Equity crowdfunding in Germany and the United Kingdom: Follow-up funding and firm failure
By Lars Hornuf, Matthias Schmitt, Eliza Stenzhorn. Corporate governance: An International Review, 2018
115 citations recorded by the source corpus.
Manuscript type. Empirical. Research question/issue. Today, startups frequently obtain financing via the Internet through many small contributions of nonsophisticated investors. Yet, little is known whether these startups can ultimately build enduring businesses. This study investigates the determinants of follow‐up funding and firm failure after an equity crowdfunding campaign has taken place. Research findings/insights. We use hand‐collected data from 13 different equity crowdfunding portals and 413 firms that ran at least one successful equity crowdfunding campaign in Germany or the United Kingdom between 2011 and 2016. Our findings show that German firms that received equity crowdfunding stood a higher chance of obtaining follow‐up funding through business angels or venture capitalists but also had a higher likelihood of failure. The number of senior managers and the number of initial venture capital investors both had a positive impact on obtaining postcampaign financing, whereas the average age of the senior management team had a negative impact. The number of initial venture capital investors and the valuation of the firm were significant predictors increasing the hazard of firm failure, whereas the number of senior managers and the amount raised during previous equity crowdfunding campaigns had a negative impact. Theoretical/academic implications. This study provides some first empirical evidence regarding the firm and campaign characteristics that determine follow‐up funding and firm failure after an equity crowdfunding campaign has taken place. Given the absence of research on this topic so far, this study inevitably remains original and exploratory to some extent. The empirical findings suggest various avenues of research for human capital theory, organizational ecology, and the comparative corporate governance literature. Practitioner/policy implications. Identifying influencing factors of follow‐up funding and firm survival is important to make this new and potentially welfare enhancing form of entrepreneurial finance more predictable by decreasing the risk of individual investments. Furthermore, this study offers insights to policy makers, which are currently expected to implement appropriate regulations for this new market segment. In addition, it provides important insights for portal managers as well as firms raising capital via equity crowdfunding, which may learn about their chances to build an enduring business.
Subfields: Accounting, Economics and Econometrics, Management Information Systems
View Paper: https://www.semanticscholar.org/paper/f2d59deb5d9a1fffe97ba49f864e3daf9bb572ca
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Citations in the corpus
- What impact does equity crowdfunding have on SME innovation and growth? An empirical study (2019, background): “It is in this context that prior studies have examined insolvencies of successfully funded equity crowdfunding campaigns, follow-up funding and crowd exits (Signori and Vismara 2018; Hornuf et al. 2018).”
- Forecasting success in equity crowdfunding (2019, background): “3 See Signori and Vismara (2018) for the first overview of what happens after a successful equity crowdfunding campaign and Hornuf et al. (2018) for the effect of equity crowdfunding on obtaining follow‐up funding through business angels or venture capitalists.”