Which updates during an equity crowdfunding campaign increase crowd participation?

By Jörn H. Block, Lars Hornuf, Alexandra Moritz. Small Business Economics, 2016

396 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics, Management Information Systems, Marketing

View Paper: https://www.semanticscholar.org/paper/5937088cd8c1aef1813e0e60a9f31d26163bf286

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Citations in the corpus

Equity Crowdfunding and Governance: Toward an Integrative Model and Research Agenda (2019, positive): “We know that entrepreneurs can communicate with potential crowdinvestors through the platforms on which they are listed (Block et al., 2018) but we do not know whether differences in entrepreneurial behavior allow firms to attract funding from a crowd with distinct characteristics and…”
Operational Transparency on Crowdfunding Platforms: Effect on Donations for Emergency Response (2019, positive): “Besides quality signals, updates also play a role in the success of crowdfunding campaigns (Block et al. 2018, Mollick 2014, Xu et al. 2014).”
Market mechanisms and funding dynamics in equity crowdfunding (2017, neutral): “Ledora (Seedmatch) and Protonet (Seedmatch) rapidly reached the funding limit and decided to raise more capital in a second round that quickly followed the first round.”