Entrepreneurship is widely viewed as socially beneficial because it lifts employment and grows the economy, among other reasons. Teenage entrepreneurship—that is, where teenagers organize and manage startup companies of their own—can be particularly valuable because teenagers have a special knack for creating revolutionary, new types of businesses. Consider that Bill Gates founded Microsoft, and Mark Zuckerberg founded Facebook, both as teenagers.
This phenomenon of the teenage entrepreneur originated in the 1970s. Prior to that time, the so-called “infancy” doctrine of contract law prevented anyone under the age of twenty-one from starting a business. But then came Vietnam, which changed everything. During the 1960s and ’70s, American society came to the considered conclusion that if eighteen-year-olds can be drafted to fight and possibly die for their country, they ought to be treated as adults under the law. The Constitution was accordingly amended in 1971 to lower the voting age to eighteen.
At around the same time, and for the same reasons, every state lowered the age of contractual capacity to eighteen, making it possible for the first time for a teenager to start her own company. Within a few years, Bill Gates and others took advantage of this new opportunity and teenage entrepreneurship has since become an established aspect of the startup scene. Indeed, there is even an overnight entrepreneurship summer camp in Boulder, Colorado, where aspiring teenage entrepreneurs learn the skills needed for startup success.
Unfortunately, the change in the infancy doctrine that allowed for teenage entrepreneurship was partially rolled back by the federal Credit CARD Act of 2009, which raised the age of adulthood back to twenty-one solely for purposes of credit card contracts. Because most entrepreneurs use their personal credit cards for seed-stage financing, this portion of the CARD Act has had the unfortunate effect of making it harder for American teenagers to launch new business ventures, as I discussed in prior work.
Yet sometimes when Congress closes a door, it opens a window, as I discuss in a new paper, Teenage Crowdfunding. In Title III of the federal JOBS Act of 2012—also known as the CROWDFUND Act—Congress created a new method of financing startup companies. See this post and this paper. The CROWDFUND Act authorizes the “crowdfunding” of securities, meaning the sale of securities over the Internet to large numbers of investors (the crowd), each of whom invests a small amount. Unlike the CARD Act, there is nothing in the CROWDFUND Act to restrict crowdfunding to those over twenty-one, meaning that teenagers will be able to use crowdfunding once this market goes live.
Teenagers are well positioned to take full advantage of the online marketplace that the CROWDFUND Act will create. The Act requires that all crowdfunding take place exclusively on the Internet, which is essentially their home turf. Teens today are known as “digital natives” because of their familiarity and facility with the Internet and other aspects of our online era. Teenagers use the Internet more than the rest of the population, and they do so in creative ways. Take blogs for instance: Many older people continue to read and maintain blogs, but teenagers have largely abandoned them in recent years in favor of social networking (Facebook), micro-blogging (Twitter), and other cutting-edge tools.
Securities crowdfunding is poised to alter the landscape for early stage business capital by providing a new and potentially important way for aspiring teenage entrepreneurs to fund their business dreams.
The preceding post comes to us from Andrew A. Schwartz, Associate Professor of Law at the University of Colorado Law School. The post is based on “Teenage Crowdfunding,” just published in the University of Cincinnati Law Review, and available here.