Crowdfunding: A New Disruptive Technology?

6 Pages Posted: 16 Apr 2016

See all articles by Roy C. Smith

Roy C. Smith

New York University (NYU) - Department of Finance

Won Hong

Independent

Date Written: April 13, 2016

Abstract

The Jumpstart Our Business Startups (JOBS) Act was passed by Congress with bipartisan support and signed into law in 2012. Many regulators and investor advocates opposed the new law because the securities it was enabling the sale of were very risky, and the public at large was unlikely to fully understand these risks, which include over-promotion, misrepresentation, mispricing and manipulation of prices in aftermarket trading. The first IPO under the new crowdfunding rules, a U.S.$17 million issue by Elio Motors, has now been completed successfully. Between the SEC’s new rules and new procedures developed in the market, a different way to access investors in start-up companies has been created that could provide an alternative pathway for many companies to raise early state capital. If it catches on, then much of what we know about start-up financing could be changed forever; the new pathway could disintermediate the risk capital industry, just as Uber has done to taxis, and Amazon has done to retailing. The change could be very big.

Suggested Citation

Smith, Roy C. and Hong, Won, Crowdfunding: A New Disruptive Technology? (April 13, 2016). Available at SSRN: https://ssrn.com/abstract=2764419 or http://dx.doi.org/10.2139/ssrn.2764419

Roy C. Smith (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212 998 0719 (Phone)

Won Hong

Independent ( email )

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