Abstract
Abstract Equity-based crowdfunding is emerging as an increasingly important source of entrepreneurial financing. This paper examines the effects of informal institutions on entrepreneurs' ability and willingness to engage in efforts to raise equity crowdfunding. It also investigates how informal institutions are linked to investors' response to ECF. Also reviewed are the differences in the effects of informal institutions on equity crowdfunding vis-a-vis other forms of crowdfunding. The paper also delves into factors that are likely to lead to the development of favorable informal institutions from the standpoint of equity crowdfunding. It utilizes inductive theory-building approach.
Highlights
Equity-based crowdfunding (ECF)1 is emerging as an increasingly important source of entrepreneurial financing
We provide an analysis of the precepts shared by entrepreneurs that may serve to guide their engagement in efforts to raise Internet-based ECF (IECF)
Issues related to thin trust arise as we look at some of the concerns expressed by other practitioners such as Gaidar Magdanurov, Runa Capital's Investment Director makes it clear that the lack of thin trust has been a major obstacle facing ECF in Russia (Table 3)
Summary
Equity-based crowdfunding (ECF) is emerging as an increasingly important source of entrepreneurial financing. “business and entrepreneurship” category accounted for 27.4% of total CF volume in 2012, which increased to 41.3% in 2014 (Reuters.com, 2015). One estimate suggested that the Internet-based ECF (IECF) market was US$400 million worldwide in 2013, which increased to US$1.1 billion in 2014 (Feit, 2015). In 2014, ECF accounted for 30% of all seed capital in the U.K. Economies worldwide vary greatly in entrepreneurs' efforts to raise and investors' propensity to invest in ECF. Per capita ECF in 2015 was estimated at US$0.003 in
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