09 Oct Working With Going Public Advisors: Part VII – Fee Arrangements

They say there is no such thing as a free lunch. In Wall Street that is true for sure. So if you are considering going public through an advisor who specializes in helping companies do so, it is very important to understand what fees or other benefits the advisor intends to receive.

Of course part of this structure depends on what the advisor is doing. In general, however, licensed broker-dealers who are raising money generally take virtually all their fees on the “back end” when the going public process is complete. But experienced and respected firms do generally take a retainer up front as well. More traditional consultants may receive a monthly retainer, but then receive less at the end. In a reverse merger, some advisors are owners (or will become owners) in the shell company before it completes its combination with your company.

Also ask the advisor if they put any “skin in the game” either by deferring fees, taking equity for services or direct investment. Some do, and others bring others’ money to the table, which is also fine. Most importantly, make sure the advisor discloses all the direct and indirect benefit they will receive. Then confirm with other advisors such as your attorney as to whether the fee arrangement is fair and consistent with market conditions.