Is a Fundraising Advisor a Broker-Dealer?

The Legal Distinction

A broker-dealer is a person or firm that facilitates securities transactions for compensation. They must be registered with the SEC and FINRA. Operating as an unregistered broker-dealer is a federal securities violation.

A capital advisor provides strategic guidance — preparation, positioning, capital structure analysis — without facilitating the actual securities transaction. They're compensated through flat fees or advisory equity, not transaction-based fees.

The line between the two is not always clear, but the key factors regulators examine are: 1) Does the firm receive transaction-based compensation? 2) Does the firm participate in the mechanics of the securities transaction? 3) Does the firm hold itself out as facilitating capital raises?

Why This Matters for Founders

If you use an unregistered broker-dealer, your securities offering may be voidable. This means investors can demand their money back — even after they've invested and you've spent the capital.

This isn't theoretical. The SEC has brought enforcement actions against unregistered broker-dealers, and courts have voided securities offerings where unregistered intermediaries facilitated the transaction.

Before engaging any firm that promises to help you raise capital, ask: Are you a registered broker-dealer? If they charge success fees and facilitate introductions, they probably should be — and if they're not, that's a risk you're absorbing.

How to Protect Yourself

When evaluating a fundraising advisor or consultant:

1. Ask about registration: Are they registered with FINRA as a broker-dealer? If they charge success fees, they should be.

2. Understand their compensation: Flat fees and advisory equity are cleaner from a compliance perspective than transaction-based fees.

3. Understand their role: Are they providing advice and preparation (advisory) or are they facilitating introductions and managing the transaction (brokerage)? The distinction matters legally.

4. Consult your attorney: Before engaging any firm, have your securities attorney review the engagement terms.

The safest approach: work with advisors who charge flat fees or advisory equity for preparation and positioning work, and separately manage your own investor relationships and transaction mechanics.