Corporate governance implications of new methods of entrepreneurial firm formation

From May 2016, small businesses and start-ups can sell shares to the American general public on crowdfunding portals. The US Securities and Exchange Commission has indeed finally defined the rules that make equity crowdfunding a legal means by which to raise seed capital online. The crowdfunding phenomenon is now likely to spread globally. Though an emerging field of study, a number of papers and special issues have already been dedicated to crowdfunding from different streams of research, including entrepreneurship, marketing and information systems. As in other entrepreneurial finance markets, information asymmetries between insiders and outsiders ingenerate agency concerns. As in IPOs, for instance, the ownership base of entrepreneurial ventures raising capital in crowdfunding is opened for the first time to external shareholders. Crowdfunding platforms allow fundraising from a pool of online backers, and will need to cope with collective-action problems as crowd-investors have neither the ability nor the incentive, due to the small investments, to devote substantial resources to due diligence. While the above mentioned collective action problems limit investors' monitoring incentives, entrepreneurs can be tempted to shirk and engage in self-dealing. The perspective of corporate governance research is needed to address these questions.