The Local Nature of Equity Crowdfunding

Current scholarship portrays equity crowdfunding as a disaster. For example, many experts say that only startups that cannot utilize more traditional methods of financing will turn to equity crowdfunding. Additionally, given that the only ventures using equity crowdfunding are otherwise unworthy of funding, those startups make for incredibly risky investment opportunities. Further, unaccredited investors (investors with lower incomes and net worth) regularly participate in these risky offerings, creating the potential for investors that cannot afford to lose their investments entering into investments that they are very likely to lose. Critics claim that this perfect storm makes equity crowdfunding undesirable on a societal level. <br><br>This article seeks to reverse that narrative by considering equity crowdfunding issuers previously ignored by the scholarly literature: businesses in the arts, entertainment, and sports industries with an intense local following. A closer look at these equity crowdfunding campaigns reveals that these ventures have found success when raising money from local “fans” who engage with the entertainment experience provided by the business. For these ventures, the capital raised is often significant, allowing for the company to expand its offerings to customers. For investors, these investment opportunities: (1) can be less risky than investing in traditional startups; and (2) provide a way to help a business about which they are passionate.<br><br>Lastly, this article argues that we should re-frame scholarly discussions around equity crowdfunding, given that it is a useful way for locally-focused arts, entertainment, and sports businesses to raise money from the company’s fans. In particular, this article advocates for common-sense reforms to Regulation Crowdfunding to make it easier for companies to raise money from their fans, while maintaining strong investor protections.