The Gatekeepers of Crowdfunding

72 Pages Posted: 4 Sep 2018 Last revised: 11 Sep 2018

Date Written: May 1, 2018


Securities crowdfunding is premised on two core policy goals, inclusivity and efficiency. First, crowdfunding is conceived as an inclusive system where all entrepreneurs are given a chance to pitch their idea to the “crowd.” Second, crowdfunding is supposed to be an efficient way to channel funds from public investors to promising startup companies. There is a fundamental tension between these two policy goals, however. A totally inclusive system would ensure that platforms list any and every company that wants to participate. But platforms need to curate and select the companies they list in order to establish a reputation as a reliable market for investors. This gatekeeping function aids efficiency, but is exclusive by its nature. Hence, the tension between inclusive and efficient crowdfunding.

This Article provides a theoretical and an empirical analysis of inclusivity versus efficiency in crowdfunding. It also compares the American crowdfunding system with its counterpart in New Zealand using original research collected by the author during a six month residency in that country. This research reveals that crowdfunding in New Zealand is much more financially successful than in the United States. This Article explains this outperformance on the basis that New Zealand’s system is focused solely on efficiency, even at the expense of inclusivity. In the United States, by contrast, we closed our eyes to the tension between efficiency and inclusivity and tried to achieve both at the same time. In practice, and perhaps as could have been expected, this has led to only minor success on both fronts.

Broadening the analysis out, we see that inclusive crowdfunding is a luxury that only certain countries can manage, depending on their existing systems for entrepreneurial finance. The United States has a huge and sophisticated venture capital industry and thus can afford to sacrifice some efficiency in our crowdfunding system in order to advance inclusivity. But New Zealand has long had very little venture capital investment and hence a real need to develop crowdfunding as an effective new means for efficiently channeling capital to the country’s startup companies. The need to consciously trade off inclusivity and efficiency is an important lesson from the present research.

Keywords: Crowdfunding, Securities, Comparative, New Zealand, Gatekeepers, JOBS Act, CROWDFUND Act, Startup, Inclusivity, Efficiency, Venture Capital

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

Suggested Citation

Schwartz, Andrew A., The Gatekeepers of Crowdfunding (May 1, 2018). Washington and Lee Law Review, Vol. 75, p. 885, 2018, U of Colorado Law Legal Studies Research Paper No. 18-31, Available at SSRN: or

Andrew A. Schwartz (Contact Author)

University of Colorado Law School ( email )

401 UCB
Boulder, CO 80309
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics