Abstract
This study uses Form D filings to uncover new facts about brokered startup offerings, where 60% of brokers are registered with FINRA, while 40% are unregistered, often referred to as finders. Issuers, particularly those with fewer sophisticated investors and a higher number of brokers in their zip code, are more likely to engage with brokers. Venture Capitalists (VCs) rarely participate in brokered offerings, but non-accredited investors tend to be more involved in offerings handled by finders. Using the issuer's proximity to the broker as an instrument, the data shows that while all brokers cause issuers to raise capital, issuers who use finders experience fewer successful exits and more closures post-funding. This suggests that finders might be channeling capital to lower-quality firms by involving non-accredited investors. The results suggest that brokers help startups reduce search costs when they can't access VC funding, but it remains unclear whether this increased capital allocation due to broker use is efficient.