The evolution and adoption of equity crowdfunding: entrepreneur and investor entry into a new market

By Saul Estrin, Daniel Gozman, Susanna Khavul. Small Business Economics, 2018

211 citations recorded by the source corpus.

Equity crowdfunding (ECF) offers entrepreneurs an online social media marketplace where they can access numerous potential investors who, in exchange for an ownership stake, may supply them with finance. In this paper, we describe the evolution of this market in the UK. Using an inductive qualitative longitudinal research design, we analyse the emerging views of entrepreneurs and investors towards ECF. Our interviewees include large and small-scale investors, as well as market participants who have chosen not to invest or raise funds via ECF. We find that the large financial flows to entrepreneurs in the UK via the ECF platforms, nearly half a billion GBP since 2011, have probably been largely incremental to traditional sources of early stage entrepreneurial finance. Moreover, our research indicates that for the most part, investors appear to understand and appropriately evaluate the risks that they are bearing; ECF investments are perceived as a high risk, high return component within individuals’ portfolios. Investors also use their communication with peers and entrepreneurs via the ECF platform as a learning tool. On the entrepreneurs’ side, ECF allows them to test their products, to develop their brand, to build a loyal customer base and to turn customers into investors. We conclude that policymakers, with the support of a locally appropriate regulatory framework, could support equity crowdfunding as one of the market choices available for entrepreneurs looking to start or grow their ventures.

Subfields: Accounting, Economics and Econometrics, Management Information Systems

View Paper: https://www.semanticscholar.org/paper/1e9dafe6959c637a4260bac77b18c3b83d51767f

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Citations in the corpus

Crowdfunding and social capital: A systematic review using a dynamic perspective (2021, background): “Fundraisers exert extensive communication efforts to persuade strangers to make contributions (Estrin et al., 2018).”
Forecasting success in equity crowdfunding (2019, background): “We interpret this result as the Bcrowd^ opting for young innovative companies with unexplored upward potential, which cater better to the preferences of the Bunicorn seeking^ type investors populating the equity crowdfunding market (Estrin et al. 2018).”
What impact does equity crowdfunding have on SME innovation and growth? An empirical study (2019, unknown): “Although Estrin et al. (2018) acknowledged that equity crowdfunding cannot be a substitute for expert guidance provided by traditional early-stage financiers, it does holds promise for building a marketplace for the budding entrepreneurs in the sense that equity crowdfunding platforms can be used…”
Equity crowdfunding: First resort or last resort? (2017, background): “Although different equity crowdfunding platforms are active in the UK (Estrin et al., 2018; Vismara, 2016), our focus is on Crowdcube, which provides the ideal setting for our research.”