Follow-On Equity Crowdfunding

Abstract

Equity crowdfunding (ECF) provides outside equity to unlisted and mainly early stage entrepreneurial firms and the UK is the leading ECF market. This paper investigates the determinants of first follow-on campaigns and of their probability of success for a sample of 790 firms that conducted an initial campaign on one of the three major UK platforms – Crowdcube, Seedrs, and SyndicateRoom – over the 2011-2017 period. Among these, some 106 sample firms conducted a first follow-on campaign. Our two stage Heckman results show that the probability of conducting a first follow-on campaign is positively impacted by novel platform and campaign characteristics such as overfunding on the initial campaign, campaigns with a lead investor, and those with a nominee account structure protecting all crowdfunding shareholder rights. The paper investigates for the first time the determinants of a successful first follow-on campaign. The probability of the latter is positively impacted by the degree of overfunding on the initial campaign and by the related social capital that initial campaign success garners. The probability of success also increases with the ratio of the initial capital raised relative to the follow-on target capital. The implication is that the capital raised in the initial campaign acts as a reference point for the follow-on target capital.