Dynamics of investor communication in equity crowdfunding

Gregor Dorfleitner,Lars Hornuf,Martina Weber

doi:10.1007/s12525-018-0294-5

Abstract

In crowdfunding, start-ups can voluntarily communicate with their investors by posting updates. We investigate whether start-ups strategically use updates, which have previously been shown to increase investments. To this end, we use hand-collected data from 751 updates and 39,036 investment decisions from two major German equity crowdfunding portals: Seedmatch and Companisto. We find evidence of strategic communication behavior of start-ups during an equity crowdfunding campaign. During the funding period, start-ups more frequently post updates with linguistic devices that enhance the group identity and the group cohesion as well as updates on the business development. Furthermore, the probability of an update during the funding period increases along with strong competition of other contemporary crowdfunding campaigns.

Highlights

In recent years, equity crowdfunding has gained increasing importance in providing start-ups with funding
To analyze changes in the communication behavior of start-ups we focus on the updates posted during and after the funding period and examine all campaigns run on Seedmatch and Companisto that include at least one update
Entrepreneurship literature has extensively analyzed the interactions between venture capitalists or angel investors and entrepreneurs as well as the strategic behavior of each party

Summary

Introduction

Equity crowdfunding has gained increasing importance in providing start-ups with funding. Such communication behavior of start-ups tends to indicate a strategic use of language in updates since, on average, the disclosable hard information should not significantly change during and after the funding period. As there should not per se be a higher density of these new developments within the funding period than later on, posting relatively fewer of these updates after the end of the campaign provides evidence of strategic communication behavior of start-ups.

Results

Conclusion