Document Type
Article
Publication Date
2015
Abstract
Title III of the Jumpstart Our Business Startups Act of 2012 (Regulation Crowdfunding) should encourage entrepreneurship by allowing startups and small businesses to sell stock online. Unfortunately, that law applied Depression-era securities law concepts to peer-to-peer financing in the Internet era; as a result, it implemented Internet-investor protection ineffectively. Using Regulation Crowdfunding requires startups to comply with costly and unnecessary antifraud requirements. Even after making disclosures, registering with a funding portal, and producing audited financial statements, startups still cannot raise enough money via Regulation Crowdfunding to deploy high-growth strategies without needing more funds from professional angel and venture investors.
This Article explores the business environment of entrepreneurial finance through the lens of securities regulations. It finds that regulators should be more concerned with protecting investors from startup failure than from crowdfunding fraud. It recommends an amendment to Regulation Crowdfunding that may enable startup success: the limit on fundraising should be raised from $1 to $5 million.
Bridgefunding theory begins with the observation that historically low percentages of startups are "bridging" from angel to venture financing; the rest often fail. Legal and economic analyses demonstrate that this growing gap is the result of regulations and market forces. Bridgefunding recognizes that peer-to-peer Internet financing is inherently different than securities issuances of yore. It posits that crowdfunding could bridge the funding gap and theorizes why bridgefunding may be safer for investors and better for startups.
Recommended Citation
Seth C. Oranburg, Bridgefunding: Crowdfunding and the Market for Entrepreneurial Finance, 25 Cornell J. L. & Pub. Pol'y 397 (2015).
