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Brokers and Finders in Startup Offerings

Published online by Cambridge University Press:  12 December 2023

Emmanuel Yimfor Open the ORCID record for Emmanuel Yimfor [Opens in a new window]
Emmanuel Yimfor*
Affiliation:
Columbia University Columbia Business School
*
emmanuel.yimfor@columbia.edu
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Abstract

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This study analyzes Form D filings to understand brokered startup offerings. About 60% of brokers are FINRA-registered; the rest, “finders,” are not. Startups with fewer seasoned investors and more local brokers tend to use brokers. Venture capital firms rarely join brokered offerings, but non-accredited investors do, especially offerings with finders. Overall, brokers aid in raising capital. Yet, startups using finders often fail to exit successfully and close following funding. This implies finders might be directing funds from non-accredited investors to lower-quality startups. Brokers help startups raise money without VC support, but the effectiveness of this capital allocation is unclear.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 37
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

This article is based on part of my dissertation at Rice University. I thank Alex Butler, Alan Crane, Xun Tang, and James Weston (Chair) for many insightful discussions. I also thank the anonymous referee, Jarrad Harford (the editor), Kerry Back, Elizabeth Berger, David Brophy, William Diamond, Michael Ewens, Gustavo Grullon, Yael Hochberg, Andrey Malenko, Nadya Malenko, Erik Mayer, Jared Stanfield, Laura Starks, Heather Tookes, seminar participants at the SEC, FINRA, Yale School of Management, University of Pennsylvania, University of Michigan, University of Toronto (Workshop on Gender, Race, and Entrepreneurship), Indiana University, Purdue, Virginia Tech, Southern Methodist University, University of Iowa, Baruch College, University of South Carolina, University of Oklahoma, Kent State University, and Rice University, and participants at the 2022 American Finance Association Annual Meeting for helpful comments. I am also grateful to Crunchbase for giving me access to its database. I also thank Mathew Dellorso and Patrick Whelchel for their insights from their experience as brokers selling private placements. I appreciate the research assistance of Alexander Tuft and Murray Green. All errors are mine.

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