Biotech Crowdfunding: How the JOBS Act Alone Cannot Save Investors

Wu, Erica

Equity crowdfunding, the issuance of securities through online platforms to an unlimited number of investors, became a new legal source of capital for companies beginning in May 2016. Crowdfunding is one of several methods enacted by the JOBS Act through which emerging companies, or startups, can better access public capital. However, crowdfunding presents new risks to investors as many of the traditional securities law safeguards that protect investors are reduced or removed. Particularly in the biotech sector, crowdfunding investors are subject to increased information asymmetry, as ordinary individuals investing in complex scientific technologies may lack not only information about the company and the entrepreneur, but also the scientific background necessary to fully evaluate the technology itself. This Noe analyzes the impact of the JOBS Act on biotech investing, focusing on the risks and protections available to crowdfunding investors, within as well as outside the bounds of the securities laws. This Note concludes with a proposal to integrate protections from FDA regulations and patent laws into the crowdfunding rules.

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December 3, 2019