Finders, weepers : GPs should keep unregistered broker dealers away from deals.

Download: PERM_-_EMZ__SMH_-_May_2006.pdf

Startup Inc., an early stage company, is seeking venture capital. The CEO’s lack of contacts has led to difficulty in securing meetings with VCs. He meets Joe Shady, a finder. Shady talks up his Rolodex and offers access to “every VC worth contacting.” Shady is so confident of his abilities that Startup need only pay Shady if the investment closes. The CEO enters into Shady’s short agreement without bothering with the expense and delay of legal review. Shady starts dialing for dollars. Independently, the deal picks up momentum and other investors present term sheets. Startup, now on the verge of receiving venture, hires counsel. Counsel looks at Shady’s agreement and rushes for the ulcer medicine (which counsel to early stage ventures should always keep nearby).

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Finders, weepers : GPs should keep unregistered broker dealers away from deals.

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