The type of dealer engaged should be based on your business’ needs, including capital raising goals, target investor base, stage of development and the industry it operates in. When researching exempt market dealers, angel investor groups or crowdfunding portals, these are some things that may be helpful to consider:
Area of expertise of the dealer
Some dealers specialize in helping businesses raise capital in specific industries, geographic regions or from certain types of investors (e.g., a focus on accredited investors vs. crowdfunding from other investors). You will want to select a dealer that specializes in businesses with similar characteristics and/or business needs to your own.
Services provided
There are a wide range of services that a dealer could provide. It is important for a business to understand the specific services that may be available to them through a particular dealer(See also, How can each of the different types of dealers help my business raise capital?). Some dealers may assist with preparation of marketing materials, offering documents and/or subscription documents. Additionally, some dealers may also help with raising capital by introducing your offering to their existing investor clients. Depending on the type of dealer, it may have restrictions on its permitted services.
Minimum requirements for businesses
Dealers may have minimum requirements for the businesses they work with, such as a minimum raise amount, a minimum viable product/service, or a required revenue amount.
Due diligence process
Businesses will likely be subject to a due diligence process by the dealer or its investor clients. For example, exempt market dealers are required to conduct “Know-your-product” due diligence, to ensure that the products they offer to investors are suitable for the investors. Similarly, angel investor groups receive many applications from businesses, and its members who are considering an investment in a particular business will likely conduct due diligence on that business. This process may be facilitated by the angel investor group involved.
Fees and commissions
It is important to understand the fee structure of a dealer, as it may differ with each type of dealer and service provided. Examples of potential fees include the following:
- Commissions or transaction fees – Dealers may charge commissions or transaction fees for successful transactions based on a flat amount, tiered fee structure and/or percentage of the raise.
- Application/due diligence fee – Some dealers and angel investor groups may charge an application fee or due diligence fee.
- Administrative and other fees – Dealers may charge fees associated with the capital-raising preparation, marketing, distribution, or post-capital raise process.
