How a Finder’s Agreement Could Ruin Your Startup’s Chances of Getting Funded

Finding money is hard, so it’s common for a startup to use a “finder” to locate potential investors or partners.

Unfortunately, using the wrong kind of finder, or the wrong kind of finder’s agreement, could lead to disaster.

Doing it wrong could let your investors take back their money. Worse, your company could be prevented from EVER getting funded. Here’s why.

Finder’s Fees

Obviously, a finder will expect to be compensated for finding you money. An agreement between a company and a finder that deals with this compensation (and other issues) is called (duh) a “finder’s agreement.”

A typical compensation clause might go something like this:

Should an Investor invest in Client’s Company, then Client agrees to pay Consultant six percent (6 %) of the amounts invested by Investor.

Here’s what the compensation clause in a finder’s agreement looks like when highlighted by LawGeex:

Finder's Agreement

How much do you have to pay a finder?

One industry standard in the US (the Lehman Formula) uses the following scale:

  • 5% finder’s fee on the first $1 million raised
  • 4% on the second million
  • 3% on the third million
  • 2% of the fourth million
  • 1% for more than $4 million

Another common formula provides for a fee of 5% of the first million and 4% of the next $10 million.

These numbers are based on payments in cash. For payments in stock (equity), the percentages are often doubled. It’s also common to see a mix of cash and equity.

However, in the finder’s fee contracts we’ve reviewed, we’ve seen a big range in finder’s fees. The share can depend on things like:

  • Company status
  • The finder’s power
  • The specific industry
  • The company’s geographic location

So what’s the problem?

The problem is that some finders – especially “professional” finders – may be violating federal and state securities laws.

As this useful article notes:

It is a common misperception among entrepreneurs and finders that the payment of a fee in cash or equity is acceptable if the finder merely makes introductions. This is wrong. It is a myth perpetuated by entrepreneurs and finders who have not been caught.

It’s forbidden to pay a finder a fee based on the amount of capital the finder brings to the company.

But didn’t we just talk about percentage fees and the Lehman Formula? So how can it be forbidden to base fees on the amount of money raised?

The problem is that some kinds of “finding” are regulated by securities laws. And if you use a finder who’s not a registered broker, you need to be extra careful about how you do it.

What’s the worst that can happen?

Unless a finder is licensed as a broker-dealer under US and state securities laws, a finder’s agreement could be illegal and unenforceable.

That might not sound so bad. In fact, it might sound like a great deal — the startup gets to keep the investors’ money but doesn’t have to pay the finder? Sweet!

Sorry. Doesn’t work that way.

If you fail to disclose that you’re using an unlicensed broker as a finder, you may be giving the investors the right to take back their investment.

As a useful blog notes:

Numerous securities laws, both state and federal, give investors rights to recover their investments if anyone who sold the investments materially misled the investors or omitted any information that makes the provided information materially misleading. An investor could argue that both the finder and the issuer misled the investor by not informing the investor about the protections that broker-dealer licensing is intended to provide, and omitting the fact that the finder is not licensed.

Some investors may decide to stick with the deal, but others may use this revelation as an excuse to get out.

But it gets worse….

As this article notes,

A common sanction sought by the SEC against issuers utilizing unregistered finders is to bar the issuer from conducting Regulation D offerings in the future. This, of course, could have a lethal effect on a start-up company dependent on private capital.

(Regulation D includes the rules that allow some companies to offer and sell their securities without needing to register the securities with the SEC. This makes access to capital markets possible for smaller companies that couldn’t afford SEC registration.)

In addition, a company that improperly uses a finder could be liable for aiding and abetting securities laws violations.

A Finder’s Agreement That Won’t Blow Up in Your Face

With so much at stake, it’s not a good idea to sign some random finder’s agreement you pull off the internet and don’t really understand.

You can consider options like:

  • Making sure your finder is, in fact, a registered broker-dealer
  • Making sure your finder will only do things that don’t require registration as a broker
  • Paying a finder a fixed-fee regardless of the outcome of the finder’s introductions

Get Your Finder’s Agreement Reviewed Fast

If you’ve already got a draft finder’s agreement and want to understand it better and see if it includes any non-standard clauses, you can get it reviewed fast with LawGeex.

The information and materials in this blog are provided for general informational purposes only and are not intended to be legal advice. 

Does your startup’s investor term sheet have a “no shop” trap?

Five Ways to Reduce Your Risk

The first time your startup’s presented with an investor term sheet, you may feel like you’ve won. OK, maybe you don’t have the trophy (i.e., check) in hand, but you’re on the home stretch with the wind at your back.


Maybe not.

Getting Engaged

A term sheet is like a marriage proposal. It shows that an investor is seriously interested in your company. But it’s a proposal that comes with more terms and conditions than a Christian Grey NDA.

One potentially problematic term is the “no-shop” clause. It might read something like this:

From the signing date hereof until 5:00 P.M. on the date 30 days following the signing of this document (the “Exclusivity Period”), the Company agrees that it will not directly or indirectly pursue, solicit or participate in the negotiations, or enter into any agreement or commitments regarding investment by any other potential equity investors in the Company or any merger or sale of all or substantially all of the assets or stock of the Company…

(A “no-shop” can also be called an “exclusivity” clause.)

Here’s what a no-shop clause looks like when flagged by LawGeex:


Basically, this clause means you won’t date anyone else while you’re engaged – as a start-up founder, you won’t shop the company around to other potential investors after you sign the term sheet.

This makes sense from the perspective of an investor who’s about to conduct due diligence – confirming that you’re worth investing in. If you’re just going to use the first term sheet as “bait” to attract a better offer, then you’re wasting the first investor’s time and money.

That sounds reasonable, right? It’s also very common. No-shop clauses show up in almost all of the term sheets in our database.

So what’s the problem?

Off the Market

The problem is that if this first investor doesn’t close the deal, you’ve taken your company off the market for X number of days.

The bigger the “X,” the bigger the problem.

If multiple investors are vying for your deal (a good problem to have!) one or more may push you to sign a term sheet before they even know much about your company. The no-shop clause gets the others out of the way while the first investor checks you out.

That first investor may be serious, or may just have a bad case of FOMO. Either way, once you sign that no-shop you’re vulnerable.

While the clock’s ticking, you may be running out of money. Any other investors who were circling may move on to fresher meat. Whatever “heat” you had may dissipate.

Meanwhile, due diligence is proceeding. The investor’s kicking your tires and checking under your hood.

If your tread’s worn or you’ve got an oil leak (for example, your IP ownership is iffy or your cash-flow projections don’t check out), the investor may want to renegotiate the company value or other terms.

But wait, you say. We had a deal – the valuation’s stated in the term sheet!

But a term sheet usually isn’t a firm commitment to invest on those terms. The investor can just walk away. You, on the other hand, are bound by the no-shop — and breaching it can get you sued.

Reducing the Risk

If the deal doesn’t go through, even if there’s nothing really “wrong” with your company you could be seen as “damaged goods” that an investor has passed over. So you want to maximize the chances that the first deal will go through, while minimizing the harm if it doesn’t.

If you have to sign a no-shop, what can you do to reduce your risks?

Here are some ideas:

  1. Make the no-shop term as short as possible. Try to negotiate it down to two-to-four weeks, rather than six weeks or longer. Our research has shown the typical no-shop period is between 45 and 60 days.
  2. Have the no-shop period start (or only sign the term sheet) after the investor has started legal and accounting due diligence by hiring a law firm and/or accounting firm. An investor with skin in the game is less likely to waste your time.
  3. Have a clause that says the no-shop period will end if the investor stops negotiating or conducting due diligence for a specified period. You don’t want to be off the market if the investor isn’t moving the deal forward.
  4. Only agree to pay the investor’s legal fees if the deal actually goes through. Otherwise, you’re triply screwed if it fails: a) you don’t have the investor’s money, b) other investors have gone away, and c) you’re stuck with a big legal bill. (Note that this applies whether or not you have a no-shop clause.)
  5. Do your own due diligence on the investors before signing the term sheet. Make sure they actually have the money and don’t have a history of “fishing expeditions” and walking away from deals.

Understand Your Term Sheet

You probably don’t want to negotiate (or sign) a term sheet without the help of a lawyer – there’s too much at stake. But with fast feedback at you can:

  • Understand the term sheet better
  • Get legal terms explained in plain English
  • See which terms are standard – or not
  • Compare your term sheet to our database of many others

Just click the link on the right and upload your term sheet now.

The information and materials in this blog are provided for general informational purposes only and are not intended to be legal advice. 


Will an NDA Really Protect Your Business Ideas…?

…and what if the other person won’t sign one?

Many people make others sign non-disclosure agreements (NDAs) before they reveal their business ideas to them. They assume that an NDA will prevent the other party from using or revealing their ideas.

But NDAs aren’t like the magical protective spells some people seem to think they are.

For one thing, people can – and do — violate NDAs. They aren’t scared off by the threat of litigation, because they know it’s often an empty threat.

The average startup, small business, or freelancer may not be willing or able to invest in a lawsuit to enforce an NDA. Unless it’s a “bet the company” case, they may just decide to suck it up when someone steals their ideas.


Also, even if a business is ready to fight to protect its ideas, those ideas may not actually be protected by an NDA.

NDAs usually state that they protect “confidential information” or sometimes “proprietary information.”

Here’s a typical definitions clause, flagged by LawGeex:


The definition of “information” might specifically include “ideas” or “concepts” … but it might not. If you’re the party with the ideas to protect, obviously you want the definition of “information” to be as broad as possible.

(If, on the other hand, you’re the party getting the information, then you might not want the NDA to include broad terms like “ideas” and “concepts”…)

Suing to Enforce an NDA

A business that sues to enforce an NDA will often includes in the complaint a long list of alleged causes of action. These can include things like:

  • Breach of contract (the contract being the NDA)
  • Unfair competition
  • Misappropriation of trade secrets under state law

Ideas versus Data

However, an “idea” won’t necessarily be protected as a trade secret under state law.

As a California court noted in the Silvaco Data Systems case, while patent law protects ideas, concepts, and designs, trade secret law protects factual, empirical data.

“Empirical data” can include things like a “customer’s preferences, or the location of a mineral deposit.”

The recent California case of Top Agent Network, Inc. v. Zillow, Inc. involved two companies involved in the online real estate marketplace.

Top Agent’s CEO met with Zillow’s CRO to discuss a potential investment by Zillow in Top Agent. The Zillow CRO agreed to sign an NDA (though he didn’t actually ever sign one) and the Top Agent CEO then showed him some members-only content on the Top Agent site, including its “Upcoming Listings” feature.

Zillow later told Top Agent that it wouldn’t be making the proposed investment — and shortly thereafter Zillow launched its own “Upcoming Listings” feature. Top Agent sued.

The court found that it was far from clear the “features” and “strategy” associated with Top Agent’s “Upcoming Listings” were empirical data, protectable under California trade secrets law, “rather than ideas or functions, which are not.”

What if the other side won’t sign an NDA?

As the New York Times pointed out,

Ten years ago, it was not unusual for entrepreneurs to request and potential investors to sign nondisclosure agreements. But today the agreements are largely considered a thing of the past. In fact, some investors say they walk away from a founder who even suggests signing one.

(Emphasis added.)

This reluctance is for practical reasons. As a Stanford Business School professor and VC told the Times,

V.C. firms and angels are looking at so many more deals today, that they could freeze themselves out of a given area by signing an N.D.A. with one person.

The Times offered the following wisdom for firms worried about protecting their ideas:

  • “Everyone thinks their idea is extremely unique, but the idea is really 1 percent of the value. The value is in the execution.”
  • Don’t share proprietary information if you don’t have to, or before you have to – with or without an NDA.
  • Know who you’re sharing the info with and whether they’re reputable.
  • Consider filing for a provisional patent.

Getting Your NDA Reviewed

Are you asking other people to sign an NDA you haven’t actually read — or that maybe you don’t understand yourself?

You can get a better understanding of your own NDA form, or get feedback on one that you’re being asked to sign, using our fast legal document review tool at

Or just click the link to the right of this blog and upload your NDA now.

The information and materials in this blog are provided for general informational purposes only and are not intended to be legal advice. 

LawGeex CEO Noory Bechor Interviewed by Enchanting Lawyer

“The biggest companies out there are ones that took basic industries and turned them upside down: Uber, AirBnB. This company, LawGeex, is on a path to do something similar with the law.”  …Jacob Sapochnick

Jacob Sapochnick, the founder of Enchanting Lawyer, recently interviewed LawGeex Founder Noory Bechor.

In the interview Noory discusses:

  • Why he started LawGeex
  • Target audience
  • Benefits to attorneys
  • How the product works
  • Tips on going from being a lawyer to being an entrepreneur



LawGeex CEO Noory Bechor Interviewed by “Above the Law”

LawGeex CEO Noory Bechor was interviewed by the influential Above the Law blog.

Noory talks about leaving the stability and security of a good job with a big law firm to start something new — “catching the entrepreneurial bug.” He discusses his vision for LawGeex, where the idea for the company came from, and how it works. Check it out!

The Sneaky NDA Clause that Can Bite You in the Behind

Most NDAs are harmless. Despite all that scary-looking legalese, there’s nothing in there that’s likely to hurt you.

But that doesn’t mean you shouldn’t read them carefully – because in rare cases an NDA will have a clause that can bite you in the butt.

For example, you might see something like this:

Receiving Party agrees not to engage in any employment, consulting, or other activity involving [scope of work] that competes with the business, proposed business, or business interests of Disclosing Party, and Receiving Party will not assist any other person or entity in doing so, without Disclosing Party’s prior written consent.

(The Disclosing Party is the party giving confidential information – maybe an employer or a potential business associate. The Receiving Party is the party getting the information – i.e., you.)

Here’s another version of the clause, as flagged by LawGeex:

NDA Review

With this clause, an otherwise-harmless NDA is transformed into a highly toxic non-compete agreement.

Rare but Deadly

Putting a non-compete clause into an NDA is unusual, as the LawGeex tool shows. Not everything that’s unusual is bad, but non-competes are problematic, since they limit a person’s ability to earn a living – which is often considered against public policy.

Non-competes aren’t enforceable in all states or in all circumstances. Some states, such as California, consider non-compete clauses void in most circumstances.

But where non-competes are valid, they can cause major headaches for people who sign them.

The New York Times and the Huffington Post recently reported on non-compete clauses for fast-food workers. A former Subway employee got a letter from her company reminding her of the non-compete she’d signed. When she started work at another sandwich shop in the area, Subway contacted her new boss. She got fired as a result.

Why put a non-compete in an NDA?

So why would anyone put a non-compete clause in an NDA?

NDAs are supposed to help protect a business’s confidential information. But it can be difficult to enforce an NDA in court, because it can be hard for the party with the secrets to prove that the other party is using or spilling those secrets. It can also be hard to prove that the so-called “secrets” are really secret.

It’s much easier to show that someone has gone to work for a competitor, or started a competing business.

Non-competes are most commonly seen in NDAs in the employment context – including employment as an independent contractor or consultant. But they’re sometimes used by parties discussing business deals.

Too soon?

Imagine you’ve just made a new friend – maybe even a potential BFF. New Friend invites you to have coffee. That sounds nice. Only thing is, New Friend wants you to sign a document first – one that says you won’t have coffee with anyone else for two years.

Would you sign it?

Probably not.

With most business deals, there’s more at stake than coffee. But agreeing to a non-compete as a condition of getting access to confidential information is like buying a pig-in-a-poke – you’re giving up something of value (your economic freedom) for something you haven’t even seen yet (the confidential information). You have to take it on faith that the information you’ll be getting will actually be worth what you’re giving up.

So what can you do about it?

If you’re asked to sign an NDA that includes a non-compete clause, you can:

  1. Sign it, and live with the consequences. You’d be gambling that the issue wouldn’t come up, or that a court wouldn’t enforce the non-compete.
  2. Refuse to sign it, and not get access to the confidential information. If signing the NDA is a condition of employment, that may mean you won’t get (or keep) the job.
  3. Ask the other party to strike the clause from the agreement.
  4. Ask the other party to modify the non-compete to make it less restrictive. For example, if it’s for two years, you could make it for one year. If the definition of “competitor” is broad, you could make it narrower. If the geographic area is 100 miles, you could limit it to 10 miles.

If you have questions or aren’t sure what you should do, you may want to consult a lawyer in your area.

By understanding what you’re signing, and what your options are, you can empower yourself to make better legal decisions – and maybe avoid getting bitten in the butt.

The information and materials in this blog are provided for general informational purposes only and are not intended to be legal advice. 

To learn about LawGeex, or to upload a legal document and get fast feedback, visit

LawGeex Now Covers Most Document Types for Startups and Small Businesses

We’re thrilled that so many people are enthusiastic about LawGeex.

More than 30,000 people have visited our site since our soft launch on February 10, and hundreds have tried our products.

People are talking…

We’ve been talked about on:

Product Hunt’s users voted us into the top 10 of new products for the day.

Here’s what they said…

Here’s what some people had to say about us:

JurisPage:  For many people who don’t have the resources to contact a lawyer on things like residential leases or NDAs, LawGeex provides a great tool. It’s “tinylaw” … – legal services for small transactions for which hiring a lawyer is not practical.

Tech blogger Hillel Fuld:  I know I get excited about tech a lot but then there is that rare occasion in which I meet a startup that I know almost instantly is onto something huge.

Such was the case with the company I had lunch with today,

As I have said many times, the biggest companies out there are the ones that took a look at a primitive industry and turned it on its head. Uber, AirBNB, and others. LawGeex aims to do that with the most primitive industries of all, law…

Focus on Startups and Small Businesses

We’ve decided to focus our efforts on legal documents that are applicable to startups and small businesses (including freelancers).

Business owners may be asked to sign several legal documents each month – NDAs, service agreements, software licenses, etc. They may not always feel the need (or have the time and money) to call a lawyer every time. But they may feel uncomfortable signing documents they don’t understand.

Our automated document review does NOT take the place of a lawyer. LawGeex does, however, help entrepreneurs understand what they’re signing, and indicates whether a particular clause is common or unusual – empowering them to make better decisions.

You can click here to learn more about how we do it.

Please tell us what other types of documents you’d like us to add, or contact us to provide other feedback and suggestions.

If you have questions about specific clauses in legal documents, send them to us and we may provide an answer in a future blog.

Give LawGeex a try today – it’s fast and it’s easy!





LawGeex – An App that analyzes Legal Documents- Jurispage

We’re excited about being profiled on the Jurispage legal technology blog!





What if a computer could analyze your residential lease, NDA, or other legal document, translate it from legalese into plain English, and advise you on whether you may want to sign it? Don’t wonder too long, because it exists now and it’s called LawGeex. Continue reading.


LawGeex Press release after featuring on Product Hunt & Hacker News

LawGeex – Legal to the People Draws Huge Response

In just three weeks after LawGeex’s launch on February 10, close to 16,000 people have visited the website to check out the free tool for reviewing legal documents.

Product Hunt was the first major site to take notice of LawGeex, and its readers voted LawGeex into the top 10 of new products for the day.

The word spread quickly, and LawGeex was featured on Law Hackers, the Museum of Beta, Randomstartup, and Tech Stories, among other sites.

Users of the first LawGeex product, for analyzing residential leases, were enthusiastic about it and have asked for new product categories to be added.  The LawGeex NDA tool will be available soon, with employment agreements and other legal document types to follow.

Company founder and CEO Noory Bechor, a lawyer himself, notes that:

People often sign legal agreements without even reading them.  If they read them, they don’t understand them.  And even if they understand them, they don’t know whether they’re getting a good deal or a bad one.

Under the slogan “Legal to the People,” LawGeex empowers users without legal backgrounds to make better legal decisions on their own.

LawGeex uses cutting-edge data mining technology and sophisticated machine learning to identify the type of legal document that’s been uploaded and then compare it to thousands of others that are similar, showing the user what’s standard, what’s unusual, and what’s missing in the uploaded document.

LawGeex doesn’t give legal advice.  It won’t tell someone whether or not to sign a contract.  Instead, by explaining agreements in plain English and showing how they compare to similar agreements, it lets users make better legal decisions for themselves.

LawGeex was created by an Israeli legal-tech start-up backed by the Israeli government’s Office of the Chief Scientist and incubated by the elite 8200 unit accelerator.

The LawGeex website is at



When you’re presented with an apartment lease, you don’t have to just sign on the dotted line.  If you know what’s standard and what’s not, you may be able to get better terms – or avoid locking yourself into a contract with the landlord from hell.

1.      How long have you got?

One-year apartment leases are standard in most places.  If you’re only offered a month-to-month tenancy, that gives you flexibility if you may need to leave on short notice, but it also means you may be looking for a new place – and paying moving expenses again – much sooner than you expected.
On the other hand, your landlord may want to lock you into a lease for two years or more.  This can protect you against rent increases during the term, but it also leaves you on the hook for the balance of the rental term if you need to leave early.

2.      Can your landlord snoop around in your underwear drawer?

It’s standard for your landlord to have access to your apartment – to perform repairs and to confirm that you’re not violating the terms of the lease.  However, you should have “reasonable” notice of a landlord’s visit (except in an emergency situation, like when there’s a burst pipe) and the right to be present when your landlord’s on the premises.

3.  Are you insecure about your security deposit?

Most leases require security deposits. For example, in New York, the amount is usually one month’s rent.  The amount isn’t limited by state law, but it may be capped by city and local laws in your area.


Click here to learn how you can protect your security deposit before you move in, or even before you sign your lease.

New York Law requires that a security deposit must be returned to a former tenant within a “reasonable” time.  “Reasonable” isn’t defined by statute, but it’s usually interpreted to mean 21 to 45 days.  If it’s important for you to get your money back earlier – for example, so you can pay the security deposit for a new apartment – make sure that your lease specifies this.

When you’re negotiating a lease, you’ll have a lot more leverage if you know what’s standard and what’s not.  LawGeex makes that easy — you can upload your lease and instantly compare it to thousands of others.

Click here to learn how it works.