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Crowdfunding - A new disruptive technology?

Author

Listed:
  • Smith, Roy

    (NYU Stern)

  • Hong, Won

    (NYU Stern)

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 & Hong, Won, 2016. "Crowdfunding - A new disruptive technology?," Journal of Financial Transformation, Capco Institute, vol. 43, pages 9-14.
    • Handle: RePEc:ris:jofitr:1561
    as

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    More about this item

    Keywords

    Venture capital; initial public offerings; entrepreneurial finance; investment banking;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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