Abstract

This study investigates signal validity in equity-based crowdfunding by examining whether signals that increase crowd participation are associated with higher post-offering success. Post-offering success is measured as the probability of survival. We use a hand-collected data set of 88 campaigns with over 64,000 investments and 742 updates from a well-established and leading German equity-based crowdfunding platform, Companisto. We find that indicating that the chief executive officer holds a university degree and a higher number of business-related updates are associated with a lower risk of failure, which is in line with recent research on offering success. The number of updates on external certification, promotions, and the team is associated with a higher risk of failure. In contrast to recent findings on offering success, we find that the equity share offered is positively related to post-offering success, whereas a high number of large investments or updates on campaign development are accompanied by a higher probability of failure. Our results provide guidance for entrepreneurs and investors regarding which signals are worth sending or using. Furthermore, these results suggest that investors are partly using wrong signals and challenge the rationality and wisdom of the crowd.

Highlights

  • In recent years, the importance of crowdfunding has increased significantly

  • The number of updates on external certification, promotions, and the team is associated with a higher risk of failure

  • A higher number of business-related updates is associated with a lower risk of failure

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Summary

Introduction

The importance of crowdfunding has increased significantly. In particular, the brokerage for equity-like forms of financing to startups via Internet-based crowdfunding platforms has showed strong growth (Pichler and Tezza 2016). Since Internet-based crowdfunding is a relatively new phenomenon, only a few studies have been conducted on venture performance after the completion of the crowdfunding campaign (Cumming et al 2019; Hornuf et al 2018; Signori and Vismara 2016, 2018). Such studies are important because they can clarify whether the signals used by investors offer valuable information on the future success of the Reichenbach and Walther Financ Innov (2021) 7:54 financed ventures. Our study examines the rationality and wisdom of the crowd

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