ZBB 2015, 376

RWS Verlag Kommunikationsforum GmbH, Köln RWS Verlag Kommunikationsforum GmbH, Köln 2199-1715 Zeitschrift für Bankrecht und Bankwirtschaft ZBB 2015 AufsätzeC. Steven Bradford*

Regulating Investment Crowdfunding: Small Business Capital Formation and Investor Protection

Investment crowdfunding is a promising solution to the difficulties that small businesses, especially startups, have raising capital. But the capital formation gains promised by crowdfunding come at a cost. Crowdfunding exposes investors, including small, unsophisticated investors who may not appreciate the potential problems, to serious risks of fraud, entrepreneurial self-dealing, illiquidity, and business failure.
Regulation may help protect investors, but there’s an unavoidable tradeoff between investor protection and the cost of raising capital through crowdfunding. Excessive regulation will kill crowdfunding by making it too expensive for the small offerings it is meant to facilitate. But excessive investor losses will also kill crowdfunding; if crowdfunding becomes a haven for fraud, the pool of potential investors will dry up.
ZBB 2015, 377
Crowdfunding regulation has a number of possible focal points: the issuers of the securities being sold; the intermediaries through whom those securities are sold; the investors buying the securities. And various types of regulation are possible, including disclosure requirements, investor sophistication requirements, investment limits, due diligence requirements, and resale limitations. This article considers the regulatory choices the United States and Germany have made and discusses how crowdfunding should be regulated.


  • I. Introduction
  • II. Regulation of Investors
    • 1. Types of Investors
    • 2. Investor Education
    • 3. Investment Limits
      • 3.1 Should the investment limits be per-offering or cumulative?
      • 3.2 Should the investment limits (and the investor education requirements) apply to sophisticated investors?
    • 4. Restrictions on Resale
  • III. Regulation of Issuers
    • 1. Offering Amount
    • 2. Mandatory Disclosure
    • 3. Off-Platform Advertising/Promotion
  • IV. Regulation of Intermediaries
    • 1. Qualifications
    • 2. Compliance Role
    • 3. Due Diligence
  • V. Conclusion
Earl Dunlap Distinguished Professor of Law, University of Nebraska, Lincoln College of Law
This article is a slight modification of the keynote address presented at the Third Annual Crowdinvesting Symposium at Ludwig Maximilian University-Munich on October 23, 2015.

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