An Empirical Investigation of Equity-Based Crowdfunding Campaigns in the United States (original) (raw)

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...

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

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.

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 ...

“All that glitters is not gold!”: The (Unexplored) Determinants of Equity Crowdfunding

Small Business Economics

Drawing from the rich literature in behavioural finance and extensive analysis of forum data from a UK equity crowdfunding platform, we present a comprehensive framework that delineates the investment decision-making process of equity crowdfunders. Our framework captures the utilitarian, emotional, and expressive investment motives that drive crowdfunders, their behaviours and actions during and after the campaign, as well as the challenges they encounter in fulfilling their investment goals. Our work highlights the crucial need to explore the extent to which entrepreneurs and crowdfunding platforms cater to the diverse investment motives and expectations of the crowd. We offer practical insights to entrepreneurs and platforms on how they can better align their strategies with the expectations and needs of equity crowdfunders.

Equity Based Crowdfunding : Determinants of Successful Campaign: the Case of Crowdcube Platform in the United Kingdom

Pénzügyi szemle, 2022

The study is aimed at exploring what influences the amount of money raised which can either lead to the success or failure of equity-based crowdfunding using Crowdcube. The study used Pearson correlations and multiple regression analysis. The regression model was considered a good fit as it was statistically significant. The findings of the paper revealed that the number of investors, target amount, and pre-money valuation strongly and positively influence the success of equity-based crowdfunding campaigns. Additionally, equity, display of share price information, and online social media presence are other factors that influence the success of equity-based crowdfunding campaigns. However, previous crowdfunding history was negatively associated with the success of campaigns. The uniqueness of the study will benefit investors and founders who aim at running or investing in successful equity-based crowdfunding campaigns in the uK and globally. The study recommends further research using other equity-based crowdfunding platforms in different countries and continents.

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.

Equity crowdfunding: First resort or last resort?

Journal of Business Venturing, 2018

Prior research has focused on the factors that affect funding success on equity crowdfunding platforms, but a detailed understanding of the factors that drive firms to search for equity crowdfunding in the first place is lacking. Drawing on the pecking order theory, we argue that firms list on equity crowdfunding platforms as a-last resort‖-that is, when they lack internal funds and additional debt capacity. In line with the pecking order theory, the empirical evidence shows that firms listed on equity crowdfunding platforms are less profitable, more often have excessive debt levels, and have more intangible assets than matched firms not listed on these platforms. We discuss the implications for theory and practice.

Equity Crowdfunding Success: An Examination of Title II Offerings

Review of Economic and Business Studies, 2020

Equity crowdfunding (ECF) is a relatively new financing model in the United States (U.S). Many investors and small business owners are exploring this new avenue of capital formation; however, it is a research area that is relatively unexplored due to the limited availability of data. This paper examines factors related to campaign funding success for companies seeking capital under Title II of the JOBS Act. Using a Tobit regression we find that firms which report their equity capitalization raise a higher percentage of their campaign ask. A lower minimum target amount is identified as a second factor related to funding success. This study also shows that firms not reporting a tagline raise a larger percent of their offer, underscoring the importance of quality text descriptions. In addition, we find that economic conditions such as equity market sentiment are important to ECF success.

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.