I have worked with 30+ PreSeed and Seed stage SaaS firms via Upwork in the past two years. Mostly, I do competitive analysis, product management, and M&A consulting gigs. All were doing fundraising at one time or another. I have provided feedback on countless Pitch Decks, but never helped identify, approach, or engage with potential investors. Why?
The Allure of Helping Pre-Seed/Seed Stage Founders Raise Venture Capital
I see dozens of opportunities like this:
The rewards could be high: a percentage of the raise, a six-figure success fee, some stock, or a combination of all three. I am eminently qualified. I have 30+ years of experience as an executive in the enterprise software space, have been a senior exec for four startups (1 win, two losses, one draw), dealt with dozens of investors, and understand the challenges of cash-strapped founders.
So why don’t I chase these types of opportunities?
The Consequences of Acting Without a Series 7 Stockbroker’s License
If you want to hire someone to introduce your company to potential investors in the
In the U.S., they need a Series 7 stockbroker’s license.
When you’re pitching your startup to potential investors, you are asking them to buy
stock, a SAFE, or a convertible note in your business. Those are all financial securities.
Only a licensed stockbroker is legally allowed to sell, promote, or advise on the
buying and selling of financial securities.
Under federal law, if you use an unlicensed agent to help with your fundraising, the
investment agreement is invalid. Those investors have the right for 3 years from the date
of the investment or 1 year from the date the violation is discovered, to demand a return
of their money.
The startup is also subject to state securities laws of both the company and investors. In
In Washington and Oregon, the founders are personally liable for hiring an unlicensed
stockbroker. That means that if I’m an investor in your company, and when it fails, I
discover you were using a consultant to help raise funds, they can grab your personal assets
like your home, car, and wedding ring to repay an investment, plus interest, plus attorney’s fees.
In addition, if the SEC is in a particularly unforgiving mood, the founders can be charged
with aiding and abetting the crime, and the company is prohibited from future fundraising.
The consultant himself will be charged with operating as a stockbroker without a license
and hit with huge fines or, at least in theory, sent to prison.
The consultant himself will be charged with operating as a stockbroker without a license
and hit with huge fines or, at least in theory, sent to prison.
1. Tamir Shabat, Danny Z. Spiegel, and Joseph J. Orlando, Jr.
- Summary: These investment adviser representatives solicited investors for StraightPath Venture Partners, LLC, offering investments in LLCs that claimed to invest in shares of pre-IPO companies. They provided marketing materials, advised investors, and received transaction-based compensation without registering as brokers.
- Date: January 14, 2025
- Details: SEC Press Release
2. Anthony Guarino, Robert Seropian, and Frank Vecchio
- Summary: These individuals sold membership interests in LLCs purportedly investing in pre-IPO companies. They engaged in unregistered broker-dealer activity, providing advice and marketing materials to investors while receiving transaction-based compensation. Vecchio also faced fraud charges for misrepresenting fees.
- Date: September 12, 2024
- Details: SEC Press Release
3. Mario Gogliormella, Steven Lacaj, and Karim Ibrahim
- Summary: Charged with fraud for selling unregistered membership interests in LLCs that allegedly invested in pre-IPO companies. They operated an unregistered sales force, pressured investors, and failed to disclose significant markups on the shares.
- Date: June 7, 2024
- Details: SEC Press Release
Avoiding Common Pitfalls in Early-Stage Startup Fundraising
As a consultant to pre-seed and seed-stage startups, I often see founders tempted to take shortcuts to secure their initial funding. With angel investors often conducting limited due diligence before signing a SAFE agreement and cutting a check, it might seem harmless to pay someone to assist with fundraising efforts—whether it’s compiling a list of potential investors, initiating outreach, or finding warm leads. But here’s the hard truth: these actions can have long-term consequences that could jeopardize your startup’s future rounds of funding.
The Long-Term Impact of Early Decisions
While it’s true that pre-seed investors may not dig too deep, later-stage investors will. Once you move to Series A or beyond, extensive legal due diligence will be conducted. Lawyers will scrutinize everything, from proper business registration and audited financials to tax compliance and IP ownership.
Two of the most common red flags that arise during diligence are:
- Unassigned Intellectual Property (IP): If early employees or contractors didn’t sign IP rights agreements, questions about ownership of your technology or product could create significant risks for potential investors.
- Improper Fundraising Practices: Payments made to unlicensed brokers or intermediaries during earlier rounds are a serious issue. These arrangements are often discovered, and if they are concealed, it could escalate to accusations of fraud and perjury. Such findings can halt fundraising efforts immediately, leaving founders with damaged reputations and a tarnished company.
Brokers Are Not Cheap
For a $250,000 pre-seed raise, expect to pay between $17,500 and $25,000. A $1,000,000 seed raise could cost between $75,000 and $105,000. Most have a minimum fee, $100.000+, which makes it not feasible for pre-seed raises.
For example, the compensation for a $1,500,000 seed raise could come in many forms:
1. Success-Based Commission
This is the most common and straightforward model: the broker only gets paid if they successfully help you raise capital.
- Typical Range: 5% to 7% of the capital raised
- On $1.5M: That’s $75,000 to $105,000
- This structure aligns the broker’s incentives with yours—they only earn when you do.
Why does the percentage decrease with larger rounds? For pre-seed rounds (e.g., $250K), fees often reach 10% due to the risk and effort involved. But for a $1.5M raise, the percentages drop because of the higher ticket size and more attractive economics.
2. Monthly Retainer + Success Fee
In this hybrid model, the broker receives a monthly retainer fee, plus a reduced success commission upon closing the round.
- Retainer: $3,000 to $10,000 per month
- Success Fee: 3% to 5% of the total capital raised
Example Deal Structure:
- Retainer: $5,000/month for 3 months = $15,000
- Success Fee: 4% of $1.5M = $60,000
- Total Cost: $75,000
This structure reduces the broker’s risk of working for months with no compensation while still giving them upside when the deal closes.
3. Equity Kicker (Optional)
Some brokers, especially those well-connected in the tech or venture world, may ask for a small equity stake in addition to fees. This might take the form of:
- Advisory shares: 0.25% to 1.0% non-voting equity
- Warrants: Stock options exercisable at a set strike price, usually for 5–10 years
This kind of arrangement can sweeten the deal for the broker and may even reduce the cash fee required upfront.
Final Thoughts
Hiring a Series 7-licensed broker-dealer to raise a pre-seed or seed round can be a smart move, especially if you’re a first-time founder or lack direct investor access. But the cost can be significant, often exceeding $75,000 in cash fees, with the potential for equity dilution on top.
Before hiring a broker, weigh the benefits against alternative fundraising options, and make sure your agreement is legally compliant. If structured right, it can accelerate your path to growth capital and help you close your seed round with confidence.
Also published on Medium.