SEC Finders Exemption Revisited: Clarifying Rules to Improve Capital Formation for Investors and Businesses
R Tamara de Silva
In startup fundraising, connecting entrepreneurs with potential investors is essential. Yet, regulatory uncertainty continues to surround the people who make these introductions, commonly known as "finders." Our August 2024 blog, “Finders vs. Brokers: Navigating SEC Compliance in Early-Stage Fundraising,” examined the subtle distinctions between unregistered finders and registered brokers. Nearly a year later, momentum has grown significantly toward clearer rules for finders.
On July 22, 2025, SEC Commissioner Hester M. Peirce addressed this issue directly in remarks to the SEC’s Small Business Capital Formation Advisory Committee. She emphasized the urgent need for regulatory clarity surrounding finders and urged the SEC to revisit its 2020 exemption proposal.(1) This article discusses Commissioner Peirce’s key points, explores the persistent uncertainties finders encounter, and their essential role in startup fundraising.
Commissioner Peirce’s Call for Clarity on Finders
Commissioner Peirce’s July 22, 2025, remarks highlighted a core challenge faced by founders and investors: “Where is what I’m looking for?”(1) Startups need funding, and investors want promising opportunities. Yet bringing the two together often feels daunting. Commissioner Peirce emphasized that finders—individuals who informally connect entrepreneurs and potential investors play a “crucial role” in this matchmaking, especially for smaller businesses. But finders exist in an unclear regulatory area, somewhere between casual networking and formal securities solicitation. As a result, well-meaning individuals who introduce investors to founders risk inadvertently becoming broker-dealers. This exposes them to burdensome regulations not intended for informal fundraising efforts. The lack of clear guidelines creates confusion. Startups hesitate to use finders, worrying about compliance risks. Potential finders, in turn, avoid helping businesses raise money due to fear of violating broker-dealer laws and attracting regulatory scrutiny.
Commissioner Peirce pointed out that the SEC "has failed to provide clarity in this area." As a result, participants must navigate a patchwork of highly specific SEC staff no-action letters to determine permissible finder activities. This longstanding absence of clear guidelines has drawn repeated criticism. As early as 2017, a previous SEC advisory committee pointed out the "significant uncertainty in the marketplace about what activities require broker-dealer registration" in small-business fundraising. (2) The SEC’s current Small Business Capital Formation Advisory Committee has also pressed the Commission for years to "adopt a framework to permit finders to engage in limited capital raising activities" involving accredited investors. Commissioner Peirce’s recent remarks echo these ongoing concerns and call on the SEC to finally implement a practical solution.
The Vital Role of Finders and the Cost of Uncertainty
Clearer finder regulations are necessary because finders perform an essential function in the early-stage capital ecosystem. Startups and small businesses typically lack broad investor networks. They rarely have direct access to angel investors and venture capitalists. Finders bridge this gap by leveraging personal and professional relationships to introduce entrepreneurs to potential investors. Commissioner Peirce noted that finders engage in a blend of "social" and economic activity, building relationships and facilitating introductions. These connections are especially crucial for companies located outside major financial hubs, enabling access to capital that would otherwise remain out of reach.
Yet regulatory uncertainty creates tangible costs for this matchmaking process. The blurred line between a "finder" and an unregistered broker forces both companies and intermediaries to act cautiously. If a finder moves beyond making simple introductions, such as negotiating terms, discussing specific investments, or receiving transaction, based compensation, they risk violating Section 15 of the Securities Exchange Act. (3) Fear of inadvertently crossing regulatory lines deters many potential finders from assisting startups, and startups, in turn, lose access to valuable investor introductions. Even those willing to engage a finder often must seek specialized securities counsel. They rely heavily on previous no-action letter guidance, a burdensome approach only feasible for those with sufficient resources. Simply put, the lack of clear and contemporary finder rules "hamper[s] the growth of individual businesses and the broader economy" by introducing unnecessary friction into early-stage fundraising.
Revisiting the 2020 Finders Exemption Proposal
In October 2020, the SEC proposed addressing this uncertainty with a conditional exemption from broker-dealer registration for certain limited finder activities (the "2020 Proposal"). Though never finalized, this proposal would have allowed natural persons to engage in specific solicitation activities for issuers without becoming registered brokers, provided they followed certain limitations. (4) The proposal outlined two categories or tiers of finders. "Tier I" finders could only provide an issuer with investor contact information once per year and could not have any direct investor communication about the investment opportunity. "Tier II" finders had slightly more flexibility; they could communicate directly with accredited investors to gauge interest, but only regarding a single issuer per year and under strict conditions. Although clearer than current no-action letter guidance, this two-tiered approach proved restrictive and overly complex. For example, the Tier I finder category was limited to such a minimal role, only a single passive introduction annually, that it offered little practical benefit. The Tier II framework allowed more meaningful interaction but imposed tight constraints, significantly limiting its usefulness.
In her July 2025 remarks, Commissioner Peirce urged the SEC to revisit this earlier proposal and reconsider finder regulation more broadly. She posed several critical questions to the Advisory Committee: Is the 2020 framework "a good starting point for exemptive relief," or would a different approach work better today? Have market practices evolved since 2020, making modifications necessary? Importantly, would the 2020 Proposal, or any new finder exemption, benefit from a full notice-and-comment rulemaking rather than an exemptive order? These questions indicate that Commissioner Peirce is open to revising, or entirely replacing, the original proposal to align more closely with real-world capital-raising needs. Her emphasis on a "full rulemaking process" aligns with comments from stakeholders who argue that a formal rulemaking process provides more comprehensive analysis, broader public input, and stronger legitimacy than a quick exemptive order could achieve.(5)
Stakeholder Perspectives on Finders: Heritage, SIFMA, and the Advisory Committee
Public feedback on the 2020 finders proposal, along with recommendations from the SEC’s advisory committee, show insights into how a revised finder exemption should be structured. Several stakeholders support clearer guidelines to facilitate limited finder activities, yet many criticized the specific design of the 2020 Proposal, particularly its restrictive two-tier structure.
In its comment letter cited by Commissioner Peirce, The Heritage Foundation commended the SEC’s effort to address the issue after “two decades of procrastination.” It described the 2020 Proposal as a “welcome and highly constructive improvement” over the current ambiguous framework.
Nevertheless, Heritage strongly objected to the narrow limitations placed on Tier I finders. As the letter bluntly stated, “limiting [Tier I finders] to one transaction annually and prohibiting them from having any contact with an investor makes the category virtually useless.”(6) Heritage argued that even casual or occasional finders should be permitted to do more than simply provide a list of names. At a minimum, the letter proposed, Tier I finders should be allowed to introduce investors and issuers to each other directly. Without this flexibility, Heritage concluded, the exemption risks failing to meaningfully facilitate valuable capital-raising connections.
The Securities Industry and Financial Markets Association (SIFMA), representing broker-dealers and investment banks, also supported clearer regulations for finders. However, SIFMA’s letter raised procedural concerns about the SEC’s method of addressing the issue. It stressed that any regulatory framework for finders “must involve a robust formal rulemaking process.” SIFMA argued that the 2020 Proposal effectively set new industry-wide policy and thus was “de facto a rule.” Therefore, the association maintained, the exemption should undergo a full notice-and-comment rulemaking process, including detailed economic analysis and public input. SIFMA’s viewpoint aligns closely with Commissioner Peirce’s suggestion that a comprehensive rulemaking procedure could deliver more thorough, long-term regulatory clarity.
The SEC’s Small Business Capital Formation Advisory Committee has consistently been among the strongest advocates for a clear and tailored finder exemption. After examining the 2020 Proposal, the Committee sent formal recommendations to the SEC in November 2020 endorsing a “framework to permit certain Finders to engage in limited capital raising activities involving accredited investors.”(7)
The Committee agreed that clear finder guidelines could significantly boost small-business fundraising, particularly benefiting underserved businesses and those located outside major investor networks. The Committee outlined several guiding principles for creating a workable exemption. It recommended that the SEC keep any framework straightforward, exclude bad actors, require clear disclosures, coordinate with state regulators, and ensure that both finders and issuers fully understand their obligations.
Two of the Committee’s recommendations are especially notable. First, the Committee proposed the SEC consider granting a broad, blanket exemption for finders involved in offerings below a certain size. This idea represents a simpler and broader exemption compared to the restrictive two-tiered structure proposed in 2020. Second, the Committee warned explicitly that restrictions within the 2020 Proposal, such as limiting finders to a single transaction per year, prohibiting contact with investors, and excluding entities in favor of natural persons, could severely limit the exemption’s usefulness. The Committee’s feedback directly challenged these key limitations and suggested more practical conditions, such as allowing finders limited direct engagement with accredited investors, capping fees, and clearly defining permissible activities.
Collectively, these stakeholder perspectives underscore widespread support for clarifying finder regulations, while also emphasizing critical adjustments needed to the SEC’s original proposal. All stakeholders broadly agree that empowering finders in limited yet meaningful ways could greatly benefit early-stage fundraising. The ongoing debate focuses largely on determining the appropriate scope and conditions of this exemption, including allowable activities, investor qualifications, offering size limits, and suitable implementation methods.
De Silva Law Offices’ Perspective on Finder Reform
Commissioner Hester Peirce’s efforts to clarify the regulatory landscape for finders is a welcome and necessary advancement. Clear and practical rules in this area will significantly enhance capital formation opportunities for early-stage enterprises. Both entrepreneurs and investors stand to benefit from a thoughtfully tailored exemption for finders, one that acknowledges their vital intermediary role in startup fundraising while ensuring adequate investor protection and regulatory oversight.
At present, the regulatory environment remains overly rigid and punitive.Individuals who assist in facilitating even a single investment risk triggering broker-dealer registration requirements. Failure to register exposes them to potential enforcement actions. This inflexible "all-or-nothing" framework creates barriers rather than bridges for small businesses and early-stage investors.
Commissioner Peirce’s recent statements, reinforced by extensive stakeholder dialogue, identify a balanced solution: a limited exemption designed explicitly for finders engaged in facilitating introductory contacts, particularly for smaller private placements involving accredited investors. Such an exemption should include carefully calibrated safeguards to deter misconduct and prevent inappropriate sales practices.
De Silva Law Offices has extensive experience advising finders operating within the securities and futures markets. There is real need for clear, practical regulatory guidance. Finders frequently seek to leverage their personal and professional networks to help promising startups access much needed capital. Unfortunately, the absence of a clear exemption disproportionately disadvantages smaller companies and entrepreneurs who are unable to afford costly legal opinions or navigate the complexities inherent in seeking SEC no-action relief. Obtaining a no-action letter from the SEC is typically time-consuming, involves significant legal expense, and offers only limited certainty due to its highly fact-specific nature.
All stakeholders would benefit if the SEC undertook formal rulemaking to implement a clearly defined exemption or safe harbor for finders. Such a regulatory framework should be accessible and understandable even to non-specialists, while sufficiently rigorous to prevent abuse and circumvention of broker-dealer registration requirements. Key components should include limiting finder activities strictly to making introductions or providing basic contact information, explicitly excluding involvement in handling funds. Further essential protections could involve mandating transparent disclosure of any compensation received, and disqualifying individuals with relevant disciplinary histories.
The SEC should also consider extending the finder exemption to include Qualified Eligible Persons (QEPs), as defined by the Commodity Futures Trading Commission (CFTC). Given their higher degree of financial sophistication and substantial resources relative even to accredited investors, QEPs present a compelling case for inclusion in any SEC exemption for finders. Excluding QEPs from such an exemption seems unnecessarily restrictive and difficult to justify. Broadening the exemption to encompass QEP introductions could enhance capital access and better align the exemption with contemporary market realities.
The need for regulatory clarity in this area of early-stage capital formation is long overdue. A well-structured and clearly articulated finder exemption will unlock valuable capital channels for startups and small businesses. Such an exemption would balance investor protection with practical regulatory flexibility, creating a true win-win scenario. The SEC’s efforts to provide the marketplace with much-needed regulatory clarity and predictability in this important area of fundraising is commendable.
For guidance on navigating SEC finder regulations, please contact De Silva Law Offices.
NB-This article is provided for informational purposes only and does not constitute legal advice or establish an attorney-client relationship.
Footnotes:
¹ Commissioner Hester M. Peirce, U.S. Sec. & Exch. Comm’n, Remarks at the SEC’s Small Business Capital Formation Advisory Committee Meeting (July 22, 2025), available at https://www.sec.gov/news/speech/peirce-remarks-small-business-capital-formation-072225.
² U.S. Sec. & Exch. Comm’n, Advisory Comm. on Small & Emerging Cos., Recommendation Regarding the Regulation of Finders and Other Intermediaries in Small Business Capital Formation Transactions (May 15, 2017), available at https://www.sec.gov/info/smallbus/acsec/acsec-recommendation-051517-finders.pdf.
³ Securities Exchange Act of 1934 § 15(a), 15 U.S.C. § 78o(a) (2024) (establishing broker-dealer registration requirements); see also SEC v. Collyard, 861 F.3d 760, 765–66 (8th Cir. 2017) (addressing unregistered broker-dealer activities).
⁴ Notice of Proposed Exemptive Order Granting Conditional Exemption from the Broker Registration Requirements of Section 15(a) of the Exchange Act for Certain Activities of Finders, Exchange Act Release No. 34-90112 (Oct. 7, 2020), 85 Fed. Reg. 64542 (Oct. 13, 2020).
⁵ Letter from Sec. Indus. & Fin. Mkts. Ass’n (SIFMA) to Vanessa A. Countryman, Sec’y, U.S. Sec. & Exch. Comm’n, Re: File No. S7-13-20 (Nov. 12, 2020), available at https://www.sec.gov/comments/s7-13-20/s71320-8011715-225372.pdf.
⁶ Letter from The Heritage Found. to Vanessa A. Countryman, Sec’y, U.S. Sec. & Exch. Comm’n, Re: File No. S7-13-20 (Nov. 12, 2020), available at https://www.sec.gov/comments/s7-13-20/s71320-8011714-225387.pdf.
⁷ Letter from Small Bus. Cap. Formation Advisory Comm., U.S. Sec. & Exch. Comm’n, to Jay Clayton, Chairman, U.S. Sec. & Exch. Comm’n (Nov. 13, 2020), available at https://www.sec.gov/spotlight/sbcfac/finders-recommendation.pdf.