Equity Crowdfunding in the United States: Evolution, Determinants and Performance

In recent years, equity crowdfunding has developed into an alternative form of early stage financing for startup firms. The main purpose of this dissertation is to understand the evolution, process and regulation of equity crowdfunding in the United States as well as assess the determinants of a successful campaign and whether this capital market lead to an enduring business. The first essay examines the evolution, process and regulation surrounding equity crowdfunding. I establish a clear definition of crowdfunding and its restructuring of the music industry to establishing an alternative form of raising capital for nascent firms via equity crowdfunding. I examine the regulations set forth by various countries in contrast to the United States in order to understand the differences in entrepreneurial ecosystems ability to develop new capital markets. An overview of the regulatory landscape suggests that European countries have benefited greatly from sandbox experimentations and early integration in this alternative capital market while its U.S. counterpart is just now exploring its potential. Therefore, the U.S,’s slow inclusion into equity crowdfunding as a result of preserving investor protection under the strict guidelines of the Securities Act has influenced the development and scope of this capital market. The second essay establishes signaling as an effective way to attract investments to an equity crowdfunding campaign. I analyze what could be the determinants of a successful equity crowdfunding campaign in the U.S. I then compare and contrast those findings to the state of the art in equity crowdfunding. Results from the estimations indicate the importance of human capital, social capital and their interaction effect in signaling by U.S. equity crowdfunding campaigns. Thus, revealing the differences in equity retention, third party signaling and financial projections from European and world equity crowdfunding campaigns. The third essay consists of investigating whether equity crowdfunding can lead to a successful and enduring business by attracting follow-up investments. I examine the determinants of what leads to post equity crowdfunding investments and the timing of these investments. Estimation results are indicative of U.S. equity crowdfunding campaigns necessity to locate in entrepreneurial hubs in order to entice additional funding after a successful equity crowdfunding campaign

Gender Differences in Equity Crowdfunding

Online peer-to-peer investment platforms are increasingly popular venues for entrepreneurs and investors to engage in financial transactions without the involvement of banks and loan managers. Despite their purported transparency and lack of bias, it is unclear whether social inequalities present in traditional capital markets transfer to these platforms as well, impeding their hoped revolutionary potential. In this paper we analyze nearly four years' worth of data from one of the leading UK-based equity crowdfunding platforms. Specifically, we investigate gender-related differences in patterns of entrepreneurship, investment, and success. In agreement with offline trends, men have more activity on the platform. Yet, women entrepreneurs benefit of higher success rates in fund-raising, a finding that mimics trends seen on some rewards-based crowdfunding platforms. Surprisingly, we also find that female investors tend to choose campaigns that have lower success rates. Our findings contribute to a better understanding of gender-related discrepancies in success on the online capital market and point to differences in activity that are key factors in the apparent patterns of gender inequality

The effectiveness of a training program in increasing crowd funding awareness

The current study tries to verify the effectiveness of a training program in increasing Crowdfunding awareness. The sample was (50) students in CIS, who were purposively selected and distributed equally into a treatment and control group. The researchers designed the study tools (a training program to increase Crowdfunding awareness). The study findings revealed the existence of statistically significant differences between the treatment and control groups in favor of the former. Furthermore, there were statistically significant differences between the pre and the post measures of the treatment group in favor of the post measures. Furthermore the current study is unique by the virtue of its nature, scope and way of implied investigation, as it is the first study for Crowdfunding training program in Arabic world

Equity crowdfunding, shareholder structures, and firm performance

This is the author accepted manuscript. The final version is available from Wiley via the DOI in this record.Research question/issue: This paper provides a first-time glimpse into the postcampaign financial and innovative performance of equity-crowdfunded (ECF) and matched nonequity-crowdfunded (NECF) firms. We further investigate how direct and nominee shareholder structures in ECF firms are associated with firm performance. Research findings/insights: We find that ECF firms have 8.5 times higher failure rates than matched NECF firms. However, 3.4 times more ECF firms have patent applications than matched NECF firms. Within the group of ECF firms, we find that ECF firms financed through a nominee structure make smaller losses, whereas ECF firms financed through a direct shareholder structure have more new patent applications, including foreign patent applications. Theoretical/academic implications: Our findings suggest that there are important adverse selection issues on equity crowdfunding platforms, although these platforms also serve as a catalyst for innovative activities. Moreover, our findings suggest that there is a more complex relationship between dispersed versus concentrated crowd shareholders and firm performance than currently assumed in the literature. Practitioner/policy implications: For policy makers and crowdfunding platforms, investor protection against adverse selection will be important to ensure the sustainability of equity crowdfunding markets. For entrepreneurs and crowd investors, our study highlights how equity crowdfunding and the adopted shareholder structure relate to short-term firm performance.Research Foundation—Flander

German crowd-investing platforms: Literature review and survey

This article presents a comprehensive overview of the current German crowd-investing market drawing on a data-set of 31 crowd-investing platforms including the analysis of 265 completed projects. While crowd-investing market still only represents a niche in the German venture capital market, there is potential for an increase in both market volume and in average project investment. The market share is distributed among a few crowd-investing platforms with high entry barriers for new platforms although platforms that specialise in certain sectors have managed to successfully enter the market. German crowd-investing platforms are found to promote mainly internet-based enterprises (36%) followed by projects in real estate (24%) and green projects (19%), with the median money raised 100,000 euro

Spell it out! Limited attention and equity crowdfunding success

The popularity of crowdfunding is increasing exponentially. The most novel form, equity crowdfunding, opens the high-risk start-up market for everyone. It is more loosely regulated than, e.g., a public listing, yet it attracts unsophisticated investors. This raises an important question of what are the investment criteria used in equity crowdfunding. In this thesis, I study the effect of limited investor attention on equity crowdfunding success by applying the framework of Hirshleifer and Teoh (2003). The framework models how merely the form of information – in addition to the content – can affect investors’ perceptions, due to limited human attention. The data sample covers 147 equity crowdfunding campaigns listed on Invesdor, a leading platform in the Nordics, since its foundation in 2012 until May 2017. Invesdor operates on an “all or nothing” model, in which companies set a minimum funding target for their campaign. If a company is unable to reach the target, the campaign is canceled, and investments are refunded. The main measure of campaign success is a dummy variable, which takes the value of one, if the target is reached, and zero otherwise. My findings support the framework of Hirshleifer and Teoh (2003) and are in line with studies of limited investor attention in other fields, such as the public stock market. Information saliency and understandability increase the probability of success. More specifically, the logit regression results show that including salient attention-grabbing elements, namely, a video and a graphic representation of growth, improve the probability of campaign success. In addition, the findings suggest that salient, readily available information on the founding team, in the form of members’ pictures and LinkedIn profile links, is associated with an increased likelihood of success. Finally, writing the campaign text in a more understandable format is shown to increase the probability of success. The findings are robust to the inclusion of control variables and hold with alternative measures of success: the percentage of the target amount raised, the absolute amount raised, and the number of investments. The results have important implications for academics and practitioners alike. To the growing literature on equity crowdfunding, this thesis presents novel evidence on the importance of limited investor attention. In addition, my findings suggest that crowdfunding can be used as a new platform to study limited investor attention. Fundraisers can optimize campaign success by including elements that grab investors’ attention, and by providing information in an understandable format. On the flip side, also policymakers should consider investors’ limited attention in the regulation of equity crowdfunding

Quality revealing versus overstating in equity crowdfunding

We gratefuly acknowledge the financial support from the Social Sciences and Humanities Research Council (SSHRC) of Canada.Peer reviewedPostprin

German crowd-investing platforms: Literature review and survey

This article presents a comprehensive overview of the current German crowd-investing market drawing on a data-set of 31 crowd-investing platforms including the analysis of 265 completed projects. While crowd-investing market still only represents a niche in the German venture capital market, there is potential for an increase in both market volume and in average project investment. The market share is distributed among a few crowd-investing platforms with high entry barriers for new platforms although platforms that specialise in certain sectors have managed to successfully enter the market. German crowd-investing platforms are found to promote mainly internet-based enterprises (36%) followed by projects in real estate (24%) and green projects (19%), with the median money raised 100,000 euro

Success Factors in Title III Equity Crowdfunding in the United States

Title III of the JOBS Act took effect in May 2016 and it began a new chapter in equity crowdfunding in the United States by providing an opportunity for entrepreneurial ventures to solicit funding from non-accredited investors. Due to the relative novelty, little is known about factors that can affect equity crowdfunding success under Title III. To address this gap in research, we draw on the risk capital framework and we examine the effects of market, execution and agency risks in equity crowdfunding under Title III. We collect data on 133 ventures that attracted more than $11 million in funding commitments across sixteen Title III equity crowdfunding platforms. We find that all three types of risks can affect the likelihood of successful fundraising under Title III. We discuss the implications of these findings for entrepreneurs, investors, crowdfunding platforms and policy makers