Seasoned equity crowdfunded offerings

Abstract

This paper conjectures that, just as SEO (seasoned equity offering) firms are likely to face fewer information asymmetry problems relative to IPO firms, the same applies to SECO relative to initial ECF (equity crowdfunding) campaign firms. This is mainly due to new information at a SECO - such as pre-money valuation gains – that reduces adverse selection problems. Using a sample of 709 UK ECF firms conducting a first SECO campaign over the 2011–2018 period, the probit results suggest that annualised valuation gains between the initial and SECO campaigns increases the probability of having a successful first SECO campaign but the equity offered lowers this probability. First SECO success is also related to different platform shareholder structures. The results show that the nominee model and coinvestment model dominate the direct model in terms of the probability of conducting a successful first SECO campaign. This is likely linked to reduced adverse selection and moral hazard problems stemming from no separation between ownership and control and enhanced due diligence and monitoring capabilities.