Chapter 13 - Does equity crowdfunding democratize access to entrepreneurial finance?

Abstract

This chapter explains the importance of equity crowdfunding for democratizing access to capital. With a growing number of equity crowdfunding campaigns that are targeting traditionally disadvantaged communities, it is natural to wonder whether equity crowdfunding equalizes access to capital. Specifically, the chapter investigates whether gender, age, ethnicity, and geography affect the choice of equity crowdfunding offerings versus initial public offerings (IPOs) on traditional stock markets and whether these characteristics increase the likelihood of a successful offering. Using 167 equity offerings in Crowdcube and 99 equity offerings on London’s Alternative Investment Market raising between £300,000 and £5 million, the chapter shows that companies with younger top management team (TMT) members are both more likely to launch equity crowdfunding offerings than IPOs and have higher chances to successfully complete an equity crowdfunding offering. Remotely located companies are more likely to launch equity crowdfunding offerings than IPOs and have higher chances to successfully complete an equity crowdfunding offering. On the contrary, female entrepreneurs do not have higher chances to raise funds in equity crowdfunding. Minority entrepreneurs do not have higher chances of successfully raising capital but do attract a higher number of investors. Overall, the evidence in the chapter provides empirical guidance for the first time to the oft-repeated policy claim that equity crowdfunding democratizes entrepreneurial finance by providing access to funding to underrepresented groups of potential entrepreneurs.