Brokers, Dealers, Private Lenders, and Venture Capital

A broker is defined as anyone who makes securities transactions for others. (The exception to this is a bank.) A dealer is defined as someone who buys and sells securities for their own account, through a broker or otherwise.

Most entrepreneurs are looking for start-up capital and for someone else to raise capital for them on a straight commission, with no up-front fees. Only registered broker dealers, and Bona Fide employees, can legally solicit/sell securities for a company on straight commission, with no up-front fees. They always charge an up-front retainer, sometimes called due-diligence fees, before commencing. This fluctuates depending on the complexity of the transactions. Most brokers/dealers avoid startup and early stage companies. A Bona Fide employee cannot be paid commission from the sale of securities.

A statistical report which gathered data from electronic filings by registered investment advisers with the Securities and Exchange Commission (SEC) as of April 7, 2006, showed more than 75% of clients are hedge funds, dealing with 1,336 hedge fund firms, an increase from 1,092 firms previously registered. This leaves little room for the small businesses. Total assets managed (AUM) by SEC registered investment advisers totaled $31.4 trillion, increased by 17.2% over 2005.

PRIVATE LENDERS & VENTURE CAPITAL

Venture Capitalists are worth a second glance in the context of alternative financing. Venture capitalists are private loan lenders that have relatively high standards for loaning money to small businesses.

Generally, venture capitalists shy away from start-up businesses in most industries, unless the owner has a history of success. They tend to be private loan lenders that focus on small business financing for high-tech companies. They expect a company they fund to have experienced and diverse management that will drive a fast-paced growth model. Venture capitalists expect a very high return on their investment. For these reasons, venture capitalists, like "angel investors," are only a reality for the most well-planned business owners.