Subscribe Subscribe   Find us on Twitter Follow POL on Twitter  



Google Invests in Crowdfunding

| No Comments

Internet giant Google (NASDAQ: GOOG) last week announced that it was buying a stake in peer-to-peer financing platform Lending Club.

The transaction, which effectively values Lending Club at around $1.55 billion, validates much of the thinking around crowdfunding.

The central premise of crowdfunding is that a large group of people, with access to transparent information and the ability to communicate in real time, will make efficient decisions with their own money. It was for this reason that Congress amended the Securities Act of 1933 in the 2012 JOBS Act to open the doors to crowdfunding in the U.S. (Prior post).

Lending Club is not a crowdfunding portal, as envisioned by the JOBS Act. Rather, Lending Club collects loan applications from a large number of borrowers. Members of the Lending Club website have the ability to fund loans to those applicants. The loans themselves are made via Lending Club, which bundles the loans into separate securities which are sold to the Lending Club members. As a result, while members decision which borrowers to whom they will loan money, the loan is made indirectly through a Lending Club subsidiary.

In contrast, the JOBS Act created a legal entity called a "crowdfunding portal" which is supposed to facilitate direct investments in securities from individual companies (or "issuers") and individual investors. Although the Lending Club relies on the crowdfunding theory of marketplace efficiency, its legal structure is different from that contemplated by the JOBS Act.

The importance of Google's investment is that it validates the theory behind crowdfunding. Google chose to invest $125 million in Lending Club because it believes that technology is making it possible to derive value from the efficient decisions that crowds can make. Congress chose to unlock that potential to investors as well through the JOBS Act. the SEC, however, has failed to do its job by issuing the regulations that were required by the Act to make securities-based crowdfunding legal.

Leave a comment

Once submitted, the comment will first be reviewed by our editors and is not guaranteed to be published. Point of Law editors reserve the right to edit, delete, move, or mark as spam any and all comments. They also have the right to block access to any one or group from commenting or from the entire blog. A comment which does not add to the conversation, runs of on an inappropriate tangent, or kills the conversation may be edited, moved, or deleted.

The views and opinions of those providing comments are those of the author of the comment alone, and even if allowed onto the site do not reflect the opinions of Point of Law bloggers or the Manhattan Institute for Policy Research or any employee thereof. Comments submitted to Point of Law are the sole responsibility of their authors, and the author will take full responsibility for the comment, including any asserted liability for defamation or any other cause of action, and neither the Manhattan Institute nor its insurance carriers will assume responsibility for the comment merely because the Institute has provided the forum for its posting.

Related Entries:



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.