A comparison of equity crowdfunding in four countries: Implications for business angels

Abstract

Equity crowdfunding as a rapidly growing source of finance for new and growing entrepreneurial ventures poses new challenges for financial regulators and potentially disrupts the early stage risk capital market and its existing actors, notably business angels. Equity crowdfunding responds primarily to the needs of small start‐ups that do not manage to access bank finance, or who do not need the larger sums available from venture capital or business angels. It is not appropriate for firms where business information is too sensitive to be shared with a large number of potential investors, nor those which require substantial amounts of follow on financing. Within these parameters and with sensible policy implementation and regulation, equity crowdfunding can play a useful complement to the role of business angels in innovation finance as an alternative form of start‐up and growth capital.

Crowdfunding operations: Outreach factors in developing economies

“…Crowdfunding operations/platforms (CFO/Ps) emerge as a new source of fund for MSMEs (Aggarwal & Stein, ; Tuomi & Harrison, ). CFO/Ps show highly growth rate exceeds 300% in certain countries (Massolution, ) except Arab region where it is very limited growth.…”

The internationalisation of business angel investment activity: a review and research agenda

“…The conventional understanding of a business angel is of an individual investing their own capital in an unquoted business with which they have no prior (especially family) connection and to which they make a value added contribution through active involvement in the business. However, the growth of angel syndicates and equity crowdfunding has thrown doubt on the continuing relevance of this definition in the West (Harrison and Mason 2008;Harrison 2013;Mason et al 2016;Tuomi and Harrison 2017). Furthermore, the multi-country Global Entrepreneurship Monitor (GEM) survey, which has a significant influence on shaping national entrepreneurship development policies, has blurred the distinction between the 'classic' disinterested business angel investment and kinship and affinity-based 'family and friends' money (Bygrave et al 2003;Maula et al 2005;Wong and Ho 2007).…”

“…In this, and in contrast to the position taken by many in the angel community that equity crowdfunding is the latest manifestation of angel investing, the see crowdfunding as complementary to not a substitute for angel investment. How this relationship evolves is, of course, an important topic for research, not least because of the policy interest across the world in developing and supporting this (Tuomi and Harrison 2017). Third, May and Liu point to the potentially more profound growing awareness that the capital, tools, and networks of angel investors can be used for societal and environmental change under the banner of impact investing.…”

“…Two trends can be identified in the 30 or so years of scholarly and practitioner interest in business angel investment. First, there is a well-established record of popular interest in the phenomenon of business angels, given their demonstrated importance in the entrepreneurial process, which is reflected in a stream of books, including those reviewed here, on the topic aimed at entrepreneurs and investors (eg Benjamin and Margulis 1996;Coveney and Moore 1998;van Osnabrugge and Robinson 2000;Amis and Stevenson 2001;May and Simmons 2001;Hill and Power 2002;Rees-Mogg 2008;Hargreaves 2013;Gregson 2014;Rose 2014). Second, and more recently, there has been a growth of interest in and research into business angel activity internationally: while most of the early research on the topic was confined to North America and Western Europe (United Kingdom and Sweden in particular) (Harrison and Mason 1992;Landström 1993), there was sufficient evidence emerging even in so-called first generation studies of the attitudes, behaviour and characteristics (ABCs) of business angel investors to conclude that angel investing was a global phenomenon (Kelly 2007).…”

Venture Capital 20 years on: reflections on the evolution of a field

“…However, a review of the early evidence on equity crowdfunding casts doubt on the extent to which it is a substitute for angel finance (Tuomi and Harrison 2017). Equity crowdfunding (ECF) investors are younger (predominately under 40 years of age) than business angels and make smaller investments (on average their ECF investment is under £5,500 and 33% have invested less than £1,000).…”