Investor Communication in Crowdfunding: A Qualitative-Empirical Study

Abstract

Prior research shows that investor communication reduces information asymmetries between companies and investors. So far, little is known about the role of investor communication in crowdfunding. This paper explores whether and how investor communication can reduce information asymmetries between crowd investors and new ventures, thereby facilitating the crowd’s investment decisions. The study follows an exploratory qualitative research approach based on semi-structured interviews with 17 crowdfunding participants: six crowd investors, six new ventures, and five third parties. After analyzing, coding, and categorizing the data, we developed a theoretical framework and present it in a set of six propositions. The results indicate that the venture’s overall impression — especially perceived sympathy, openness, and trustworthiness — plays a significant role in reducing the information asymmetries of crowd investors. To communicate these soft facts, personal communication seems to be replaced by pseudo-personal communication over the Internet (e.g., videos, investor relations channels, social media). In addition, the communications of third parties (e.g., other crowd investors, professional and experienced investors, customers and business associates) influence the decision making process of crowd investors. Third party endorsements are valued as quality signals reducing perceived information asymmetries and lowering the importance and effect of pseudo-personal communications by the venture.