Open-Source Option Against Capital Crunch

Crowdfunding has proven to be an attractive financing mechanism for smaller start-ups seeking to market consumer products, video games, and even movies. The SEC's recent roll-out of the changes implemented by the Jumpstart Our Businesses Act will enable a wider swathe of capital-intensive businesses, such as biotech and pharma start-ups, to utilize publicly advertised securities-based offerings outside of the IPO context. Such new avenues of funding are worth exploring in the face of dwindling backings by venture capital, but, as illustrated by recent crowdfunded offerings, capital-seeking companies must be wary of potential liability from online advertising that could be deemed materially misleading. Amended Reg D and Reg A+ provide exciting new opportunities for bio-tech/pharma start-ups to raise capital through online public offerings. These new exemptions will only foster an increase in potential investors and, concomitantly, potential investment dollars. But companies who generate revenue primarily from their IP, such as those in the biotech/pharma sector, must be wary of potential liability that can arise from online advertising.