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Playing to a New Crowd: How Congress Could Break the Startup Status Quo by Raising the Cap on the Jobs Act's Crowdfunding Exemption
| Content Provider | Semantic Scholar |
|---|---|
| Author | Murphy, Thomas N. |
| Copyright Year | 2017 |
| Abstract | IntroductionIn 2013, actor and director Zach Braff launched a campaign on the website Kickstarter to crowdfond his second major film, Wish I Was Here} He raised over $3 million on the website's portal, which allows individuals to tap into a community of online investors interested in helping to fund a project.2 Although the resulting film was not itself groundbreaking,3 Braff's project did shift national attention toward crowdfunding, the innovative way to raise capital that some argue could soon surpass traditional venture capital financing for startups.4The Jumpstart Our Business Startups ("JOBS") Act's crowdfunding exemption was implemented on May 16, 2016, and since then entrepreneurs have been able to engage with communities of online investors, comprised of everyday Americans, to issue securities through crowdfunding portals.5 Title III of the JOBS Act, known as the Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act ("CROWDFUND Act" or the "Act"), creates a new exemption to the Securities Act of 1933 ("Securities Act") that allows startup companies to issue securities through a crowdfunding portal without having to comply with the Securities and Exchange Commission's ("SEC") registration requirements.6 Specifically, under the Act, startups can issue up to $ 1 million in crowdfunding securities annually, and individuals are allowed to purchase those securities.7 The Act also includes protections for investors who could potentially fall victim to fraudulent crowdfunding campaigns.8 Congress's concerns about fraud were legitimate considering the Internet-based nature of crowdfunding under the Act, as is illustrated by past examples of deceptive crowdfunding campaigns.9The purpose of the JOBS Act is to encourage innovation and economic growth in the United States by giving entrepreneurs easier access to capital.10 This is a worthwhile goal considering that an active entrepreneurial environment has long been considered by economists to be vital to a well-functioning economy.11 Entrepreneurs contribute to "creative destruction," a phrase coined to describe the positive effect that innovation has on a capitalist economy.12 The concept is illustrated by startups that continue to shake up industries perpetuating an atmosphere of innovation and creating jobs in the process.13Launching and growing a successful startup is extremely capitalintensive, however, which is why Congress identified that legislation like the JOBS Act was necessary.14 Entrepreneurs need easier access to early-stage financing in order to bridge the "capital gap"-the disparity between the amount of capital required by a startup in its infancy and the amount that investors are willing to extend to startups at that point.15 Startups are especially vulnerable to failure during the capital gap, prompting some to refer to it as the "valley of death."16Further, the lack of gender and racial diversity in the entrepreneurial landscape in the United States makes survival even more difficult for entrepreneurs who do not fit the startup financing status quo of primarily white men from elite universities.17 Traditional sources of capital for entrepreneurs have historically been effectively unavailable to women and minorities.18 This problem is exacerbated by the exclusive social dynamics in the venture capital market, where the strength of an entrepreneur's network is often as important as the strength of his or her idea.19 Although there are financing alternatives to venture capital and angel investors-the two methods traditionally used by entrepreneurs to launch new businesses-one study shows that, on average, suc cessful startups raise $41 million from those two sources.20 This places entrepreneurs ignored by venture capitalists and angel investors at a significant comparative disadvantage.21Crowdfunding has the potential to mitigate this problem.22 Crowdfunding combines the far-reaching access of social networking with finance, and therefore provides all entrepreneurs, regardless of background, the opportunity to pitch their idea to a community of investors. … |
| Starting Page | 775 |
| Ending Page | 775 |
| Page Count | 1 |
| File Format | PDF HTM / HTML |
| Volume Number | 58 |
| Alternate Webpage(s) | https://lawdigitalcommons.bc.edu/cgi/viewcontent.cgi?article=3574&context=bclr |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
