Research On The Risk And Prevention Strategy Of China’s Equity-based Crowdfunding

The scale of equity-based crowdfunding increased very quickly in China since 2012, which resulted in regulator paid more attention to this financing method. During the NPC and CPPCC of this year, the government work report put forward that allows equity-based crowdfunding pilot work, enhancing its service capability of starting a business for the public. The equity-based crowfunding will be a part of Chinese multi-level capital market and provide a new means of financing for micro-enterprise. But on the other hand, the relevant risk cannot be ignored, it will affect participants’ interests and financial stability if not operate properly.This paper introduces some basic concepts and developing condition of crowfunding firstly, then analyses the economic environment and policy environment of the equity-based crowdfunding, pointing the necessity and obstacle of the equity-based crowfunding. Then according to its development environment and operation mechanism, analyzing what risks these participants face. The legal status of crowdfunding platform has not been cleared, facing the risk of legal status; the initiator faces the risk of IPO illegally and infringement of intellectual property rights; the investor faces moral hazard, valuation risk, dilution risk, agent risk and liquidity risk. these risks will influence participants’ enthusiasm. Finally, this paper chooses to use the operation mechanism of crowdfunding platform as the breakthrough point, making an intensive research about what actions should platform take to against these risks. At the same time, this paper gives some suggestions to regulators that they should balance the supervision and protection, providing a good development environment for equity-based crowdfunding.