What is a Broker-Dealer?
"Broker-dealer" is a term used by US securities regulations that refers to individuals or firms who buy and sell securities, either for their own account or on behalf of clients. Generally, brokers and dealers are required to register with the SEC and a self-regulating body, such as FINRA.
The SEC website provides a comprehensive definition of who is considered a broker or dealer, but broadly speaking, a broker finds investors or buyers to purchase stock from an issuer (an "issuer" is any entity that sells securities, such as an SPV) or seller and receives compensation in return. A Dealer, on the other hand, buys and sells stocks for its own account as part of its regular business. For additional information on broker-dealers, visit the SEC's Guide to Broker-Dealer Registration.
Why do we need to know if you are working with one?
The SEC requires issuers to disclose whether it used a broker-dealer during the course of an offering, and the amount of compensation paid to the broker-dealer. This information is included on the issuer's Form D, which is the federal notice form required by issuers who are selling securities via an exemption under Regulation D of the Securities Act. Regulation D is the exemption used most widely by private companies and venture funds. All Flow SPVs fall under this exemption.
What is an Advisor?
"Advisor" refers to Investment Advisor. An investment advisor is any person or firm who receives compensation for providing investment advice or securities analysis to others. Thus, a general partner of a venture fund would generally be considered an advisor. Investment advisors are typically required to register either with the SEC or with the specific state in which they are based. The question of whether or not someone is an investment advisor and required to register with a federal or state body depends on a number of factors and should be discussed with counsel.
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