Which updates during an equity crowdfunding campaign increase crowd participation?

Abstract

Start-ups often post updates during equity crowdfunding campaigns. However, little is known about the effects of such updates on crowd participation. We investigate this question by using hand-collected data from 71 funding campaigns and 39,399 investment decisions on two German equity crowdfunding portals. Using a combination of different empirical research techniques, we find that posting an update has a significant positive effect on the number of investments made by the crowd and the investment amount collected by the start-up. This effect does not occur immediately in its entirety; rather, it lags the update by a few days. Furthermore, the effect of updates loses statistical significance with the number of updates posted during a campaign. We also find that an easier language used in updates increases crowd participation, whereas the length of updates has no effects. With respect to the update's content, we find that the positive effect can be attributed to updates about new developments of the start-up such as campaign developments, new funding, business developments, and cooperation projects. Updates on the start-up team, business model, product developments, and promotional campaigns do not have meaningful effects. Our paper contributes to the literature on the effects of information disclosure on equity crowdfunding participation. Furthermore, our results have practical implications for start-ups and their investor communication during equity crowdfunding campaigns.

Working the crowd: Improvisational entrepreneurship and equity crowdfunding in nascent entrepreneurial ventures

“…To date, research has focused upon the rewards-based model synonymous with the US firm Kickstarter and donation crowdfunding (Gerber et al, 2012;Colombo et al, 2015;Mollick, 2014;Giudici et al, 2017) 1 , however the concept has rapidly expanded both in terms of format and geography (Hemer, 2011;World Bank, 2013;Lin and Viswanathan, 2015;Short et al, 2017). In recent years increasing academic interest is being shown in equity crowdfunding -a prominent source of finance for nascent entrepreneurial ventures (Collins and Pierrakis, 2012;Ralcheva and Roosenboom, 2016;Vismara, 2016b;Block et al, 2016;Vulkan et al, 2016) originally rather narrowly defined as "a model in which crowdfunders receive a financial compensation" (Belleflamme et al, 2014, p. 317). Ahlers et al (2015, p. 958) offer a more permissive definition of crowdfunding as "a method of financing, whereby an entrepreneur sells a specified amount of equity or bond-like shares in a company to a group of (small) investors through an open call for funding on Internet-based platforms".…”

Dynamics of investor communication in equity crowdfunding

“…Yet, Block et al (2017) find that the effect of updates on the success of equity crowdfunding campaigns depends on the content of the published information. Not all updates have a positive impact on the invested amount and the number of investments.…”

“…the share of equity offered or disclosure of financial projections-are associated with successful campaigns (Ahlers et al, 2015;Bernstein et al, 2017;Vismara, 2016). Furthermore, the posting of voluntary information in the form of updates during the campaign increases the likelihood of success (Block et al, 2017;Mollick, 2014).…”

Institutional Seed Financing, Angel Financing, and Crowdfunding of Entrepreneurial Ventures: A Literature Review

“…A recent paper has emerged on the German equity crowdfunding market and provides the only empirically dedicated paper covering this topic at this time. The determinants from the crowd as to why an individual chooses one over another campaign remains un-researched, though primitive assumptions can be made about influences on the crowd investor (see Block et al, 2016;Moritz et al, 2015).…”