Format:
1 Online-Ressource (64 p)
Content:
Crowdfunding is an increasingly popular way for startup founders to raise capital from a large number of people through the internet. In the United States, the JOBS Act exempts crowdfunding offerings from registering with the SEC. To implement this exemption, the SEC issued Regulation Crowdfunding (Reg CF) in 2015, which was amended in 2020. Reg CF imposes certain obligations on issuers, investors, and funding portals, but also allows for flexibility.In the U.S., offerings under Reg CF have become widespread. This article surveys the market practices of Reg CF offerings in the U.S., especially om three funding portals accounting for a majority of securities offerings under Reg CF. This article finds, different from seed and venture capital financing, the most common types of securities issued in these offerings are common stock, debt, and Simple Agreement for Future Equity (SAFE). The SAFE, a kind of convertible security, derived from the convertible note but omitting its characteristics as a debt instrument, can be converted into equity securities, typically preferred stock, subject to a valuation cap and other conditions set forth in the SAFE agreement. This article expounds on how the SAFE works. In addition to the standard Y Combinator template, the SAFE has two variations alleged for avoiding complicated cap tables and making offerings simpler. However, these variations have raised safety concerns for investors and have been criticized by academics and the SEC. Despite these concerns, the SEC did not ban the use of the SAFE in crowdfunding offerings in the amended Reg CF due to strong opposition from industry representatives. This article finds that the attacks against the safety of the SAFE lack conclusively robust evidence, and that in the real world, the SAFE is particularly favored in the offerings reaching or approximating the $5m raising limit.In contrast, the crowdfunding industry in China used to be thriving but has almost vanished now due to regulatory crackdowns. To revive the industry, two legal loopholes in the China Securities Law (CSL) need to be addressed. The first is that only a limited number of securities are covered by the CSL, with notes and SAFEs being outside of its scope. The second is that the CSL's numeric benchmark for a public offering is neither scientific nor reasonable. Above all, the top priority is to provide a statutory exemption for crowdfunding offerings in China. The article looks to the rules of law in the U.S. to address the above loopholes. The Supreme Court of the U.S. in its famous Howey decision clarified the elements for an investment contract to be treated a security, thus allowing SEC to exercise regulatory powers over offerings issuing Safe and other convertibles; and in Ralston Purina enacted the “sophistication and information” test to determine a public offering. Meanwhile, Reg CF’s tiered disclosure obligations on issuers and differentiation for accredited and non-accredited investors are worth being studied by regulators in China. In sum, Reg CF, and a wealth of Howey- and Ralston Purina-line of cases in the U.S. could be useful for China's rulemaking efforts in the field of crowdfunding, especially in terms of designing a balanced exemption and its implementing rules, expanding the CSL’s reach to more types of securities, while broadening investors’ access to the exempted crowdfunding offerings
Note:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments December 17, 2020 erstellt
Language:
English
DOI:
10.2139/ssrn.4297448
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