Equity Crowdfunding and Capital Formation for Early-Stage Firms

Abstract

Equity crowdfunding, as we know it today, started in 2008–2009 with the arrival of online platforms that act as intermediary between entrepreneurs and crowd investors. It has witnessed significant growth rates over the past few years, although the magnitude in terms of market size remains small compared to some other types of crowdfunding. Still, it has the potential to become a viable alternative source of finance for early-stage firms. This chapter discusses important streams of literature that have emerged in equity crowdfunding research. It includes a discussion of the functioning of platforms and compares equity crowdfunding to traditional financing sources. It further highlights research findings on the type of firms launching equity crowdfunding campaign and success drivers. This also includes the range of securities used and contractual arrangements seen in the investment documentation. Finally, it outlines the remaining challenges for equity crowdfunding to become a mainstream form of entrepreneurial finance.