Dienstag, 19. März 2013

Recent Wisdom On Crowdfunding

How the Internet Changes Everything About How to Raise Capital
Thomas E. Vass
The Private Capital Market

This article addresses the JOBS Act through a close examination of the ways in which the
internet has changed the landscape of private capital markets. It looks at the internet's impact on the relationships that structure capital supply and demand, and makes predictions about the future of such relationships. The author argues that, like the introduction of language among the human race, the arrival of the internet has profoundly and permanently altered the nature of private capital markets. The JOBS Act's provisions regarding crowdfunding, of course, attest to the internet-driven evolution of the capital marketplace.

Crowdfunding: The New Frontier for Financing Entrepreneurship?
Giancarlo Giudici, Ricardo Nava, Cristina Rossi Lamastra, and Chiara Verecondo

This paper is a useful primer on the phenomena of crowdfunding. It systematically and
comprehensively reviews existing literature on crowdfunding, outlining the topic from scholarly, business, and policy perspectives, and compares crowdfunding to other forms finance. Interestingly, this article concludes with an exploration of crowdfunding platforms in Italy, and may therefore provide some international texture against which the U.S.'s JOBS Act may be interpreted.

How Crowd Funding Solves One of The Biggest Capital Market Gaps In America:
Unleashing A Torrent of Growth Capital For Small Private Established Technology Firms
Thomas E. Vass
The Private Capital Market 

This article argues that JOBS Act might solve the biggest economic problem in America
the lack of jobs. During past 15 years, the rate of job creation mostly came from established technology companies that are established over three years. Moreover, if a company can stay alive for more than 7 years, it will need capital to get the third generation product enter the market. If the company can obtain this round of capital, the rate of job creation is exponential. The author concludes that the crowd funding allowed under the JOBS Act will help such round of funding and solve the lack of job problem. 

Fret No More: Inapplicability Of Crowdfunding Concerns In The Internet Age And The Jobs Act's Safeguards
Karina Sigar
Administrative Law Review

This article examines whether, in light of Regulation D's ban on general solicitation in an
analogous context and the statutory safeguards introduced by the JOBS Act, there are grounds for concern over crowdfunding offerings. The author then discusses the crowdfunding concerns that reflect the rationales behind Regulation D's ban on general solicitation as they relate to investor protection. Then the article applies these rationales to the context of today's Internet age and it concludes that because investors' characteristics today are starkly different from those of the 1980s because of adequate provisions in crowdfunding. Finally, the author concludes that due to the nature of the Internet age and because of the statutory safeguards in place, the new crowdfunding exemption will not raise the investor protection issues that some fear.

The New Federal Crowdfunding Exemption: Promise Unfulfilled

C. Steven Bradford

Securities Regulation Law Journal


On April 5, 2012, President Barack Obama signed into law a new federal securities law
exemption for crowdfunded securities offerings. Crowdfunding — the use of the Internet to raise small amounts of money from a large number of contributors — has become in
credibly popular outside the securities context. But the use of crowdfunding to sell securities has been stymied by federal securities regulation. Securities Act registration is simply too expensive for small, crowdfunded offerings, and, until now, none of the registration exemptions fit crowdfunding well. Moreover, the web sites that facilitate crowdfunding could be considered brokers if they hosted securities offerings, imposing additional regulatory costs. The new crowdfunding exemption attempts to resolve both of those regulatory problems — by exempting crowdfunded offerings from the registration requirement of the Securities Act and by providing that crowdfunding sites that meet certain requirements will not be treated as brokers. However, the new exemption imposes substantial regulatory costs of its own and, therefore, will not be the panacea crowdfunding supporters hoped for. The regulatory cost of selling securities through crowdfunding may still be too high. This article analyzes the requirements of the new crowdfunding exemption and discusses its flaws.

Crowdfunding: Fleecing the American Masses

Zachary Griffin 

Case Western Reserve Journal of Law, Technology & the Internet

Seeking to dispel the myth of the JOBS Act as a panacea for the nation’s struggling economy, this article attempts to shed light on the potentially devastating consequences of the Act. The article explores the concept of crowdfunding itself, reviews the registration require ments under the Securities Act of 1933, and describes the difficulty of applying a registration requirement to crowdfunded ventures. It argues that the Act’s exemption of securities offerings using crowdfunding from such registration requirements can actua lly weaken existing protections for investors and encourage fraudulent transactions.

The JOBS Act: Easing Exempt Offering Restrictions

Elizabeth M. Dunshee and David M. Lynn

Business Law Today

The JOBS Act aims to afford significantly more latitude for capital - raising efforts, particularly for private companies. As the SEC develops its rules under the JOBS Act, it will have to balance the need to promote capital formation with the goal of protecting investors. Ultimately, we can expect to see a much more “public” private offering market, and perhaps new alternatives to the traditional initial public offering.

The Geography of Crowdfunding
Ajay K. Agrawal, Christian Catalini, and Avi Goldfarb, National Bureau of Economic Research

This article examines one of the most important characteristics of “crowd - funding,” which is the broad geographic spreading of investors in small projects. More specifically, it explores the crowd - funding setting that allows artist - entrepreneurs and investors to connect with each other and finance different musical projects over the Internet. This article makes the finding that distance plays an essential role in this process, as the local investors tend to invest earlier in the game. This is explained by the fact that most of the time, these decisions are based on “family and friends” factors because the investors have personal connections with the artists - entrepreneurs.

A Very Quiet Revolution: A Primer on Securities Crowdfunding and Title III of the Jobs Act
Thaya Brook Knight, Huiwen Leo, and Adrian Ohmer
Michigan Journal of Private Equity & Venture Capital Law

At the very beginning, the author summarizes forms of crowdfunding used before addoption of JOBS Act. Article then analyzes regulatory regime that governs the public sale of all securities and how the crowdfunding exemption under the JOBS Act apply to these. Author describes in details how the JOBS Act changed Section 5 of the Securities Act of 1933, exemption from the requirement under the Securities Exchange Act of 1934 and broker - dealer exemption. In the remainder of the article, the author summarizes obligations, which have not been changed by JOBS Act.

The New Crowdfunding Registration Exemption: Good Idea, Bad Execution
Stuart R. Cohn
Florida Law Review

In his article, Prof. Stuart Cohn argues that although the crowd funding exemption is a good idea, its current form is inadequate. Particularly, Prof. Cohn points to the growth of crowdfunding as a reason regulators had to either acknowledge crowdfunding as a potential violation of securities law or create an exemption. Congress opted for the latter
- a sound choice according to Prof. Cohn. Congress, however, rushed to pass legislation that neither considered the effectiveness of the exemption nor investor protection. In the remainder of the article, Prof. Cohn identifies heavy - handed regulatory requirements under the crowdfunding exemption, such as mandated intermediaries.

Jobs Act Targets Smaller Business Capital Raising: Crowdfunding
Louis A. Bevilacqua, Joseph R. Tiano, Jr., David S. Baxter, Ali Panjwani and K. Brian Joe, Pillsbury Law

After giving an overview of the main provisions of the act, the authors call into question ability of the crowd - funding provisions to attract attention of the legitimate issuers: the cost of managing a large shareholder base would overshadow the benefit of raising small - investor funds. Combined with increased freedom to solicit potential investors, also introduced by the Act, a legitimate issuer will be better off targeting institutional investors. It is already predicted, the authors state, that many fraudulent offers will be conducted under the pretext that they comply with the crowdfunding exemption.

Crowdfunding Deals on The Horizon with US Jobs Act
Max Raskin
Bloomberg News

Financing projects through donations or contributions in exchange for products is an old concept. Modernized, it looks like Kickstarter, Inc - the largest crowdfunding online platform that so far has raised over $480 million for 86 thousand projects. Kickstarter fu
nds diverse projects, not companies, and investor reward is limited, usually being the product itself, with 100% ownership rights remaining with project creators. Jact is adding an exciting element to this model - potential for financial returns. With Jact, these same investors could be able to buy a stake in these projects by investing the annual total of up to $2K or 5% of their income/net worth. Jact also has potential (contingent upon future SEC regulations), to open up markets that have been complete ly closed to public, for example, real estate. Currently, 99% of real estate market isfor homebuyers or large investors. Jact can change that, by making companies like Fundrise, LLC an easier venture to start. Fundrise invests local funds in local real estate projects -- for example, it has recently raised $350K from 170 people in order to buy, renovate, and lease a small office building. Fundrise empowers people to build communities where they live. To be able to do this before Jact, Fundrise had to register with SEC --a process that took 9 months, required submitting 12 lbs of documents, and was very expensive. Future of companies like Fundrise is now in the hands of SEC.

The Dynamics of Crowdfunding: Determinants of Success and Failure
Ethan R. Mollick, University of Pennsylvania - Wharton School

This article addresses the ways in which crowdfunding confirms or challenges the traditional notions of how business undertakings succeed and increase capital. Given the speed at which crowdfunding has grown, its effects are relatively unstudied. This paper presents crowdfunding as an innovative way for business founders to raise capital by getting relatively small contributions from a large number of willing individuals via Internet in the absence of financial intermediaries. Basing its study on 47,000 projects with a combined funding over $198 million, this paper suggests that the success of crowdfunding seems to depend on the strength of personal networks, the quality of the underlying venture and geography.

The Role of Crowdfunding in Entrepreneurial Finance
Devashis Mitra
Delhi Business Review

This paper examines crowdfunding as a new trend in alternative financing and its effects on start - ups and new business ventures. In particular, it examines the concept of crowdfunding and how it works in the context of the related concept of crowdsourcing. This study finds that crowdfunding, as an alternative means of financing, is growing globally. Moreover, donation and reward - based entities comprise the largest group in crowdfunding, although equity based platforms have been successful in raising capital in Australia and some European countries.

The JOBS Act of 2012: Balancing Fundamental Securities Law Principals With the Demands of the Crowd
Thomas A. Martin, Willamette University College of Law

This article is a broad overview of the JOBS Act, and analyzes it in the context of the ideological battle between government regulation and laissez faire capitalism. It examines the deregulatory nature of the JOBS Act, and the implications of this which include a likely increase in liquidity for start - up companies and small businesses, and a significant decrease in transparency by business. It a lso explores the new finance model of crowd funding.