Regulation Crowdfunding is Thriving—Let’s Build on It, Not Tear It Down

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In a recent congressional hearing on capital formation, one key takeaway stood out: Regulation Crowdfunding (RegCF) and Regulation A (RegA) are working. These mechanisms have played a pivotal role in fueling economic growth, creating jobs, and unlocking new opportunities for both entrepreneurs and everyday investors. Yet, despite their proven success, some critics continue to spread misinformation, attempting to discredit the power of equity crowdfunding. It’s time to set the record straight.

Addressing the Myths Around Investment Crowdfunding

Myth #1: 90% of Startups Fail—So Expanding Investment Access is Risky

One common argument against expanding investment access is the oft-quoted statistic that 90% of startups fail. Critics, including Alexandra Thornton from the Center for American Progress, suggest that increasing opportunities for everyday investors to participate in early-stage companies exposes them to high risks.

However, the real issue is why startups fail—and that’s precisely what RegCF and RegA are designed to address. According to CB Insights, the two biggest reasons startups fail are:

1. Lack of access to capital

2. Running out of money

RegCF and RegA solve this problem by providing new funding pathways that allow businesses to raise money directly from their communities, customers, and individual investors. These regulations democratize capital formation, enabling promising companies to secure the funding they need to grow and succeed.

Moreover, data from the Annual State of the Investment Crowdfunding Industry Report reveals that companies raising funds through RegCF have a failure rate of just 21.7%—significantly lower than the exaggerated 90% failure rate often cited. This data proves that investment crowdfunding is not exacerbating startup failure rates but actively reducing them.

Myth #2: Private Markets Are Risky and Opaque

Another claim from critics is that private market investments lack transparency and investor protections. Thornton argues that crowdfunding investments are high-risk due to a lack of oversight, but this assertion is misleading.

RegCF and RegA include built-in safeguards that require businesses to file financial statements, business plans, risk disclosures, and ongoing reporting with the Securities and Exchange Commission (SEC). This structured framework creates a level playing field for investors and ensures that companies remain transparent about their financial health and operations.

In contrast, traditional venture capital and private equity deals often offer far less transparency than equity crowdfunding. In many cases, private VC deals are accessible only to elite investors and provide little information to outsiders. Regulated crowdfunding flips this model on its head, ensuring public disclosures and equitable access for all investors.

As Sherwood Neiss, Principal at Crowdfund Capital Advisors, put it, “If critics actually understood these regulations, they’d realize that RegCF and RegA don’t reduce investor protection—they enhance it by giving everyday Americans access to vetted investment opportunities under a structured, transparent framework.”

Myth #3: Expanding Access to Private Investments Will Lead to More Fraud

Another misconception is that investment crowdfunding is a “Wild West” scenario that exposes investors to widespread fraud. However, this fear is not backed by evidence.

The SEC, FINRA, and investment crowdfunding platforms actively monitor and enforce compliance in RegCF offerings. Strict regulations ensure that companies provide accurate financials and adhere to investor protection guidelines.

Sherwood Neiss emphasized this point, stating, “The idea that investment crowdfunding is a Wild West is absurd. The regulatory framework is strong, the platforms are diligent, and investors are protected.”

A Harvard Business School study on investment crowdfunding confirmed that fraud rates remain extremely low compared to other financial markets. In fact, crowdfunding platforms often conduct more due diligence than some traditional investment firms.

Myth #4: Private Markets Only Benefit Wealthy Investors

One of the most dangerous myths surrounding investment crowdfunding is that it disproportionately benefits wealthy investors while leaving retail investors behind. Critics argue that expanding RegCF and RegA will allow “insiders” to profit while everyday investors take on unnecessary risks.

The reality is quite the opposite.

Investment crowdfunding is democratizing capital formation by giving small businesses in all 50 states—including underserved and minority-owned businesses—access to funding.

• RegCF has enabled fundraising in over 2,000 towns across the U.S.

• Small businesses in local communities can now raise capital from their customers and supporters.

• Entrepreneurs who have historically struggled to access venture capital—such as women and minority founders—are thriving in the crowdfunding space.

As McKeever Conwell pointed out during the hearing, “For too long, underrepresented founders have been shut out of traditional funding. Crowdfunding is changing that, allowing great businesses to raise capital from their communities and thrive.”

Moreover, when customers become investors, they don’t just bring dollars—they bring loyalty, advocacy, and network effects that drive long-term success. Rebecca Kacaba, CEO of DealMaker, emphasized this key advantage: “Crowdfunding doesn’t just provide money; it creates a powerful community that supports the business.”

The JOBS Act Was a Bipartisan Success—Let’s Keep It That Way

RegCF and RegA were introduced as part of the JOBS Act of 2012, one of the most bipartisan bills in recent history. The House of Representatives passed the JOBS Act by a landslide vote of 407-17.

The data speaks for itself:

✅ Crowdfunding is working. ✅ It’s driving job creation and economic growth. ✅ It’s supporting women, minority, and underserved founders. ✅ It’s reducing failure rates for small businesses. ✅ It’s creating wealth-building opportunities for everyday investors.

Despite these clear benefits, there are still efforts to limit or roll back investment crowdfunding—largely based on unfounded fears and misinformation.

Why Congress Should Expand, Not Restrict, Investment Crowdfunding

Instead of imposing unnecessary restrictions, policymakers should focus on expanding access to investment crowdfunding opportunities.

Here are three ways Congress can build on the success of RegCF and RegA:

1. Increase the RegCF fundraising cap from $5 million to $10 million to give businesses more flexibility.

2. Streamline compliance requirements to reduce regulatory burdens while maintaining investor protections.

3. Enhance investor education programs to ensure that retail investors can make informed decisions.

Investment crowdfunding has the power to transform our economy by providing equal access to capital for startups, small businesses, and investors alike. Instead of restricting these opportunities, we should be encouraging more Americans to participate in our nation’s entrepreneurial growth.

Conclusion: A Bright Future for Investment Crowdfunding

The congressional hearing reaffirmed that RegCF and RegA are effective, transparent, and driving positive economic change. The misinformation spread by critics is simply not supported by the data.

Instead of rolling back these crucial funding mechanisms, we should be working to expand them. Crowdfunding isn’t just about raising money—it’s about creating a more inclusive, transparent, and equitable financial system that benefits entrepreneurs, investors, and local communities.

Now is the time to build upon this success—not tear it down.

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