Playing to a New Crowd: How Congress Could Break the Startup Status Quo by Raising the Cap on the Jobs Act's Crowdfunding Exemption

Abstract

On October 30, 2015, the Securities and Exchange Commission voted to implement the Jumpstart Our Business Startups (“JOBS”) Act’s exemption for crowdfunded securities, which became effective on May 16, 2016. Crowdfunding technology allows any entrepreneur with an Internet connection the opportunity to pitch an idea to a community of investors, which could revolutionize the market for early-stage startup financing. That market has largely adhered to a status quo in which the strength of an entrepreneur’s network is nearly as important as his or her idea—a dynamic that is especially difficult for female and minority entrepreneurs who have been largely excluded from traditional sources of early-stage funding. Crowdfunding may offer a solution. The JOBS Act, however, caps the amount that an entrepreneur can raise with the crowdfunding exemption at $1 million annually. Given how much capital it takes to launch a successful startup, this cap could prevent crowdfunding from truly benefitting entrepreneurs. This Note examines the startup financing landscape, crowdfunding’s revolutionary potential, and securities regulation laws. Further, this Note argues that Congress should raise the cap on the JOBS Act’s crowdfunding exemption to $5 million annually so that entrepreneurs relying on it can more likely compete with their peers who have easier access to traditional startup financing.