Bridgefunding : Crowdfunding and the Market for Entrepreneurial Finance

Title III of the JOBS Act of 2012 (“Regulation Crowdfunding”) should encourage entrepreneurship by allowing startups and small businesses to sell stock online. Unfortunately, that law applied Depression-era securities-law concepts to peer-to-peer financing in the Internet era; as a result, it got Internet-investor protection wrong. Using Regulation Crowdfunding requires startups to comply with costly and unnecessary anti-fraud requirements. Even after making disclosures, registering with a funding portal, and producing audited financial statements, startups are still not permitted to raise enough money via Regulation Crowdfunding to deploy high-growth strategies without needing more funds from professional Angel and Venture investors.This Article explores the business environment of entrepreneurial finance through the lens of securities regulations. It finds that regulators should be more concerned with protecting investors from startup failure than from crowdfunding fraud. It recommends an amendment to Regulation Crowdfunding that may enable startup success: the limit on fundraising should be raised from $1 to $5 million.Bridgefunding theory begins with the business observations that a historically low percentages of startups are “bridging” from Angel to Venture financing; the rest often fail. Legal and economic analysis demonstrates this growing gap is the result of regulations and market forces. Bridgefunding recognizes that peer-to-peer Internet financing is inherently different than securities issuances of yore. It posits that Crowdfunding could bridge the funding gap, and it theorizes why doing so may be safer for investors and better for startups