Understanding Crowdfunding and Its Regulations

Abstract

This report offers an overview of crowdfunding using the current literature on the topic. It explains how crowdfunding campaigns and crowdfunding platforms function. It next explains how start-ups can benefit from crowdfunding: start-ups can gain access to finance not otherwise available; but crowdfunding can also lend legitimacy to projects and can help these projects access traditional financing. This report also discusses potential drawbacks, such as the risk that crowdfunding might lead entrepreneurs to disclosure requirements that destroy the value of their ideas and might expose investors to fraud, incompetent managers, and investment lock-ins. Finally, this report highlights how current equity crowdfunding regulations have regulated platforms, participating crowds, and fundraising companies. We conclude by offering further avenues of investigation to assess how crowdfunding and these regulations will impact the funding of ICT innovations.

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