Equity Crowd Financing (original) (raw)

Equity Crowdfunding Founder Teams: Campaign Success and Venture Failure

British Journal of Management, 2021

This paper examines whether solo founders are more likely to succeed in an initial equity crowdfunding (ECF) campaign and are subsequently less likely to fail than founder teams for a large sample of initial ECF campaigns conducted on the three largest UK platforms: Crowdcube, Seedrs and SyndicateRoom. The results show that solo founders have a lower probability of conducting successful initial ECF offerings than founder teams, and are also more likely to fail thereafter. The implication that founder teams enjoy more success is due to the fact that the quality of their human capital may likely attract professional investors who can act as a certification effect. Likewise, the monitoring role of professional investors helps to minimize moral hazard concerns and thus lowers the likelihood of failure for ECF founder teams. The results also establish that founder team human capital characteristics are significant determinants of initial ECF campaign outcomes and venture failure.

Elites vs Masses: Expanding Entrepreneurial Finance through Equity Crowdfunding

2019

Equity crowdfunding (CF) platforms that connect startups with a multitude of investors online are fast emerging as an important source of entrepreneurial finance. In this study, we examine how equity crowdfunded (CF) startups perform relative to startups funded by traditional venture capital(ists) (VC). Controlling for the selection of startups, we find that CF startups raise less money and are less likely to funded by more successful investors in the subsequent round. They are also less likely to strike a successful exit. Such inferior performance of crowdfunded startups is explained by the attributes of investors who participate on CF platforms. CF investors tend to be less experienced and less successful than an average VC. The performance of the crowdfunded startups is at least at par with those funded by VCs with less of a track record. In fact, relative to less experienced and less successful VC-funding, CF is more likely to be followed by investment from more successful inves...

On equity crowdfunding: investor rationality and success factors

Venture Capital, 2019

Based on observations from four European equity crowdfunding platforms, this study assesses crowdinvestors' ability to interpret signals associated with firm and owner attributes, financial statements, and social networking activity when selecting investment opportunities. It was found that crowdinvestors attempt to reduce risk by choosing larger firms managed by experienced and educated managements who maintain a relatively large equity stake postoffering, while maximizing returns by picking projects with better growth opportunities (for example, young firms with higher expected margins and reasonably high sales growth forecasts). These results suggest that participants in the crowdfunding market are rational, interpreting signals derived from firm attributes and financial statements in appropriate ways to minimize risk and maximize returns. The firm's and entrepreneur's social networks also has a strong influence on investment decisions, so much so that the inclusion of this variable weakens the impacts of firm size, expected sales growth and margin on campaign success. This suggests the possibility that social media provide investors with an opportunity to validate otherwise less credible information.

Determinants of equity crowdfunding success

Proceedings of the 5th IPMA SENET Project Management Conference (SENET 2019), 2019

Equity crowdfunding represents an alternative online financing source. Small, nonaccredited investors can back different ventures and earn financial, strategic, and social returns. We find that equity crowdfunding success is dependent on team size, financing target, and the number of backers.

Investor Motivations and Decision Criteria in Equity Crowdfunding

Social Science Research Network, 2017

Online equity crowdfunding is a novel form of entrepreneurial finance, through which ventures can sell shares to large numbers of small investors. We analyze the motivations and decision criteria of equity crowdfunding investors using responses to a large-scale survey. We find, first, that investors form three distinct motivation-based clusters: donation-oriented supporters, returnoriented supporters, and pure investors. Second, investors use five main investment decision criterion factors: campaign specifications, target attractiveness, familiarity, campaign scale, and personal acquaintances. Third, investors' decision criteria are related to their motivations. The results contribute to literature on entrepreneurship and new venture financing.

Determinants of the success of equity crowdfunding campaigns

Revista Contabilidade & Finanças, 2020

Given that equity crowdfunding has grown significantly in Brazil and that this market has been frequently sought by startups as an alternative to scarce credit, this study investigated the elements that determine the success of their financing campaigns. The article fills the gap related to the absence of studies analyzing the probability and time of success of startup financing. In Brazil, the research on this is still in its infancy and there has been little discussion regarding what can determine the success of this type of financing. The findings presented here provide managerial contributions for different stakeholders, ranging from platform managers and entrepreneurs to the ordinary citizen, who ultimately acts as an inducer of change in society, without the need for financial intermediaries. The discussion around the elements that influence the success of startup financing has revealed that the characteristics of the venture profile have been able to determine the success of ...

Equity based crowdfunding: success factors in the financing phase

Crowdfunding is a rather new financing method which is especially used by start-ups and small firms, in order to get their business funded. In comparison to classical investments, such as venture capital, crowdfunding is tapping the crowd instead of specialized investors. In regards of crowdfunding, we are interested in which factors influence the funding success. We therefore explored the point of view of one founder of an equity funded project and his investors. Moreover, we were interested to see how the relationship changed between investors and the founder, after the funding phase. In our term paper, we report findings from a qualitative perspective by conducting several semi structured interviews with investors and the founder of the crowdfunding project. Despite the fact that the literature suggests that investors are driven by monetary reasons in equity-crowdfunding, our findings of this specific crowdfunding project imply emotional reasons as the main driver during decision making. However, a good communication between investors and founders is indispensable during the funding phase, but also after the successful funding, to avoid information asymmetry and to ensure the overall success of the project. Investors were also driven by the fact that they can be part of a community where they can exchange information with other investors and the founder and show their affinity to the product. Our findings also pointed out, that investors felt like being pioneers and part of the company.

The Social Capital of Venture Capitalists and Its Impact on the Funding of Start-Up Firms

2010

How does the social capital of venture capitalists (VCs) affect the funding of start-ups? Extant entrepreneurship literature conceptualizes a substitute effect between the social and financial capital that new firms attain from their investors. On the contrary, by building on the rich social capital literature, we hypothesize a positive effect of VCs' social capital, derived from past syndication, on the amount of money that start-ups receive. Specifically, we argue that both structural aspects of VCs' social network, such as the number of connections and the spanning of structural holes, and relational aspects, such as the diversity of network partners' attributes, provide VCs with superior access to information about current investment objects and opportunities to leverage them in the future, increasing their willingness to invest in these firms.

Unveiling Equity Crowdfunding Dynamics: An Exploration of Entrepreneurial Finance Horizons

International journal of science and business, 2024

Equity crowdfunding is an emerging form of entrepreneurial finance that has gained significant attention in recent years. It enables startups and small businesses to collect funds from many investors through online platforms. While equity crowdfunding has the potential to overcome traditional funding barriers and democratize access to capital, there is a lack of consensus on its effectiveness and impact on startups and the wider entrepreneurial ecosystem. This paper provides an overview of leveraging equity crowdfunding for entrepreneurial financial support. It discusses the concept of equity crowdfunding, its evolution, and the benefits and drawbacks of this form of financing along with some comparative analysis. It also reviews the existing literature on equity crowdfunding and highlights its practical implications, limitations, and policy implications. Furthermore, the paper discusses the regulatory environment of equity crowdfunding and its impact on entrepreneurs and investors. The research concludes with recommendations for entrepreneurs considering equity crowdfunding as a source of financing. The study's results highlight the pivotal influence of regulatory frameworks on equity crowdfunding outcomes, suggesting that a favorable regulatory environment correlates with increased success rates, creating a supportive ecosystem for entrepreneurs and investors. Policy makers can contribute significantly to providing regulatory clarity to ensure that entrepreneurs have access to equity crowdfunding for a financing option. Review paper IJSB

Equity crowdfunding and early stage entrepreneurial finance: damaging or disruptive?

LSE Research Online Documents on Economics, 2017

Equity crowdfunding (ECF) offers founders of new ventures an online social media marketplace where they can access a large number of investors who, in exchange for an ownership stake, provide finance for business opportunities that they find attractive. In this paper, we first quantify the evolution of the ECF market in the UK, the world leader, as well as the benign regulatory environment. ECF already represents more than 15% of British early stage entrepreneurial finance. We then use qualitative methods to explore three research questions. First, do these large financial flows via ECF platforms supplement or merely divert more traditional forms of funding for entrepreneurs? Second, do investors understand and appropriately evaluate the risks that they are bearing by investing in this new asset class? Finally, does ECF finance bring with it the spillovers, e.g. advice and guidance critical to entrepreneurial success, associated with other sources of funding such as Venture Capital?...