Abstract
PurposeThis study aims to fill the gap in previous research that focuses on the superficial aspects of equity crowdfunding (ECF) campaigns and financial practices by examining financial literacy aspects, such as due diligence and valuation, in terms of factors that influence Japanese individual investors' investments in ECF.Design/methodology/approachThe status of information disclosure in ECF campaigns is checked. In addition, the feasibility of the initial due diligence and valuation using this information is verified. Specifically, the lack of financial literacy hypothesis is developed and (1) expected market capitalization in the final fiscal year of the business plan and (2) expected returns on investment (IRR: internal rate of return) are estimated.FindingsECF campaigns in Japan disclose information equivalent to that obtained by professional venture capitalists. Analysis of the disclosed business plan allows for initial due diligence and valuation. By contrast, due diligence reveals that some projects are unlikely to be listed even if their business plans are met, and others have low IRRs. In addition, a stock acquisition rights project, in which even professional investors are unable to calculate IRRs, is completed at the same rate as a common stock project; this suggests that individual investors lack financial literacy.Originality/valueAnalyzing ECF from financial literacy aspects, such as due diligence and valuation, is unique. Such aspects are essential for private equity investments but have not been addressed in previous studies.
Highlights
Individuals’ money for investments has begun to be collected through crowdfunding, which raises funds from a large, unspecified number of people through the Internet (Bruton et al, 2015; Drover et al, 2017)
In Europe and America, equity crowdfunding (ECF) was anticipated to not spread because of its large information asymmetry (Agrawal et al, 2016; Paschen, 2017; Walthoff-Borm et al, 2018a). Why has this expansion of ECF differed from the aforementioned expectations? This study attempts to analyze the factors behind the expansion of the ECF market from the perspective of individual investors’ financial literacy while considering previous studies’ findings such as those of Meoli et al (2021)
Information disclosed in ECF is equivalent to that disclosed to venture capital (VC) Information disclosed in ECF can be analyzed with financial literacy No correlation
Summary
Individuals’ money for investments has begun to be collected through crowdfunding, which raises funds from a large, unspecified number of people through the Internet (Bruton et al, 2015; Drover et al, 2017). Given lingering zero interest rates, a growing number of Japanese retail investors are seeking options for higher asset management returns. For this reason, a type of crowdfunding called equity crowdfunding (ECF) has emerged, even in Japan. This study focuses on ECF in Japan and develops preliminary suggestions regarding factors that individual investors have begun to actively consider. Almost 100 million yen (approximately US$ 930,000) has been raised in tens of minutes through a number of campaigns. Another focus is the success rate of ECF.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
