They do not look alike: what kind of private investors do equity crowdfunded firms attract?

Abstract

Using a dataset of 170 firms that successfully fundraised via the two most prominent UK equity crowdfunding platforms, we investigate whether and how having successfully run an equity crowdfunding campaign is associated to the reputation of follow-on venture capital investors attracted. From the comparison with a control group of firms that received a seed round from business angels, we found that firms that have run a successful equity crowdfunding campaign attract lower reputable VCs. These results are confirmed when controlling for endogeneity and for firms’ characteristics. Considering the shareholder structure chosen by the firm raising equity crowdfunding, we found that firms opting for a direct shareholder structure, which entails higher coordination and agency costs, attract less reputable VCs compared to firms opting for the nominee shareholder structure.

Equity crowdfunding, market timing, and firm capital structure

“…Our data come from several sources. Consistent with previous work (Butticè et al 2020(Butticè et al , 2021aRalcheva and Roosenboom 2020;Vismara 2016Vismara , 2019Walthoff-Borm et al 2018a), we focus on the two largest UK ECF platforms, Crowdcube and Seedrs, to identify UK firms that have successfully raised initial ECF. As noted in earlier work, platforms do not necessarily list all successful ECF campaigns on their websites (e.g., Butticè et al 2021a;Walthoff-Borm et al 2018b).…”

“…Consistent with previous work (Butticè et al 2020(Butticè et al , 2021aRalcheva and Roosenboom 2020;Vismara 2016Vismara , 2019Walthoff-Borm et al 2018a), we focus on the two largest UK ECF platforms, Crowdcube and Seedrs, to identify UK firms that have successfully raised initial ECF. As noted in earlier work, platforms do not necessarily list all successful ECF campaigns on their websites (e.g., Butticè et al 2021a;Walthoff-Borm et al 2018b). To ensure maximum coverage, we used multiple online resources, including the 12 Wayback machine 1 and Crunchbase 2 , to retrieve information about successful first-time ECF campaigns that, for some reason, were no longer listed on platform websites.…”

“…We obtained these data from Orbis Europe, which is managed by Bureau Van Dijk. Orbis Europe contains high-quality accounting data on privately held (and publicly traded) firms and has been used in several previous studies (Butticè et al 2021a;Duval et al 2020;Vanacker et al 2017). Some key data (e.g., shareholder funds) have also been cross-checked with Fame (another Bureau Van Dijk database specifically focused on the UK).…”

“…In line with the growing importance of ECF, academic research on this topic has also grown dramatically. Extant research has focused on important issues, such as the antecedents of funding success on ECF platforms (e.g., Ahlers et al 2015;Kleinert and Mochkabadi 2021;Kleinert et al 2020;Lukkarinen et al 2016;Mahmood et al 2019;Rossi et al 2021), funding dynamics present as campaigns run on ECF platforms (e.g., Hornuf and Schwienbacher 2018; 3 Vismara 2018), and the consequences for firms with successful ECF campaigns (e.g., Butticè et al 2020Butticè et al , 2021aCoakley et al 2021a,b;Signori and Vismara 2018;Walthoff-Borm et al 2018a).…”

How crowdfunders are influenced by entrepreneurial passion A dual information processing perspective

“…a situation characterized by non-professional decision-makers. This is an important area of investigation, because crowdfunding is becoming a stable source of seed capital able to influence subsequent rounds of fundraising (Roma et al, 2017;Butticè et al, 2020;Butticè et al, 2021). Furthermore, previous studies have evidenced that professional and non-professional subjects respond differently to affective stimuli (Kahneman and Klein 2009;Lord and Maher 1990).…”