Disrupting Corporate Finance

This paper uncovers the potential of equity crowdfunding to disrupt the corporate finance sector. While a traditionally conservative sector, new possibility for businesses to obtain funding through usage of technology have erupted in later years making SMEs in particular less dependent on bank lending.

The paper analyses the risks and benefits of equity crowdfunding for SMEs and examines how the regulatory and contractual schemes have managed to balance investor protection with entrepreneur flexibility. The paper concludes that such balance has not been achieved and instead proposes a model that combines equity crowdfunding and venture capital. Following that, the paper analyses the two main advantages of the model proposes; contractual risk mitigation and governance advantages.

The article concludes that the combined model offers significantly better contractual protection for crowd-investors as the addition of a venture capitalists changes the investment contract from adherence based to a negotiated contract with i.a. protection against dilution. While the governance advantages, however, are not equally evident,the paper concludes that this model has the potential of disrupting the corporate financing sector.