On October 27, SEC Chairman Paul Atkins announced that he has asked Commission staff to consider reforms to Regulation Crowdfunding, which lets small companies raise up to $5 million a year from retail investors. His stated aim is to “reduce compliance burdens and improve the rules’ attractiveness for issuers and investors.” This is welcome news, because after 10 years, it has become clear that the American crowdfunding market is not working as well as it should.

As Chairman Atkins observed, nearly 10,000 offerings have been launched under Regulation Crowdfunding, and those that reported raising money took in an average of $364,000. This is a substantial accomplishment, but it tells only half the story. What about the investors? Most important, are they coming back for more?

There is reason to doubt it. A 2025 study by economists in the SEC’s Division of Economic and Risk Analysis found that use of Regulation Crowdfunding grew for several years but declined in 2023 and 2024, and industry data show that it has not recovered since. Anecdotal reports suggest some reasons why: There have been few exits, whether by IPO or acquisition, that have generated returns for crowd investors, and many companies have left their investors in the dark, so that they do not know where they stand. I know of one investor with hundreds of crowdfunded investments who has largely stopped investing as a result.

I have advocated a light regulatory touch for investment crowdfunding for more than a decade, from a 2013 essay, to a 2018 post on this blog, to my 2023 book, Investment Crowdfunding. But private ordering sometimes fails, and the American experience has revealed several such failures. The SEC can fix two of them at little cost by giving effect to protections Congress wrote into the JOBS Act.

Consider first the all-or-nothing rule. Under the statute, a company must announce a funding target, and the offering succeeds only if enough investors commit to meet it. Otherwise, the deal is canceled, and the investors get their money back. This is a sensible way to harness the wisdom of the crowd, while protecting investors from backing a company that can’t raise enough capital to accomplish its plans.

Unfortunately, the rule has been undermined by absurdly low targets. According to the SEC study, the median target through 2024 was $25,000, while the median maximum was $800,000. Take a company with exactly those numbers. Once its $25,000 target has been met, the offering is officially a “success,” even if the remaining $775,000 never materializes. Its investors could then be left holding a stake in a company with barely 3% of the capital it set out to raise. So much for separating the wheat from the chaff.

Why do platforms allow this? Part of the answer is that they believe in the companies they list, having chosen them from many applicants, and are happy to see them succeed. That confidence is understandable, but the premise of crowdfunding is that the crowd, not the platform, decides which companies deserve funding, and a token target takes that decision away from the crowd. The platforms also have a financial stake in the outcome: A platform earns its commission only when an offering succeeds, and a low target makes success nearly certain.

Some platforms even build low targets into their rules. One leading platform requires every company to set a target of $10,000, and another has a standard minimum of $50,000. And because platforms compete for issuers, any platform that insists on meaningful targets risks losing business to its less-demanding competitors. This is a classic collective action problem, and one the SEC is well placed to solve.

The solution I proposed in my book is to limit the ratio between a company’s maximum and its target. Under a four-to-one ratio, a company seeking up to $800,000 would need a target of at least $200,000, and a company that sets a $25,000 target could raise no more than $100,000. The exact multiple could be five-to-one or something else, but the ratios common today, often ten-to-one or higher, are bad for investors and issuers alike. This proposal would restore the all-or-nothing rule without imposing any additional disclosure costs.

A second problem is that companies routinely ghost their crowdfunding investors. In my research, I reported that only about 45% of crowdfunded companies ever filed even one annual report, although the statute requires them to report to investors “not less than annually.” More recent industry data tell the same story.

The main penalty under current rules, ineligibility for future crowdfunding, means little to the many companies that never use the process again. Worse, the harm spills over, since an investor ghosted by one company will be disinclined to invest in another. Again, the SEC could solve this collective action problem with a modest rule that I proposed in that article and on this blog: Require platforms to withhold the greater of $1,000 and 1% of the proceeds, in escrow or a segregated account, until the company files its first annual report.

In keeping with the SEC chairman’s stated aim, the Commission should also cut compliance costs, for example by raising the threshold for reviewed financial statements, as its Small Business Capital Formation Advisory Committee has recommended, and by modeling Form C on the EU’s much shorter Key Investment Information Sheet.

Some industry participants advocate raising the offering limit from $5 million to $20 million. I am open to raising the limit, but not before the serious problems in the current market have been addressed. Those include not only the two discussed here, but also the problem of ghosting upon exit and others that are beyond the scope of this post. Until the Commission has taken account of these problems, quadrupling the offering limit would simply expose more investors to greater harm.

Chairman Atkins has asked how Regulation Crowdfunding can be made more attractive. For issuers, much of the answer lies in lower compliance costs. For investors, it lies in offerings that raise enough money to give a company a real chance and in companies that keep their investors informed once the money is in.

The reforms proposed here would not solve every problem in the market, but they would give investors more reason to come back. And because Regulation Crowdfunding is the market Congress designed to let ordinary investors back startups, its experience should inform the Commission’s broader effort to expand retail access to private markets.

Andrew A. Schwartz is the Laurence W. DeMuth Chair of Business Law at the University of Colorado Law School.