The CCA Balanced Stakeholder Framework™ creates a way to build a vibrant crowdfunding ecosystem in a country. For this to occur, the framework must address the needs of the four audiences described below. Initially it may appear that these stakeholders are unaligned. However, while they may push in different directions, each of these stakeholders needs all of the others to come together in order to create a highly functional crowdfunding ecosystem:
- Protection for Investors: The requirements for investor protection are paramount. Without the protection that is provided by disclosure, financial markets fail. Investors can receive protection via fulsome disclosure provided by issuers. Additionally, ongoing educational programs must be enacted to educate both sophisticated and unsophisticated investors regarding the risks and opportunities of investing in SMEs and startups. Also, crowdfunding may provide an opportunity to update the definition of a “sophisticated investor” now that more individuals have better access to financial data.
- Capital for SMEs and Entrepreneurs: Securities-based crowdfunding regulation should enable the creation of financial vehicles or issues that provide both SMEs and entrepreneurial startups with access to seed capital, working capital, and expansion capital. These regulations must provide enough structure to companies that seek capital, while also being lightweight enough so that the process is not so onerous that businesses are discouraged because the cost and time requirements make it unviable for them. If regulations are too restrictive, then the very targets of this legislation will never be able to benefit from it.
- Transparency for Regulators: Regulators must have access to secure, standardized, timely, and periodic data from all crowdfunding platforms so they can provide oversight and enforcement of the rules. Crowdfunding should provide the regulator with more transparent and recent data than it gets today from the traditional private capital markets. What is important here is that the oversight is “data intensive and prescriptively light.” This means that by using technology for frequent monitoring of the system, there is an opportunity to react much more quickly if there are concerns regarding an issuer, investor, or transaction.
- Enabling Crowdfunding Platforms: Finally, the crowdfunding platforms themselves must have the opportunity to build a profitable, growing, long-term business. This means that the regulatory burdens must be such that there is proper and appropriate oversight, while providing enough room for platforms to grow. Again, the question is how can we utilize technology in new ways, to be “data intensive and prescriptively (and cost) light?” If crowdfunding platforms are overburdened with high costs and time-intensive compliance requirements, then they will fail, and then the entire initiative to create new access to capital for SMEs and startups will also fail. Approach to Building Recommendations
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