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Finder's Fee Agreement for Venture Capital Fund
This agreement outlines the terms under which individuals or entities ("Finders") are compensated for introducing accredited investors to [Your VC Fund Name] ("Fund") for the purpose of raising capital for the Fund. The structure incentivizes Finders to source high-quality investors while ensuring compliance with applicable securities laws.
Definitions
Finder
An individual or entity who introduces accredited investors to the Fund.
Accredited Investor
As defined by Rule 501 of Regulation D under the Securities Act of 1933, typically individuals with a net worth exceeding $1 million (excluding primary residence) or annual income exceeding $200,000 ($300,000 joint).
Investment Amount
The capital committed by an introduced investor to the Fund, as finalized in a subscription agreement.
Finder's Fee
Compensation paid to the Finder for a successful introduction, subject to the terms below.
Eligibility and Scope of Services
Eligibility
  • Finders must be natural persons or entities not requiring broker-dealer registration under the Securities Exchange Act of 1934 or applicable state laws.
  • Finders must confirm they are not engaged in activities requiring broker-dealer registration (e.g., negotiating terms, soliciting investors beyond introductions, or handling securities transactions).
  • Finders must provide a signed agreement acknowledging compliance with securities laws.
Scope of Services
Finders are limited to introducing accredited investors to the Fund and providing basic contact information. Finders may not:
  • Solicit investors through general advertising or public campaigns.
  • Negotiate investment terms or advise on the value of securities.
  • Handle funds or securities or participate in closing transactions.
  • Make representations about the Fund beyond approved materials provided by the Fund.
Compensation Structure
To balance incentives and regulatory compliance, the Fund offers a hybrid compensation model:
Flat Fee for Introduction
$1,000 per qualified introduction, payable upon the introduced investor signing a non-binding indication of interest and being verified as an accredited investor. This fee is not contingent on the investor's final investment, reducing the risk of transaction-based compensation issues.
Performance-Based Fee
2% of the Investment Amount committed by the introduced investor, capped at $50,000 per investor. Payable only after the investor's capital is fully committed and the subscription agreement is executed. Subject to a 12-month clawback period if the investor withdraws their commitment.
Equity Option (Optional)
For Finders with ongoing relationships, the Fund may offer equity in the form of a carried interest allocation (e.g., 0.5% of the Fund's carried interest) instead of cash, vesting over 3 years, to align long-term interests. Equity compensation is subject to separate agreements and legal review.
Payment Terms and Legal Compliance
Payment Terms
  • Payments are made within 30 days of the investor's capital commitment, subject to verification.
  • Finders must provide a W-9 form (or equivalent for non-U.S. Finders) for tax purposes.
  • The Fund reserves the right to withhold payment if the Finder violates securities laws or the terms of this agreement.
Legal and Regulatory Compliance
  • Written Agreement: Each Finder must sign a Finder's Agreement detailing services, compensation, and compliance obligations.
  • Accredited Investors Only: Finders may only introduce accredited investors, as verified by the Fund.
  • Disclosure Requirements: Finders must disclose to introduced investors the nature and amount of compensation. The Fund will provide a disclosure statement to investors acknowledging the Finder's role.
  • California Exemption (if applicable): If operating in California, Finders must comply with California Corporations Code §25206.1, including registration with the Department of Financial Protection and Innovation (DFPI) and maintaining records for 5 years.
  • SEC Guidance: The Fund adheres to the SEC's proposed 2020 Finder exemption for Tier I Finders, limiting activities to introductions and allowing transaction-based compensation for accredited investors in private offerings.
Additional Terms
Termination
Either party may terminate the agreement with 30 days' written notice. Compensation for introductions made prior to termination will be honored, subject to the terms above.
Confidentiality
Finders agree to keep all Fund-related information confidential, including investor identities and Fund terms, except as required by law.
Governing Law
This agreement is governed by the laws of [Your State, e.g., Delaware], without regard to conflict of law principles.
Implementation Steps
Consult Legal Counsel
Engage a securities attorney to review and customize this agreement for compliance with federal and state laws, especially if operating across multiple jurisdictions. Verify whether Finders require registration or exemptions in your state.
Develop Finder Recruitment Process
Identify potential Finders (e.g., industry connectors, former entrepreneurs, or advisors) through your network. Provide Finders with Fund-approved marketing materials to ensure consistent messaging.
Investor Verification
Implement a robust process to verify accredited investor status (e.g., reviewing financial statements or using third-party verification services).
Record-Keeping
Maintain records of all Finder agreements, investor introductions, and compensation payments for at least 5 years, as required by some state regulations.
Monitor Compliance
Regularly audit Finder activities to ensure they do not engage in broker-dealer activities. Provide training to Finders on permissible activities and legal boundaries.
Example Scenario and Notes
Example Scenario
A Finder introduces an accredited investor who commits $1,000,000 to the Fund. The Finder receives:
  • $1,000 flat fee upon the investor signing a non-binding indication of interest.
  • $20,000 (2% of $1,000,000) upon execution of the subscription agreement.
Total compensation: $21,000, subject to clawback if the investor withdraws within 12 months.
Notes
  • This structure is designed to minimize regulatory risks by limiting Finder activities and incorporating flat fees, while still providing meaningful incentives.
  • The equity option is ideal for long-term partners but requires additional legal structuring to comply with partnership agreements.
  • Consult with a tax advisor to understand the tax implications of Finder compensation for both the Fund and Finders.