Equity Crowdfunding Founder Teams: Campaign Success and Venture Failure

Jerry Coakley,Aristogenis Lazos,José M Liñares‐Zegarra

doi:10.1111/1467-8551.12494

Jerry Coakley, Aristogenis Lazos + Show 1 more

Open Access

https://doi.org/10.1111/1467-8551.12494

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Abstract

AbstractThis paper examines whether solo founders are more likely to succeed in an initial equity crowdfunding (ECF) campaign and are subsequently less likely to fail than founder teams for a large sample of initial ECF campaigns conducted on the three largest UK platforms: Crowdcube, Seedrs and SyndicateRoom. The results show that solo founders have a lower probability of conducting successful initial ECF offerings than founder teams, and are also more likely to fail thereafter. The implication that founder teams enjoy more success is due to the fact that the quality of their human capital may likely attract professional investors who can act as a certification effect. Likewise, the monitoring role of professional investors helps to minimize moral hazard concerns and thus lowers the likelihood of failure for ECF founder teams. The results also establish that founder team human capital characteristics are significant determinants of initial ECF campaign outcomes and venture failure.

Highlights

Mike Wright was a pioneering researcher and recognized expert in many aspects of the nature, role and financing of high-risk entrepreneurial ventures
This study extends the existing Equity crowdfunding (ECF) literature by focusing on the relations between founder team structure, human capital characteristics, initial ECF campaign success and firm failure, using campaign and ECF firm data from Crowdcube, Seedrs and SyndicateRoom for the period from January 2013 to December 2018
These are novel findings that could be explained by the fact that founder teams may be more likely to attract professional investors like business angels (BAs) that act as a certification effect for crowd investors (Vismara, 2018)

Summary

Introduction

Mike Wright was a pioneering researcher and recognized expert in many aspects of the nature, role and financing of high-risk entrepreneurial ventures. Our proxies for academic expertise (proxying for higher educational attainment), firm-specific and general experience are positively related to successful initial ECF offerings, and suggest some evidence of a negative relationship with venture failure These human capital results are consistent with those of Barbi and Mattioli’s (2019) study of successful campaigns on Crowdcube and Piva and Rossi-Lamastra’s (2018) study of the Italian ECF market. Both establish that entrepreneur education and experience affect campaign outcomes, even if they do not focus on team composition. The fourth section reports the results of multivariate analysis, while the fifth section concludes

Background literature and hypothesis development

Methodology

Findings

Conclusions