On Supervision Of Equity-based Crowdfunding

In 2009, America’s largest crowdfunding website, Kickstarter, was founded, and with its establishment, "Crowdfunding", a brand-new internet financing mode, has entered into the public view and enjoyed a rapid development around the world. In 2011, crowdfunding was introduced to Chinese Mainland with the establishment of the first crowdfunding website in China, Demohour. After that, various kinds of crowdfunding platforms, like AngelCrunch, Dajiatou, etc., were founded successively. As a new financing tool, equity-based crowdfunding is a typical kind of crowdfunding, which is of great significance for the development of small and micro financing and the construction of multi-level capital market, and is helpful in solving the financing problem bothering small and micro businesses and startups. However, equity-based crowdfunding breaks up the traditional boundary between public placement and private placement and thus brings some impact on the original financial supervision system in the following aspects:it is in the awkward situation that it causes many blind spots in the current legal framework; its legality has been in a unstable state for a long time; and it is facing the major legal risks of touching the baseline of illegal fund-raising, finance fraud, and so on. These legal risks, together with regulatory authorities’attitude of elective enforcement and "baseline supervision" towards equity-based crowdfunding, restrict its development in China. At present, most of equity-based crowdfunding platforms in China adopt both innovative and conservative methods to avoid the risk of being recognized as illegal fund-raising. Specifically, on these platforms, investors’ identity is authenticated through real-name system, and the specific information of crowdfunding projects is only disclosed to the authenticated investors; then, these platforms adopt the offline one-to-one mode and realize the equity investment by means of mutuing funds. In this way, the "private equity-based crowdfunding mode" with Chinese characteristics comes into being, but it not only cannot avoid the risk of being recognized as illegal fund-raising, but also deviates from the substantive characteristics of crowdfunding as the method of raising small funds from the public. On November 19,2014, China’s Prime Minister, Li Keqiang, first proposed to establish the rapid mechanism of small refunding in capital market and launch pilot projects of equity-based crowdfunding in an executive meeting of the State Council. On the background of the reform on registration system in the Securities Law, it will be of great significance to confirm the legal nature and legitimate status of equity-based crowdfunding, cover equity-based crowdfunding under legal supervision, and establish the relevant supervision system for equity-based crowdfunding.This paper studied and discussed the problems on equity-based crowdfunding in the following four parts:The first part summarized crowdfunding’s concept, forming background, types, and characteristics. First, it introduced crowdfunding’s concept and forming background. Second, it explained the four types of crowdfunding, and gave a brief analysis of their operational modes respectively. Last, it analyzed and studied the characteristics of equity-based crowdfunding mode, which is this paper’s focus.The second part mainly analyzed the legal difficulties and institutional obstacles facing equity-based crowdfunding in China. It was divided into four subparts to analyze the legal difficulties facing equity-based crwodfunding step by step. It discussed whether equity-based crowdfunding belongs to the category of securities issuance, the disharmony between equity-based crowdfunding and the current system of securities issuance, the "risk of being recognized as illegal fundraising" facing equity-based crowdfunding, and the unique "private equity-based crowdfunding" mode formed under the compromise to the current laws.The third part analyzed the necessity of establishing the supervision system for equity-based crowdfunding. First, it analyzed the necessity of developing equity-based crowdfunding from the points of small and micro businesses’financing difficulty and the establishment of multi-level capital market. Second, it analyzed the necessity from the points of protecting investors and facilitating small and micro businesses’ fundraising.The fourth part proposed a concrete institutional design and some supervision suggestions for equity-based crowdfunding in China. Through analyzing the two different supervision modes specified respectively in Draft of Opinions on Securities issued by China’s securities association and America’s JOBS Act, it clarified equity-based crowdfunding’s nature of public offering, and with reference to JOBS Act, proposed some suggestions on the establishment of supervision system for equity-based crowdfunding in China from the aspects of exempt offering, investment and financing limits, information disclosure, supervision on platforms, and so on.