19 Dec '11, 10am

What Will the Crowdfunding Bill Do For Startups?

What Will the Crowdfunding Bill Do For Startups?

There are certain downsides to crowdfunding for startups, however. Under state law, minority stockholders have certain rights, such as voting rights, and may inspect a company’s books and records, as well as bring claims against a company they invest in. Having a large number of people invest insignificant amounts into a company, and earn stockholder rights in that company, is a potential administrative nightmare as well as time-consuming and costly. Additionally, crowdfunding may deter traditional VCs from investing in a company if they see hundreds of non-SEC registered investor/stockholders. These same VCs may not want to sit on the board of directors of a company that has hundreds of other investors and stockholders, due to liability and risks of lawsuits. Likewise, D&O liability insurance rates could skyrocket for these companies.

Full article: http://www.triplepundit.com/2011/12/will-crowdfunding-bil...

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