Crowdfunding Issuers in the United States

Abstract

Startup companies can now legally sell shares of stock, bonds, or other securities to the broad public using equity crowdfunding, a new type of online capital market modeled on Kickstarter and other reward crowdfunding websites. Through equity crowdfunding, entrepreneurs can go directly to the broad public (the “crowd”) for investment, without having to go through the usual (and costly) process of an initial public offering (IPO). Equity crowdfunding thus offers a chance for all entrepreneurs, regardless of their physical location, gender, or anything else, to solicit investors and raise capital.

In 2012, new federal legislation—the Jumpstart Our Business Startups (JOBS) Act—amended the original Securities Act of 1933 to allow for equity crowdfunding. Three years later, in late 2015, the Securities and Exchange Commission (SEC) promulgated a set of rules and regulations that companies must follow, known as “Regulation Crowdfunding,” and a corresponding official form through which offerings are filed (Form C). Equity crowdfunding officially commenced in America in May 2016.

Which types of companies—“issuers” in the parlance of securities law—are actually using Regulation Crowdfunding? Are they early-stage startups or more mature issuers? What is their legal form? How many of them are women-led? Where are they based? Using an original data set collected by the author and his research assistant from all of the Forms C filed with the SEC from 2016 to 2018, this Article provides answers to these questions and more.

According to our data, crowdfunding issuers are overwhelmingly early-stage companies with just a couple of employees and little to no revenue or assets. Most are corporations, though many are LLCs, and almost none are public benefit corporations. There is significant geographic diversity among the issuers, although California and New York still lead the pack. Finally, but perhaps most significantly, we found that twenty-eight percent of equity crowdfunding issuers have a woman on their executive team, a much higher percentage than in the traditional forms of startup finance, namely venture capital and angel investing.

Keywords: Crowdfunding, Securities, Issuers, Startup, Gender, Diversity

JEL Classification: K00, K12, K2, K20, K22, K23, O1, O16, O3, O38, O40, E5, E51, G3, G32, D64, M13