Sometimes in the journey of growing your business, you need to raise capital, so you decide to bring in an investor. Raising capital is a very difficult time for most businesses.
You need to position yourself well. You need to show the value to investors. And then you need to do all the negotiations to bring investors. It’s a lot of work, and sometimes people struggle with this process. You want to get the right people involved. You want to move the transaction forward.
Sometimes a broker will emerge to help you raise money. The broker’s job typically is to connect the dots between the seller of stock and the buyer of the stock. It’s a highly-regulated industry, so there’s some reassurance knowing brokers should have the appropriate licenses and be involved in the securities market. But brokers can be very expensive, and there’s no guarantee of success. From a company’s perspective, you may be paying a fair amount of money for a broker helping to cover diligence expenses, travel expenses to market your company, and other internal fees. You may not have a guarantee that your stock gets sold. You need to understand that risk up front. You need to negotiate and make sure you’re hiring the right broker.
Just because a broker approaches you doesn’t mean you will sell the stock. Some brokers may take the chance to sell your stock, invest some time and energy, but then pass all the expenses through to you. If the broker is in a slow period and doesn’t have other clients, the broker gambles at your expense. Be careful. Just because you want to sell stock and you link up with a broker doesn’t mean you are a guaranteed sale. It doesn’t mean everything’s going to go perfectly. Do your due diligence on the broker. Understand the risks you’re taking and make an informed decision.
What’s your experience with brokers? Have you worked with one? Was your experience good or bad?
Each case is unique. Past results do not guarantee future outcomes. This posting is intended to be a tool to familiarize readers with some of the issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. Each case is unique. Past results do not guarantee future outcomes. This article should not be treated as legal advice to any person or entity. FreeImages.com Matteo Canessa.
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About the AuthorR. Shawn McBride — is the Managing Member of The R. Shawn McBride Law Firm, PLLC. Shawn works successful, private business owners in their growth and missions to make a company that stands the test of time. You can email R. Shawn McBride Law Firm or call (214) 418-0258.