As a response to recent and possibly premature state action in passing local crowdfunding legislation, this Comment examines why states should exercise care in their choice of language and legislation when amending state securities laws to enable crowdfunding.
In order to understand the landscape of crowdfunding as a form of capital formation, it is imperative to understand generally how and why the states have turned to the enactment of legislation in order to aid small businesses in raising capital. Borrowed from the rewards-based model of crowdfunding, made most popular by Kickstarter and Indiegogo, investment crowdfunding is viewed as an innovative measure for raising capital that no longer relies upon the conventional institutions to provide funding for small businesses. These small companies may never elicit the attention necessary to induce investment from institutions most able to provide them with the capital they need, and so investment crowdfunding was born from this need to reach a broad audience, while also encouraging and facilitating investment from any and all who were financially capable of doing so.
James J. Cronin III, Access to Capital: Rethinking Local Crowdfunding, 38 Campbell L. Rev. 365 (2016).