Agreement to act as placement agent: Overview, definition, and example
What is an agreement to act as placement agent?
An agreement to act as a placement agent is a contract where one party (the placement agent) agrees to help another party (usually a business or company) raise capital by connecting them with potential investors. The placement agent's role is to identify and introduce investors who are willing to provide funding, often in the form of equity or debt. In exchange for their services, the placement agent typically receives a fee or commission based on the funds raised or a percentage of the investment.
In simpler terms, it’s an agreement where someone (the placement agent) helps a company find investors to raise money, and in return, they get paid a fee or commission for their efforts.
Why is an agreement to act as placement agent important?
An agreement to act as placement agent is important because it allows businesses to access a wider network of potential investors and financing sources. By hiring a placement agent, companies can focus on their operations while the agent handles the process of finding investors and securing funding. The placement agent's expertise and connections can also help ensure the company raises capital on favorable terms.
For SMB owners, using a placement agent can be a strategic way to raise capital, especially when looking to attract investors for new projects, expansions, or acquisitions.
Understanding an agreement to act as placement agent through an example
Let’s say you are the owner of a startup and you need to raise capital to expand your business. Instead of reaching out to investors individually, you hire a placement agent who specializes in connecting startups with investors. The placement agent works to identify potential investors who are interested in your industry and introduces them to you. As a result, you successfully raise the funds needed to expand your operations. In exchange for their services, the placement agent receives a commission based on the amount of capital raised.
Example of an agreement to act as placement agent clause
Here’s an example of what an agreement to act as placement agent clause might look like in a contract:
“The Company hereby retains the Placement Agent to act as its exclusive agent in connection with the placement of securities to potential investors. The Placement Agent will assist in identifying and introducing suitable investors, and in return, the Company agrees to pay the Placement Agent a fee of [X]% of the total capital raised through such introductions.”
Conclusion
An agreement to act as placement agent is a valuable tool for businesses looking to raise capital from investors. By hiring a placement agent, SMB owners can leverage the agent's expertise and network to secure funding for growth, expansion, or new ventures. Understanding the terms of such an agreement, including the agent’s fees and responsibilities, ensures that the business can effectively raise the necessary capital while managing costs and expectations.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.