Hunton Law

Legal Counsel for Nonprofits, Foundations & Social Enterprises

Legal Counsel for Nonprofits, Foundations & Social Enterprises

Crowdfunding: Legal Aspects of Alternative Finance

Impact Law Forum’s August 21st meeting featured attorney Natalia Thurston of Social Venture Law, who presented on Crowdfunding: Legal Aspects of Alternative Finance

Crowdfunding is rapidly growing as a new source of capital aimed at funding micro-enterprise.  A major reason for crowdfunding’s growth is the 2012 passage of the Jumpstart Our Business Startups Act (“JOBS Act”), federal legislation intended to increase the flow of capital to U.S. small businesses by easing securities regulations.  It remains to be seen whether the law will benefit the startup and crowdfunding communities, or whether it will create new regulatory burdens, inefficiencies, and confusion in the marketplace.   

Natalia provided an overview of several types of alternative investment vehicles, including rewards-based (e.g., Kickstarter, Indiegogo), peer-to-peer lending (e.g, Lending Club, Prosper), direct public offerings (e.g., Farm Fresh to You, People’s Community Market), and self-directed individual retirement accounts.  An example of a direct public offering through equity crowdfunding is Mosaic, which connects investors to solar projects via an online platform.

Natalia then discussed the novel legal issues raised by equity crowdfunding, including investor accreditation and suitability requirements, risks to investors, and fiduciary duties of online platforms acting as intermediaries in light of the SEC’s lift of its ban on general solicitation in July 2013.  With several key SEC regulations still pending, the legal rules, reporting, and standards of equity crowdfunding remain uncertain.  Entrepreneurs, investors, and attorneys are awaiting further regulations from the SEC, which are expected later this year.  For information and updates on crowdfunding, visit Crowd Fund Beat.

The slides from Natalia’s presentation are available here.