Pathways to success in equity crowdfunding for sustainable startups: A configurational perspective

Grounding on research about the role of signals in the attraction of equity finance, this paper studies the effects of diverse human capital signals on entrepreneurs’ success in equity crowdfunding. We argue that the human capital of an entrepreneur, who launches (alone or with other teammates) an equity crowdfunding campaign to finance her start-up, constitutes a set of signals of the start-up quality. The impact of each human capital signal on entrepreneur’s success in equity crowdfunding depends on both signal fit with start-up quality and signal ambiguity. Empirical estimates on 284 entrepreneurs who launched equity crowdfunding campaigns indicate that only entrepreneurs’ business education and entrepreneurial experience, two human capital signals that have both a good fit with start-up quality and a low degree of ambiguity, significantly contribute to entrepreneurs’ success in equity crowdfunding.

Exploring the viability of equity crowdfunding as a fundraising instrument: A configurational analysis of contingency factors that lead to crowdfunding success and failure

On the Road to Success in Equity Crowdfunding

Building trust is a major challenge in digital crowdfunding environments. The existing information asymmetries between fund-seeking entrepreneurs and potential investors require the implementation of signaling strategies between both economic agents in order to generate trust and incentivize investment. This study performs a qualitative comparative analysis (QCA) to explore the interplay of visual content and social networks as information cues signaling trust. The data are sourced from Startupxplore, a Spanish equity crowdfunding platform. Configurational analysis reveals a certain degree of substitutability between traditional visual cues (images, videos) and reporting presence in social networks (Instagram, Facebook, Twitter). The results show different information disclosure strategies using traditional visual cues and social networks that lead to crowdfunding success and overfunding: substitute, mixed and unique strategies. The originality of this research lies in identifying such strategies using a configurational approach that addresses the causal complexity behind success and overfunding phenomena in equity crowdfunding, and in targeting visual cues and social networks presence as signals. This entails theoretical contributions to signaling theory in digital financial environments as well as managerial implications for entrepreneurial fundraising.

The development of the equity crowdfunding ecosystem in Indonesia, focusing on campaign sustainability is seen to increase the chances of fundraising success by increasing investor trust, social legitimacy, and emotional engagement. This study aims to analyze the effect of sustainability orientation on Equity Crowdfunding campaign performance on platforms regulated by Otoritas Jasa Keuangan, and to describe the mediating role of Crowdfunding Engagement Motivation. The approach applied is a systematic conceptual literature review, by searching for references related to sustainability, investor participation, and crowdfunding performance, then compiled through narrative synthesis. The results of the study indicate that campaigns that prioritize environmental and social elements can increase Crowdfunding Engagement Motivation such as individual value encouragement, community support, and mission alignment which ultimately encourage active investor behavior and success in fundraising. Thus, Crowdfunding Engagement Motivation functions as a positive link between sustainability orientation and Equity Crowdfunding outcomes. The practical implication is that entrepreneurs and managers of Equity Crowdfunding platforms in Indonesia should strategically prioritize sustainability values ​​in campaigns to increase investor participation and funding efficiency. This study is not an empirical study, but a conceptual synthesis that explains theoretical pathways and practical strategies in local Equity Crowdfunding.

PURPOSE: The first objective of this study is to identify the factors that contribute to the success of equity crowdfunding (ECF) campaigns in Japan. We examined what makes a campaign successful using data from 217 campaigns conducted on FUNDINNO, Japan’s largest ECF platform, between February 2017 and May 2021. The second objective is to assess individual investors’ financial literacy based on the ECF campaign’s success or failure. This study is unique in that it focuses on funding method differences as well as the contents of the business plans disclosed in the ECF campaigns. In Japan, a common equity campaign and stock acquisition rights campaign are run on the same ECF platform, as if they were the same type of funding. Common stock and stock acquisition rights are treated differently by venture capitalists and other professional investors. By comparing the success or failure of the two Japanese projects, we can assess individual investors’ financial literacy after taking into account the project signals. METHODOLOGY: The “Signaling Hypothesis” and the “Lack of Financial Literacy Hypothesis” were tested. Nine and four variables were set as proxy variables for the Signaling Hypothesis and the Lack of Financial Literacy Hypothesis, respectively. This study first divides the qualitative data into success/failure dichotomies for the proxy variables that comprise the hypotheses and then uses a chi-square test to examine the composition ratio of each. The quantitative data among the hypotheses’ proxy variables are then tested for differences in means (t-test) and medians (Wilcoxon signed-rank test). Subsequently, we perform a probit analysis with the explained variable being “success (1)/failure (0)” and the explanatory variable being a proxy variable for the hypothesis. We begin with a probit analysis, and the Logit model is then introduced. Finally, a multiple regression analysis is run with the explained variables “fundraising rate” and “number of investors” and the hypothesized proxy variables as explanatory variables. FINDINGS: We found that the “number of directors” is an effective management ability indicator of ECF success. In terms of start-up fundamentals, investors appear to accept the signals “intellectual property”, “product releases” and “tax incentives.” Awards affected the size of the final funding round. In contrast, B2C companies negatively signaled to private investors. The proxy variable “in final year sales” was supported concerning the lack of a financial literacy hypothesis. Individual investors can be assumed to be financially literate if they perform due diligence. However, since “expected rate of return (Internal Rate of Return, hereafter abbreviated as IRR)” and “common stock dummy” are uncorrelated, we can conclude that they do not demonstrate financial literacy in “valuation,” nor whether or not the investment is profitable. Thus, individual investors’ financial literacy in the Japanese ECF can be considered to be limited. IMPLICATIONS: We have demonstrated which signals investors in Japan’s ECF campaigns respond to. These guidelines will be useful for future start-ups planning ECF campaigns. We were able to identify the lack of financial literacy among ECF individual investors. Therefore, for Japan’s equity capital market to grow in the future, individual investors’ financial literacy must be improved. ORIGINALITY AND VALUE: With very limited analysis in Asia, home to the world’s second- and third-largest stock markets, we have identified the factors behind the success of Japan’s ECF. Identifying success factors in a country like Japan, where many individual investors are extremely risk averse, will provide new insights. By comparing the success or failure of the two types of Japanese ECF projects (common equity projects and stock acquisition rights), we could test the financial literacy of individual investors, taking into account the project signals.

Equity crowdfunding provides entrepreneurs and founders an opportunity to raise funds from large number of audience in which each investor provide small amount, instead of large amount from small group of professional investors. Early research focused on success drives of equity crowdfunding but this study explores the quality signals that affect the investors’ investment decision and help entrepreneurs to achieve overfunded campaign success in equity crowdfunding. Based on signaling theory, we develop a research model to conduct an empirical study using quantitative data collected from UK based world largest equity crowdfunding platform, Crowdcube. Findings show that quality signals have positive significant effect on investors’ investment decision. It means that investors’ behavior is same while making investment decision in equity crowdfunding as in conventional investment settings. Investors read quality signals in equity crowdfunding as well and choose those crowdfunding campaigns that are with high magnitude of quality signals. These results confirm that investors always evaluate investment opportunities in terms of business potential by analyzing quality signals in conventional investment opportunities as well as in equity crowdfunding.

In recent years crowdfunding has diversified and grown beyond most experts' projections. Originally aiming to serve venture ideas and entrepreneurs outside the focus of traditional capital markets, the crowdfunding marketplace has developed a complicated relationship with novel ideas. Yet, there is little to no research on the relationship between project novelty and success in crowdfunding. This paper measures the novelty of crowdfunding campaigns using the content and language of their pitches, capturing their tendency to combine different venture sectors and topics in distinctive ways. Using a unique data set that covers four years of activity on a leading equity crowdfunding platform, we investigate the link between novelty and success, as well as how novelty appeals to different kinds of investors. We find that novelty derived from campaign pitches is negatively related with fundraising success even when controlling for quality and style of writing. We also find that novel campaigns are more likely to attract less-frequent, large-sum investors. Our findings contribute to the long-standing debate related to the trade-offs between innovativeness and conventionality in maximizing chances of startup survival. Our results also have important implications for entrepreneurs writing fundraising pitches and for platform providers who wish to facilitate successful innovation.

Equity Crowdfunding in the U.S.

Success drivers of online equity crowdfunding campaigns

This study explores how signaling and perceiving jointly influence crowd investors’ decision-making. We utilize five machine learning models to assess the predictive power of various information types on crowdfunding success. Our findings indicate that investors prioritize well-structured quantitative data over complex qualitative content. Processing quantitative information is also found to be less cognitively taxing than extracting useful information from qualitative text and images. Entrepreneurs’ signaling and investors’ processing jointly reduce information asymmetry in crowdfunding, highlighting the critical yet often-overlooked role of investors’ information processing. Additionally, we test the policy effect of the ‘2016 Interim Measures on Online Lending’ on crowdfunding success by comparing the predictive accuracy of information during the thriving and constraining periods of crowdfunding development in China. Our results have significant implications for policymakers that crowdfunding fosters economic growth by connecting entrepreneurs and investors and should not be halted due to risks, especially during periods of financial constraints.

The rise of crowdfunding has transformed the funding landscape for startups, offering an alternative to conventional financing avenues. This study focuses on equity crowdfunding and investigates the dynamics of herding behavior among investors and its influence on campaign success. We analyze 680 equity crowdfunding campaigns from Wadiz, the largest platform in South Korea (2016–2021). In contrast to traditional funding, equity crowdfunding creates a two-sided market through its platform-based service, fostering interactions between entrepreneurs seeking funds and investors seeking opportunities. The time-limited nature of campaigns further encourages sequential decision-making and potential herding behavior. Unlike prior studies that have predominantly emphasized entrepreneurial and campaign-related factors, this study highlights the pivotal role of investor behavior, recognizing fellow investors as valuable signaling entities within the platform. Using OLS regression, logistic regression, interaction analysis, and Propensity Score Matching (PSM), we find that early participation by professional investors increases the odds of campaign success by approximately 14%. Furthermore, the effect is more pronounced in the IT industry, where information asymmetry is especially severe. Our findings demonstrate the signaling role of professional investors in mitigating information asymmetry and improving campaign outcomes, providing actionable insights for entrepreneurs, investors, and platforms in the evolving landscape of equity crowdfunding.

PurposeTitle II of the Jumpstart Our Business Startups Act aims to make it easier for new ventures to raise funds from accredited investors via equity crowdfunding. The purpose of this paper is to understand whether Title II equity crowdfunding represents an opportunity for women-owned companies (those that have one or more female owners/founders) to raise capital at rates similar to companies owned by men.Design/methodology/approachThe authors conduct an exploratory analysis using a data set containing 6,234 Title II equity crowdfunded offerings aggregated across 17 crowdfunding platforms between September 2013 and December 2015.FindingsThe authors find that women-owned companies constitute only 15.2 per cent of the ventures seeking funding in this data set; however, gender had no effect on the likelihood of successful fundraising under Title II.Originality/valueThis study is the first to examine the roll of gender on the success of equity crowdfunding campaigns the USA. It provides empirical evidence that crowdfunding has had limited impact on democratizing access to capital for woman-owned startups and small businesses. The data reveal that woman-owned companies are underrepresented in Title II equity crowdfunding to an even greater extent than they are underrepresented in angel and venture capital (VC) investments. The results of this study also highlight the importance of examining the role of gender in equity crowdfunding across different countries.

This study aims to determine and test the effect of intellectual capital signals and the level of uncertainty on the success of funding on equity crowdfunding platforms that are officially registered with the financial services authorities in Indonesia. The population of this study is prospectuses for open offers made by MSMEs on equity crowdfunding platforms in Indonesia in 2019 – 2021, with a total of 147 prospectus observation data. The sampling technique used is purposive sampling, which is a sampling technique with specific criteria. Multiple regression analysis is the method to test the hypothesis. This study argues that intellectual capital and the uncertainty presented in an open offer in equity crowdfunding can be perceived by novice investors or crowd funders as a signal of business quality and encourages them to invest and meet funding targets by exploiting the role of signalling theory in reducing information asymmetry. The study results show that only business alliances indicate intellectual capital, and financial projections indicate the level of uncertainty that has a positive and significant effect on the number of funds that indicate successful funding. Meanwhile, business experience and product innovation, indicators of intellectual capital, and date debt, indicators of uncertainty, have no significant effect. Based on these findings, the success of equity crowdfunding, officially registered in Indonesia, is influenced by business alliances and financial projections. This research provides valid implications for entrepreneurs, platform managers, and policymakers/authorities. Keywords: funding success, equity crowdfunding, intellectual capital, level of uncertainty

The success factors of equity crowdfunding are already well recognized in the literature but have not previously been studied in Poland. The aim of the paper is to fill the research gap by identifying the determinants of equity crowdfunding success in Poland based on empirical data. The article investigates whether and how entrepreneurs’ conscious use of the non-financial benefits linked to equity crowdfunding (ECF) influences the campaign’s success in Poland. We used data from a survey on the determinants of the success of equity crowdfunding. We conducted the survey using CAWI and CATI methods between September 2021 and January 2022 in collaboration with the Biostat Research and Development Centre as well as Beesfund, Crowdway and FindFunds platforms. Fifty-six companies accepted the invitation to participate in the study. Ultimately, the logistic regression model estimation was based on data obtained from 49 companies (28 of which had already succeeded in the equity crowdfunding campaign). Using the acquired data, we estimated a logistic regression model. As the results of our research show, the likelihood of campaign success is increased by the perception of equity crowdfunding as a tool enabling the acquisition of product and market knowledge, while using this form of financing mainly to obtain funds adversely affects the likelihood of campaign success. The results confirm that inPoland, as in other European countries, equity crowdfunding is no longer seen as a source of last-resort funding but is becoming more than just a fundraising tool. We recommend that entrepreneurs who plan to use this form of financing take advantage of the knowledge and experience of investors and treat equity crowdfunding as a strategic or first choice.