Abstract
Start-ups often post updates during equity crowdfunding campaigns. However, little is known about the effects of such updates on crowd participation. We investigate this question by using hand-collected data from 71 funding campaigns and 39,399 investment decisions on two German equity crowdfunding portals. Using a combination of different empirical research techniques, we find that posting an update has a significant positive effect on the number of investments made by the crowd and the investment amount collected by the start-up. This effect does not occur immediately in its entirety; rather, it lags the update by a few days. Furthermore, the effect of updates loses statistical significance with the number of updates posted during a campaign. We also find that an easier language used in updates increases crowd participation, whereas the length of updates has no effects. With respect to the update’s content, we find that the positive effect can be attributed to updates about new developments of the start-up such as campaign developments, new funding, business developments, and cooperation projects. Updates on the start-up team, business model, product developments, and promotional campaigns do not have meaningful effects. Our paper contributes to the literature on the effects of information disclosure on equity crowdfunding participation. Furthermore, our results have practical implications for start-ups and their investor communication during equity crowdfunding campaigns.
Highlights
Equity crowdfunding is an important tool for young and innovative start-ups to collect early-stage funding
We investigate three research questions: First, we analyze whether updates and their frequency have an influence on crowd participation and whether the effect occurs immediately or in a lagged form (Research Question 1 (RQ1))
We look at the content of these updates to determine how the crowd reacts to different signals and information communicated via updates (Research Question 3 (RQ3))
Summary
Equity crowdfunding is an important tool for young and innovative start-ups to collect early-stage funding. We add to the growing research on crowdfunding and in particular on equity crowdfunding Our paper extends this literature by taking a dynamic perspective, investigating how start-ups can signal their value during a crowdfunding campaign using updates as communication tools to increase the likelihood of successful campaigns. Knowing which updates drive funding participation is crucial for start-ups to design an effective and successful communication in equity crowdfunding campaigns This information is important to encourage startups to publish updates with content valued by the crowd to increase the likelihood of a successful campaign and the platforms’ own business success. The final two sections discuss our results, link them to the crowdfunding and entrepreneurial finance literatures, and summarize our contributions to theory and practice
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