Internet-Based Securities Offerings by Small and Medium-Sized Enterprises : Attractions and Challenges

The significant role which small and medium-sized firms play in the economy depends to a great extent on their ability, once established, to grow. While the growth and success of these enterprises depends on various factors, access to appropriate financing is critical for their expansion. In this respect, it is widely recognized that public equity financing performs a crucial function among the various sources of capital in the funding of growing SMEs. Unfortunately, as many have noted, small and medium-sized enterprises seeking to tap public equity financing face significant hurdles that restrain the accessibility of this source of capital. Since the beginning of the last decade, information technology, especially the Internet, has been profoundly affecting financial markets. Although the influence of technological advance is far-reaching, one of the most interesting impacts of Internet technology is that it can offer new potential for smaller issuers to raise capital by enhancing the informational and operational efficiency of the market. However, recent trends in the use of technology in the primary market raise tensions with traditional securities law concepts. If they are to foster capital formation, securities regulators will need to be more sensitive to the regulatory challenges of this changing technological environment. In this respect, it will be argued that the regulatory regime can be adapted to respond to technological change without jeopardizing investor protection and market confidence