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The Emergence of Equity Crowdfunding & CrowdEquity Ltd.: Exploring the relationship between crowdfunding models and emergent legislative frameworks
Uppsala University, Disciplinary Domain of Science and Technology, Technology, Department of Engineering Sciences, Industrial Engineering & Management.
Uppsala University, Disciplinary Domain of Science and Technology, Technology, Department of Engineering Sciences, Industrial Engineering & Management.
2013 (English)Conference paper (Refereed)
Abstract [en]

“It is, perhaps, one of the most powerful developments in our modern-day socioeconomics, and it promises both to transform the capital formation landscape and to offer an avenue for a creative and intellectual rebirth.” (Lawton & Marom, 2013)

Over the past eight years or so, the interest in micro-financed business ventures and other creative projects has risen quite dramatically. Anything from artistic activities to technological development projects, and scientific research, now try to win the public’s favor and its excess capital on crowdfunding platforms such as Indiegogo, Kickstarter, and Kiva, or in the Swedish context, GoFundMe or FundedByMe. With the pledges to successfully funded projects amounting to more than 750 million US dollars on Kickstarter alone (at the end of August 2013), and with this financing principle emerging in new markets through an ever increasing range of platforms, crowdfunding is indeed beginning to make out a significant institution in the realms of venture capital – so significant, and with such promise, in fact, that rigid investment laws/regulations in the United States, which have remained the same for almost 80 years, have recently come to be reformed (see, e.g., Kassan & Long, 2012; Obama, 2012).

Analyses and opinions part, however, on the potential that this financing principle has for transforming the conditions for artistic as well as entrepreneurial endeavors, and for society by and large, for social, cultural, and economic institutions, and ultimately for the dynamics of value creation; and analyses and opinions part on what interests this financing principle may actually serve, and what effects it will bring. While it has, on the one hand, been hailed as an institution that democratizes venture capital, and an opportunity for the so called 99% to get a bit of influence over investments formerly controlled by the 1%, by optimistic commentators and promoters such as Kevin Lawton and Dan Marom (2013), quoted above, recent legal reforms geared to support the crowdfunding phenomenon (by allowing a broader range of investment models than merely rewards and donations) – namely, the JOBS Act that passed the US Senate on April 5, 2012, and which opens for makes it legal to issue equity investment funds for cooperative start-ups – have, on the other hand, been understood as a plot directed by Wall Street that will seriously undermine the potential of this financing principle. More specifically, it has been understood as a plot by Wall Street to avoid regulations from the Security and Exchange Commission (SEC) by further deregulating the flows of capital – and ultimately positing this financing principle as one that allows for more of that which for instance the Dodd-Frank Wall Street Reform and Consumer Protection Act was made to counter. More “speculation, fraud and destabilization of the economy at the expense of the 99%”, as the signature Geminijen of Anti-Capitalist Meetup (2013), has put it in My Firedoglake’s reader diaries.

In this paper, we explore the relationship between different crowdfunding models/schemes and the emergent legislative frameworks that are currently being elaborated and effectuated to regulate how the general public, or the so called crowds, may invest in new startup ventures. The starting point for this analysis is that these legislative frameworks, which in a first instance are put in place to allow public investments in crowdfunded ventures, not only will impact the future of crowdfunding, but that they will also be conditioned/impacted by various social, political, and economic forces that contribute to shaping the regulatory reforms. Starting off by looking at the promises associated with crowdfunding, and a number of premonitions that have emerged in the wake of the regulative frameworks imposed on equity crowdfunding through the JOBS Act, the paper goes on to exhibit/explore and discuss how equity crowdfunding, despite the formal regulations that have been said to circumcise it, and despite the many interests having impacted the bill before it was passed into Law (and turned into an act), nevertheless has been said to possess a subversive socio-economic power vis-à-vis the traditional financial industry – due to the social dynamics and the informal orders also regulating this arena, and due to the opportunity it offers for interest groups, who usually find themselves on different sides in the debate, to join forces and undermine established power structures within the finance industry, for instance. In a third section, the paper rewinds the tape, and broadens the perspective on crowdfunding, as it takes a look at a range of different crowdfunding principles and platforms currently emerging, and at how they relate to the awaited regulations that will follow upon the JOBS Act – and to the legislative limbo presently marking many domains of the crowdfunding arena. To what extent does the regulative framework impact already established actors, and to what extent do other value systems, and social and politico-economical agendas impact the strategies pursued within the crowdfunding arena. This is the question guiding this section. And it leads on to – or transmogrifies into – a more concentrated account and discussion of a current Swedish initiative to establish a crowdfunding (crowd equity) platform; this in a setting where no legislative reforms have yet been made to facilitate and to regulate equity crowdfunding.

Place, publisher, year, edition, pages
National Category
Business Administration Engineering and Technology
Research subject
Engineering Science with specialization in industrial engineering and management
URN: urn:nbn:se:uu:diva-214265OAI: oai:DiVA.org:uu-214265DiVA: diva2:684561
Nordic Academy of Management
Available from: 2014-01-08 Created: 2014-01-08 Last updated: 2014-01-09

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