Equity Crowdfunding: High-Quality or Low-Quality Entrepreneurs?

Blaseg, Daniel; Cumming, Douglas J.; Koetter, Michael

doi:10.1177/1042258719899427

Cited by 91 publications

(59 citation statements)

References 84 publications

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“…In addition, 40% of enterprises that failed to raise funds went bankrupt by the survey time; this was 2.9 times the proportion of enterprises that could raise funds and 7.2 times the proportion of enterprises that chose debt financing. Blaseg et al (2020) and Vismara (2019) also supported the last-resort hypothesis. They found that ECF initially attracted high-quality entrepreneurs, but the costs of information disclosure and communication with investors kept those entrepreneurs away.…”

Section: Characteristics Of Enterprises Implementing Ecfsupporting

confidence: 55%

“…Blaseg et al (2020) and Vismara (2019) also supported the last-resort hypothesis. They found that ECF initially attracted high-quality entrepreneurs, but the costs of information disclosure and communication with investors kept those entrepreneurs away.…”

Section: Prior Researchsupporting

confidence: 55%

“…Several previous studies pointed out the risk that startups and ECF platforms can provide inappropriate information and harm investors (Agrawal et al , 2014, 2016; Hornuf and Schwienbacher, 2016; Blaseg et al , 2020; Meoli et al , 2021). Japan's ECF market might be expanding as a result of individual investors being deceived by such information.…”

Section: Hypothesis and Methodsmentioning

confidence: 99%

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Equity crowdfunding and financial literacy of individual investors in Japan

Fujii

Hosomi

Nose

2021

JCMS

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PurposeThis study aims to fill the gap in previous research that focuses on the superficial aspects of equity crowdfunding (ECF) campaigns and financial practices by examining financial literacy aspects, such as due diligence and valuation, in terms of factors that influence Japanese individual investors' investments in ECF.Design/methodology/approachThe status of information disclosure in ECF campaigns is checked. In addition, the feasibility of the initial due diligence and valuation using this information is verified. Specifically, the lack of financial literacy hypothesis is developed and (1) expected market capitalization in the final fiscal year of the business plan and (2) expected returns on investment (IRR: internal rate of return) are estimated.FindingsECF campaigns in Japan disclose information equivalent to that obtained by professional venture capitalists. Analysis of the disclosed business plan allows for initial due diligence and valuation. By contrast, due diligence reveals that some projects are unlikely to be listed even if their business plans are met, and others have low IRRs. In addition, a stock acquisition rights project, in which even professional investors are unable to calculate IRRs, is completed at the same rate as a common stock project; this suggests that individual investors lack financial literacy.Originality/valueAnalyzing ECF from financial literacy aspects, such as due diligence and valuation, is unique. Such aspects are essential for private equity investments but have not been addressed in previous studies.

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Section: Characteristics Of Enterprises Implementing Ecfsupporting

confidence: 55%

Section: Prior Researchsupporting

confidence: 55%

Section: Hypothesis and Methodsmentioning

confidence: 99%

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Equity crowdfunding and financial literacy of individual investors in Japan

Fujii

Hosomi

Nose

2021

JCMS

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“…We opine that this reversal is driven by a preference for signals from knowledgeable professionals (as opposed to mainstream consumers) in these high-risk product domains. This moderator variable may help reconcile the often polarized views regarding the value of crowdfunding identified in the marketing and innovation literature (e.g., Blaseg, Cumming, and Koetter 2020;Mollick and Kuppuswamy 2014).…”

Section: Theoretical Contributionsmentioning

confidence: 90%

The Signal Value of Crowdfunded Products

Acar¹,

Dahl²,

Fuchs³

et al. 2021

Journal of Marketing Research

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Crowdfunding has emerged as an alternative means of financing new ventures by utilizing the financial support of a large group of individual investors. In this research, we ask a novel question: does being crowdfunded carry any signal value for the broader market of observing consumers? Seven studies reveal a consumer preference for “crowdfunded products”, even after controlling for a product’s objective product characteristics. We identify two inferences that help explain this effect: (1) consumers perceive crowdfunded products to be of higher quality, and (2) they believe that supporting crowdfunding reduces inequality in the marketplace. We further document an important boundary condition of the first inference: our identified effect reverses in high risk domains (e.g., products that involve high physical risk), due to consumer perceptions that the crowdfunding model lacks sufficient professionalism to mitigate risk. With regard to the second inference, we find that the positive crowdfunding effect is particularly strong among consumers who value social equality. Taken together, our work sheds new light on consumer perceptions of crowdfunding, elucidates why and when consumers prefer crowdfunded products, and offers actionable implications for managers.

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“…If investors are not able to discriminate between good and bad crowdfunding campaigns, likely adverse selection dynamics may initiate, leading to the crowding-out of high-quality startups (Johan & Zhang, 2020). If so, equity crowdfunding may be relegated as the last resort, available for firms that have been discarded by all other sources of financing (Walthoff-Borm et al, 2018aBlaseg et al, 2021). Understanding under which conditions these dynamics are more or less likely to initiate becomes crucial to ensure the long-term feasibility of equity crowdfunding.…”

Section: Low-quality Projectsmentioning

confidence: 99%

Inclusive digital finance: the industry of equity crowdfunding

Butticè

Vismara

2021

J Technol Transf

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Nowadays equity crowdfunding plays an important role in the entrepreneurial finance markets. To better understand the functioning of the industry, it is important to consider the entire equity crowdfunding process and all the actors involved. Equity crowdfunding platforms match indeed the demand of capital from entrepreneurial ventures with the supply of capital by investors. This manuscript is a first step in this direction, by (1) comparing equity crowdfunding with traditional sources of entrepreneurial finance; (2) discussing the potential and the perils of equity crowdfunding for inclusivity and democratization; (3) highlighting the role of visual information in digital finance; and (4) providing first insights on the industrial dynamics in equity crowdfunding. The paper gives researchers and practitioners orientation about recent developments in equity crowdfunding literature and provides relevant research directions.

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Equity Crowdfunding: High-Quality or Low-Quality Entrepreneurs?

Cited by 91 publications

References 84 publications

Equity crowdfunding and financial literacy of individual investors in Japan

Equity crowdfunding and financial literacy of individual investors in Japan

The Signal Value of Crowdfunded Products

Inclusive digital finance: the industry of equity crowdfunding

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