropriate licenses to finance their businesses if they do not have financial backers within their personal networks.

Under this new proposed rule, companies would now be able to pay incentive-based compensation to those who are able to provide them leads and connect them with investors even if they are not licensed broker-dealers. The SEC refers to these individuals as “Finders.” In the proposed rule, the SEC set up two tiers of Finders (Tier 1 and Tier 2).

Tiers of Finders

Tier 1 Finders are people who just provide contacts and do not talk to potential investors about specific investment offerings. Tier 2 Finders are those Finders who set up more substantial relationships for the companies they refer potential investors to and actually discuss the opportunities that companies offer with the potential investors. 

General Rules Applicable to Finders

Under the SEC´s proposed rule, the following rules apply regardless whether someone is considered a Tier 1 or Tier 2 Finder:

Not an SEC Reporting Company. The company cannot already be an SEC Exchange Act Reporting Company.

Registration Exemption Available. The company must be relying on and complying with an SEC registration exemption for selling an investment in the company.

No General Solicitation. Finders cannot “generally solicit” investors. This means they have to only introduce companies to people in their existing networks. They cannot send mass emails, promote offering on social media or through any other mass marketing efforts.

Potential Investors Must Be Accredited Investors or Reasonably Believed to be Accredited Investors. Finders can only talk to people about the offering that they know or reasonably believe are accredited investors. Finders may also be responsible for providing companies documentation about the investors and supporting their conclusion that someone is accredited or reasonably believed to be.

Written Agreement Required. The Finder must have a written agreement with the company that describes services to be provided and compensation.

Not Disqualified. The Finder cannot already work with a registered broker-dealer or be deemed a so-called “bad actor”.

Tier 1 Rules

In addition to meeting the general rules above, Tier 1 Finders are limited in that they cannot actually discuss any proposed offering of a company that will pay them incentive-based compensation with potential investors. Tier 1 Finders, simply stated, are the “sell your contact list only” Finders.     

Tier 2 Rules

Tier 2 Finders and how they work with companies gets a bit more complex, with an additional host of requirements coming into play. In addition to the general rules above, the following apply to Tier 2 Finders:

No Investment Advice. The Finder cannot provide advice as to the valuation or advisability of any investment. Any presentation will have to be neutral and informational in nature only.  

No Negotiating or Agreeing to Terms. The Finder cannot be involved in structuring the transaction or negotiating the terms of the offering and cannot bind the company it is assisting to any terms. 

Must use Company Sales Materials. The Finder cannot participate in the preparation of any sales materials or modify those that the company it is assisting provides them. 

Proper Disclosure Required. Finders will have to follow our protocols with respect to (1) disclosing their relationship with the company and compensation to be received to potential investors and (2) getting acknowledgements from investors that they understand the relationship. 

No Handling Funds. The Finder cannot handle customer funds. 

No Lending. The Finder cannot provide financing for any investor purchases. 

Agreement Required before Beginning. The Finder cannot begin talking to investors until they have entered into a formal agreement with the company they are assisting covering the foregoing. The Finder will have to covenant to comply and have complied with all of the foregoing rules and requirements. Finders will be solely responsible for any failure to comply.

So What’s Next?

The proposed rule is in the 30-day comment period with the SEC for the proposed exemption. We are optimistic, however, based on our experience, that the SEC is likely to adopt the proposed rules here subject to some clarifications received from practitioners and interested persons during the comment period.

This is an incredibly important development for startups and early stage companies as they continue to explore new ways to finance their businesses. Despite the requirements set forth above, this is a substantial development with respect to easing the requirements for startups and early stage companies to access the private capital markets.

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Legacy Group is distinguished by a singular tradition of service to our portfolio partners; the mutual commitment to, and the seamless collaboration of, a true partnership; formidable financial and legal talent across multiple disciplines and jurisdictions; and shared professional values that focus on client needs.

We provide experience and investment to a wide range of private companies spanning many industries, including real estate, hospitality, tourism, agriculture and technology. Contact us to learn more and to discuss current investment opportunities available to you in our portfolio companies.

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Accredited investors are generally defined as individuals with annual income in excess of $200,000 ($300,000 with spouse) or over $1,000,000 (alone or with spouse) in net worth.

Jesus Reyes

Vice President, Capital Raising

Economist by trade, spent 15 years working for HSBC in a multitude of capacities in its Private Wealth, Credit Risk Management and Investment Banking divisions. Furthermore, Jesus worked for the bank in multiple countries. Prior to leaving HSBC, Jesus was the Global Account Owner of the bank’s relationship with the world’s largest accounting and consulting firms.

Upon leaving Wall Street, Jesus joined a boutique Medical Group in Beverly Hills, as CEO, with the primary goal of leading the team through a process of corporate transformation from a small enterprise to a corporation able to navigate the terrain of bringing in Private Investors and expand into new markets: New York, Orange County, Chicago and San Diego.

In addition to extensive professional experience, Jesus holds degrees in Economics (BA – St Mary’s University, and MA – Fordham University) and Finance (MS – University of Rochester).


Vice President, Business Development

After multiple combat tours with the U.S. Marine Corps Reserves and obtaining a Bachelor’s Degree in Finance and Real Estate from the University of Florida, Dustin took a position in corporate finance with Lockheed Martin, followed shortly by obtaining his Series 7 and 66 certifications as a Financial Advisor at Edward Jones. Looking for an opportunity to implement his leadership earned in the Marine Corps and entrepreneurial desire, Dustin decided to leave the corporate environment and joined a family-owned private prisoner transportation start-up, while also investing in real estate. Over the next several years, Dustin became a partner in the company, moved into the role of Executive Director and helped grow the company through strategic relationships, winning large government contracts, and helping foster several mergers, ultimately getting the business to a successful sale. After obtaining his MBA in Real Estate from Florida State University in 2020, Dustin continued to invest in real estate, taking a specific interest in land acquisition and development to create equity and cash flow opportunities. Additionally, he was involved with several start-ups and became one of the largest investors in The Green Coffee Company, a Legacy Group portfolio company. After getting boots-on-the-ground with his Green Coffee Company investment in Colombia, Dustin saw an opportunity to become more than just a passive shareholder and joined Legacy Group as the VP of Business Development in June 2022.


Dustin has earned a reputation for his genuine leadership style, adaptive problem-solving skills, ability to forge authentic relationships, and being a fast-moving action-taker across multiple industries. His fluidity and adaptive results-oriented mindset makes Dustin an excellent addition to Legacy Group as our VP of Business Development.


Dustin lives in St. Petersburg, Florida with his wife Jenny and their German Shepherd, Kimber. Going on 18-years in the USMC, Dustin will retire after 20 years and continue to focus on adding value to Legacy Group Stakeholders.