Abstract
Equity crowdfunding (ECF) is becoming a convenient alternative instrument for investing in entrepreneurs’ projects in many countries. The purpose of this study was to investigate the factors that affect the investor’s intentions toward ECF platforms in Saudi Arabia, where they have not been introduced until very recently. This context offers a unique opportunity to test the role of investors’ perceived trust in the context of ECF. The proposed framework builds on two critical layers: (1) trust in the platform (intermediary) and (2) trust in the fundraiser. Structured equation modelling was applied to examine the factors that affect investors’ trust and intentions. The framework was analysed using survey data from 216 users of Manafa, one of the largest ECF platforms in Saudi Arabia. Our findings showed that both fundraiser and platform trust have a significant effect on the investor’s intentions. In particular, trust in the platform substantially impacts the fundraiser’s trust, showing the importance of the fundraiser’s reliance on trusted institutions. On the other hand, to build investors’ trust, fundraisers must deliver high-quality information for their projects.
Highlights
Crowdfunding has emerged as an alternative source of for-profit and non-profit financial aid for entrepreneurs
Guided by the swift and transfer trust theories (Meyerson et al 1996; Stewart 2003), this study examined the effect of familiarity, the disposition to trust, project information quality, trust in the fundraisers and confidence in the platform as factors in the investor’s intention in the Equity crowdfunding (ECF) platform
This study examines the effect of familiarity, project quality, disposition to trust, education signals, fundraiser’s trust and platform trust in investors’ intention in the equity crowding platform (Figure 1)
Summary
Crowdfunding has emerged as an alternative source of for-profit and non-profit financial aid for entrepreneurs. In 2008, during the economic crises, many small and medium enterprises (SME) and start-ups transformed their traditional practices by seeking funds from the crowd platforms instead of financial institutions such as banks (Tomczak and Brem 2013). Crowdfunding has become an excellent financial recourse for the individuals, business and the public sector. Technology helps entrepreneurs connect with millions of potential investors. Project creators on crowdfunding platforms request funds for a particular project, while crowd investors (termed bakers, funders or sponsors, depending on the platform purpose) contribute to for-profit or non-profit projects. Crowdfunding uses mediation by collecting numerous small amounts of money from a vast number of individuals; this approach to fundraising is open to the funder and applied through the internet
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