Market mechanisms and funding dynamics in equity crowdfunding

By Lars Hornuf, Armin Schwienbacher. Journal of Corporate Finance, 2017

324 citations recorded by the source corpus.

Equity crowdfunding is a new form of entrepreneurial finance, in which investors do not receive perks or engage in pre-purchase of the product, but rather participate in the future cash flows of a firm. In this paper, we analyze what determines individual investment decisions in this new financial market. One important factor that may influence the behavior of investors is the way the portal allocates securities. We use unique data from four German equity crowdfunding portals to examine how the allocation mechanism affects funding dynamics. In contrast with the crowdfunding campaigns on Kickstarter, on which the typical pattern of project support is U shaped, we find that equity crowdfunding dynamics are L shaped under a first-come, first-served mechanism and U shaped under a second-price auction. The evidence also shows that investors base their decisions on information provided by the entrepreneur in the form of updates as well as by the investment behavior and comments of other crowd investors.

Subfields: Accounting, Economics and Econometrics, Management Information Systems

View Paper: https://www.semanticscholar.org/paper/3252b0dd1f209cfd78925be6d01206709df0fc29

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Citations in the corpus

Are Blockchain Crowdsales the New 'Gold Rush'? Success Determinants of Initial Coin Offerings (2018, unknown): “Bonus structures reduces investment risk for investors aiming to solicit early contributions, which, according to Hornuf and Schwienbacher (2018), is positively correlated with funding success in crowdfunding campaigns (variable ICO bonus).”
The role of venture capital in the emerging entrepreneurial finance ecosystem: future threats and opportunities (2019, background): “…basis; deferring the money transfer to entrepreneurs; and providing investors with risk management contracts hedging specific risks (Mollick 2014; Belleflamme, Omrani, and Peitz 2015, 2015; Iyer et al. 2016; Hornuf and Schwienbacher 2016; Lambert, Ralcheva, and Roosenboom 2018; Vismara 2018).”
Investors’ choices between cash and voting rights: Evidence from dual-class equity crowdfunding (2019, background): “…or a service, in equity-based crowdfunding firms raise equity capital from investors who take ownership rights over the business (e.g., Ahlers et al., 2015; Hornuf and Schwienbacher, 2018; Vismara, 2016; 2018; Walthoff-Borm et al., 2018a; 2018b).1 The implications of this process are significant.”
In crowdfunding we trust: A trust-building model in lending crowdfunding (2020, background): “Donation crowdfunding is significantly less complex and crowdfunders’ involvement is minimal (Hornuf & Schwienbacher, 2018).”
Determinants of individual investment decisions in investment-based crowdfunding (2018, unknown): “In the area of corporate investments, Huang and Kisgen (2013) report that 94% of CEOs are men; Graham, Harvey, and Puri (2013) conclude the same using statistics for U.”
Equity Crowdfunding and Governance: Toward an Integrative Model and Research Agenda (2019, unknown): “…et al., 2015; Block et al., 2018; Guenther et al., 2018; Lukkarinen et al., 2016; Mamonov and Malaga, 2018; Mohammadi and Shafi, 2018; Vismara, 2016, 2018; Vulkan et al., 2016) and the funding dynamics on these platforms (e.g., Hornuf and Schwienbacher, 2018a; Vismara, 2018; Vulkan et al., 2016).”