Our startup is at a very early stage, and we do not want any institutional funding at this moment, for reasons out of the scope of this question.
We are instead looking for funding from friends and family (and fools). I am offering a friend a commission, for every funding he helps me raise. E.g. if he brings in a person, who agrees to invest X amount in our company for Y number of shares, I will give my friend 1% of Y.
I want to know whether this is legal, and what other important things should I be aware of before getting into an agreement with my friend.
Most likely not, unless your friend is associated with a registered broker-dealer. See http://www.jdsupra.com/post/documentViewer.aspx?fid=33271499-d783-4f7a-9e9e-024a61a1fa52 Now, the SEC hasn't been actively out looking for these sorts of violations, but if you use this guy, then your investors will effectively get a "put" right -- if things go well, they can hold onto their shares. If things go poorly, they can sue for rescission because you violated the securities laws.
This is a place that you need your own attorney with some knowledge of securities law. He can help structure your offering so it doesn't run into these problems.