Robust gatekeeping for equity crowdfunding intermediaries

  • This is an abridged version of an article that received best paper at the Corporate Law Teachers Association conference. The award is sponsored by Governance Institute.

Accessing funding has long been a major challenge for small companies, a challenge that is even more heightened in the wake of the COVID-19 pandemic. Equity Crowd-sourced funding or Equity Crowdfunding (ECF) has in recent years emerged as an alternative source of funding that could mitigate the financing problem for small companies. Without having to comply with standard securities regulations, ECF enables small companies especially those private or proprietary companies to raise funds by offering shares to the public through an intermediary’s online platform. It is essentially an online form of fundraising for small companies from literally anybody interested in investing in the company. This makes ECF a more accessible and cost-effective source of fundraising for small companies including startups. They can raise funds from the public without becoming a listed company, without relying on wealthy investors or venture capitalists, and without having to seek for loans from banks who are constrained in lending to such small companies.

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