Crowdfunding

Speakers: Chris Brummer, Senior Fellow, Milken Institute; Professor of Law, Georgetown University Law Center Candace Klein, Founder and CEO, SoMoLend Benjamin Miller, Co-Founder, Fundrise Babak Nivi, Co-Founder and President, AngelList Danae Ringelmann, Co-Founder, Indiegogo Moderator: Daniel Gorfine, Director, Financial Markets Policy, and Legal Counsel, Milken Institute. The concept of crowdfunding, seen as the next phase in the democratization of finance, has captured the attention of investors, entrepreneurs, technologists and the media. It can be defined as a means of raising capital for a project or enterprise through the pooling of numerous, small contributions or investments from the public, usually via the Internet. Last year, entrepreneurs around the world raised an estimated $2.8 billion through crowdfunding. The bipartisan Jumpstart Our Business Startups(JOBS) Act, passed in the U.S. in 2012, seeks to open the market for securities crowdfunding, enabling average investors to purchase debt and equity in enterprises ranging from startup companies and mom and pop shops to real estate. Additionally, the law lifts the ban on general solicitation, allowing companies to mass market securities to accredited investors, which could spur a sea change in capital raising. Join us for a discussion about maximizing the promise of crowdfunding while minimizing risks to investors and entrepreneurs.

Thanks to the Internet and social media, we can now ask "the crowd" for help. Companies and individuals increasingly approach the crowd for creative solutions to social or business problems (crowdsourcing) or for financing a project, venture or cause (crowdfunding). At a roundtable discussion in July 2012, participants addressed key questions on the use, impact, and regulation of crowdfunding, specifically through the sale of debt or equity as a mechanism for raising capital. The event was hosted by the Milken Institute's Center for Financial Markets, in partnership with the Georgetown University Law Center, in Washington, D.C. The purpose was to help inform the public and the Securities and Exchange Commission's rulemaking process in advance of the SEC's December 31, 2012, deadline for issuing final rules and regulations implementing Title III of the Jumpstart Our Business Startups Act. The JOBS Act, signed into law in April 2012, creates a crowdfunding exemption to current securities laws and registration requirements. Roundtable participants explored creative uses and applications of securities crowdfunding, considered the limits and leading criticisms of the new exemption, and worked through different regulatory approaches that could help to unlock the promise of this new capital-raising mechanism, while minimizing the possibility of fraud and abuse. Although views diverged on the degree to which the SEC should regulate issuers and crowdfunding platforms, participants agreed that the final regulatory regime should not stifle the exemption's potential to create jobs and spur economic growth. What remains to be seen, however, is whether crowdfunding will mark a major turning point in an ongoing democratization of financial markets, or whether the benefits of the exemption will be muted by regulatory burdens, concerns about fraud, high startup failure rates, and lack of investor and issuer sophistication.