Equity crowdfunding : Determinants of a successful equity crowdfunding round

Abstract

Crowdfunding refers to the efforts by companies to fund their ventures by drawing on relatively small investments from a relatively large number of individuals using the internet, without standard financial intermediaries. Crowdfunding allows firms, which have a limited possibility to access traditional sources of financing to access funding for their projects and growth. In recent years, the size of crowdfunding industry has grown rapidly. So far, equity crowdfunding and factors affecting to funding success are still understudied. The objective of this study is to answer to the following research question: “What are the determinants of a successful equity crowdfunding round in the Finnish market?” In order to answer the research question, quantitative methods were chosen for this study and four different regression analyses were drawn. In two of these regressions, the method was Ordinary Least squares (OLS) regression and in the remaining two, Negative Binomial (NB) regression. The data for this study is from a Finnish investment crowdfunding platform Invesdor. After eliminating insufficient rounds (rounds missing some variable values and foreign rounds), the dataset contained 100 equity crowdfunding rounds conducted in Invesdor platform between May 2012 and June 2016. This study has a unique dataset and it is the most extensive study on equity crowdfunding in the Finnish market until this day, measured by the amount of equity crowdfunding campaigns. Based on the results of this study the following determinants are related to funding success in equity crowdfunding rounds; (1) early funding gathered from companies’ own network and Invesdor’s lead investors during hidden phase, (2) promoting equity crowdfunding round in Facebook and (3) funding target set by the company. Gathering more early funding during the initial (hidden) phase and setting higher funding target increases funding success. In addition, companies which promoted their rounds in Facebook gathered more investors and raised funding. Instead, equity retention as a more traditional investment signal of quality did not have an impact to the funding success. I argue that at least partly the reason for this is that unaccredited investors participating to equity crowdfunding in Invesdor platform may have varying motives for investing, not only the financial return