Resolving the Crowdfunding Conundrum: The Experience of the United States and Spain

Abstract

The phenomenon known as crowdfunding has become an attractive alternative for businesses looking for investors without having to go through more well-established routes or without necessarily having to lure and impress professional investors. However, this new form of raising capital creates a series of issues and problems unique to crowdfunding, which has led to a struggle amongst governments to effectively regulate this new entrepreneurial opportunity. The crowdfunding conundrum government regulators are facing causes them to have to reconcile two contradictory missions: facilitating the acquisition of capital by businesses and protecting investors (and the market) from fraud and manipulation. This Article analyzes this conundrum from a United States (“U.S.”) and Spanish perspective. I first describe the crowdfunding conundrum in general terms by explaining how crowdfunding (both consumer and accredited investor) works in practice and explore the major problems and issues that startup companies, investors, the market, and the state face in crowdfunding, which need to be resolved in a regulatory system. I will then describe and evaluate the current American and Spanish and proposed European regulatory solutions to the crowdfunding conundrum. I then conclude by evaluating whether and how well the United States’ and Spain’s regulations, as well as the European Union’s (“EU”) proposed regulations, have attempted to resolve the conundrum by balancing the risks and problems facing crowdfunding transactions.