Orchestrating the Performance of Equity Crowdfunding Platforms

Abstract

We model the behavior and performance of equity crowdfunding platforms in providing finance to entrepreneurs. We characterize the equity crowdfunding process in terms of a relationship between the number of investors and the amount of money raised. This framing permits analysis of sources of heterogeneity by considering variation in the average amount supplied by investors in each pitch, for example due to diversity in the architecture of platforms or differences in institutional arrangements and policies between countries. We use a proprietary dataset collected from the most prominent platforms in Germany, USA and UK, 2011-2019. We find that the underlying equilibrium relationship between the number of investors and the amount of money raised for entrepreneurs is loglinear, with a coefficient less than one. Hence, the underlying relationship is concave to the origin. This finding has important policy implications. We go on to identify significant variation in the average amount invested by platform and across countries, pointing to the impact of institutional and organizational specificities. These variations affect both the intercept and the slope of the curve.