The phenomenon known as crowdfunding has become an attractive alternative for businesses looking for investors without having to go through more well-established routes or without necessarily having to lure and impress professional investors. However, this new form of raising capital creates a series of issues and problems unique to crowdfunding, which has led to a struggle amongst governments to effectively regulate this new entrepreneurial opportunity. The crowdfunding conundrum government regulators are facing causes them to have to reconcile two contradictory missions: facilitating the acquisition of capital by businesses and protecting investors (and the market) from fraud and manipulation.
In a new article, I analyze this conundrum from a United States and Spanish perspective. I first describe the crowdfunding conundrum in general terms by explaining how crowdfunding (both consumer and accredited investor) works in practice and exploring the major problems and issues that startup companies, investors, the market, and the state face in crowdfunding which need to be resolved in a regulatory system. I then describe and evaluate the current American and Spanish and proposed European regulatory solutions to the crowdfunding conundrum. I then conclude by evaluating whether and how well the United States’ and Spain’s regulations, as well as the EU proposed regulations, have attempted to resolve the conundrum by balancing the risks and problems facing crowdfunding transactions.
The full paper can be accessed here.
Professor Rafael A. Porrata-Doria, Jr. is a Professor of Law at Temple University Beasley School of Law. His courses include Business Associations, Securities Regulation, International Commercial Transactions, Comparative Law, Contracts, Contract Remedies, Corporate Law, Law of the European Union, International Trade and Investment, Advanced Securities Regulation, and other international and business law courses. A list of his other publications is available here.