What Should a Company Agree on Before Paying a Fundraising Success Fee?
Short answer. Before agreeing to a fundraising success fee, define in writing what counts as a qualifying introduction, which investors are covered, when the fee is earned and paid, and whether follow-on capital is included. Confirm the advisor's permitted role and review the arrangement with your attorney, including any licensing or securities law questions that apply.
Before agreeing to a fundraising success fee, define exactly what work earns it, which capital counts, and when payment is due. A vague promise to pay for introductions can create disagreements after an investor commits, especially if that investor was already known to the company or came through several channels.
Define the Fee Trigger
Write down the event that makes the fee payable. It might depend on funds the company receives, not an investor expressing interest or signing a nonbinding indication. Clarify whether the fee is calculated on gross proceeds, net proceeds, or another agreed base. State how cancellations, delayed closings, partial funding, and returned capital are treated.
Specify whether the fee applies to the first investment only or also to later investments by the same investor, affiliates, or co-investors. Set a clear time period for any continuing claim. Have your attorney review the language, since the right treatment can depend on the offering structure and the person's activities.
Identify Covered Investors and Work
List the advisor's responsibilities and the investor relationships covered by the agreement. Decide how to handle investors already in your pipeline, direct inquiries, referrals from other sources, and introductions involving multiple parties. Keep a dated record of introductions and follow-up so both sides can tell what happened.
A fee should correspond to a defined role and documented contribution. Avoid paying for a name alone when the promised work includes qualifying an investor, arranging a meeting, or managing follow-up. Agree on who controls communications, who can share offering materials, and who can discuss terms. Use the distinction between an advisor and a placement agent to clarify the scope you intend to hire.
Review Legal and Payment Terms
Fundraising compensation can raise licensing and securities law questions. The answer may depend on where the company and investors are located, the offering, and the intermediary's actual work. Talk with your attorney before signing. Calling someone a consultant or paying only on closing does not settle the legal question.
Agree on invoicing, payment timing, required documentation, expense reimbursement, termination, confidentiality, and dispute handling. State whether expenses need prior approval and whether they are separate from the success fee. Make sure the company has copies of outreach records and investor communications relevant to the fee.
Put the Agreement in Writing
Use a written agreement that matches the parties' actual understanding. It should identify the services, covered investors, fee formula, triggering event, payment schedule, duration, and limits on authority. Include a process for recording disputed introductions before a transaction closes, when memories and incentives can make the issue harder to resolve.
The agreement should also say that only approved materials and terms may be shared, and that the company retains responsibility for its offering and disclosures. Record changes in writing. Clear terms protect the relationship and help the company track fundraising costs and understand what work was performed.
Read next: How should a founder decide whether to raise equity, debt, or a mix of both? and How much capital should a company raise to reach its next meaningful milestone?
Issues are the items being decided on during the negotiation.
Sources: The Rainmaker Handbook. Informational only, not financial, legal or tax advice.