• Print
Press Releases

Crowdfunding Growth Spurs Opportunities and Challenges


--Congress has created a new avenue for companies to raise capital, but startups still need to keep on top of crowdfunding’s legal issues, write Matthew J. Moisan and Justin G. Lurie in article

The practice of crowdfunding — where startups may raise small amounts of money from a large number of “unsophisticated” individuals through websites likes SeedInvest and Fundable — has sparked interest from an increasing number of companies that view it as an enticing way to raise capital.

The SEC’s passage of crowdfunding regulations in 2012 represented a significant change in policy from the Securities Act of 1933. But startups still need to monitor legal issues associated with the practice, according to a recent article written by attorneys Matthew J. Moisan and Justin G. Lurie from the New York City office of national law firm LeClairRyan. Both attorneys represent companies in all stages of development, with a particular focus on founding entrepreneurs, tech startups and emerging growth companies.

Historically, startups relied on Regulation D to provide a safe harbor from certain disclosure requirements. Congress’ passage of the Jumpstart Our Business Startup Act (“JOBS Act”) in 2012, along with its Title III provision, implemented the regulatory framework necessary for crowdfunding to thrive, they wrote in a post, Legal Issues in Equity Crowdfunding.

Title III has “certainly opened the door for companies to have greater access to capital,” they note. “But Title III is still in its infancy and has plenty of critics. Congress has discussed multiple amendments, the most consequential of which would be to increase the offering size allowed under Title III. Many detractors feel that the requirements and restrictions placed on companies makes equity crowdfunding too expensive to comply with, specifically when compared with the limitations placed on the offering size.”

In addition to keeping current with new regulations, Moisan and Lurie advise startups to consider all of their options before fundraising via crowdfunding. “This is a great tool, but not right for all companies who must understand their specific needs and capacity,” they caution. “As a newer form of investment, crowdfunding will undoubtedly be an evolving area of SEC regulation, so it is important for interested parties to monitor the newest regulations to remain compliant, and benefit from the opportunities of this new domain.”

The full column is available here