Lead Investor Research Articles

A Green Wave in Media: A Change of Tack in Stock Markets*

AbstractThis paper examines the impact of environmental news coverage in US newspapers on stock markets. Using textual analysis with a dictionary‐based approach, we obtain several measures of attention, tonality and uncertainty in the coverage of environmental news in major US newspapers. We consider different weighting schemes to account for the visibility and relevance of the text sources, and several sets of newspapers to measure the possible impact of their editorial line. Our results show that greater attention to environmental news in the US media reduced the excess returns of carbon‐intensive stocks and increased their volatility over the last decade, especially when the coverage was uncertain. The opposite result holds for the most virtuous green assets. Restricting the corpus of texts to conservative newspapers mitigates the impact of coverage. Overall, our results illustrate how rising environmental concerns lead investors to change their asset allocation.

The effect of lead investor’s human capital on funding performance: The moderating role of investment ambition

We seek to determine the correlation between the human capital of lead investors and their funding performance within equity crowdfunding syndicates. We posit that the multi-faceted human capital of lead investors conveys their credibility and project quality. Using data derived from a sample of 157 individual lead investors on AngelList, we find that lead investors with higher levels of investment experience and entrepreneurial experience display improved funding performance. The research also highlights that lead investors’ investment ambitions moderate the effects of work experience and managerial experience on their funding performance. However, educational level and Ivy League education do not lead to significant effects on lead investors’ funding performance. This article contributes to the ongoing discussion on the role of human capital in crowdfunding by offering a multi-faceted view from an investor’s perspective.

The effect of lead institutional investors on investment and capital structure of young firms: Evidence from Indian IPOs

We study the consequences of an exogenous event, a regulation that allows IPO firms to seek investment from lead institutional investors in India. We document a significant increase in IPO volume as a result of the regulation. Post-regulation, lead-investor backed firms experience a reduction in issuance cost, an increase in capital investments and a decrease in leverage. The effects on investments and leverage are significant for high growth and financially constrained firms. Financially constrained firms backed by lead investors raise 26.4% more equity than unconstrained firms. Our findings provide evidence that discretionary allocation of shares to lead institutional investors could reduce capital constraints.

The role of lead investors in equity crowdfunding campaigns with a secondary market

The role of lead investors in equity crowdfunding campaigns with a secondary market

Venture capital firms' lead orientation and entry to new investment markets

This study focuses on how a venture capital (VC) firm's lead orientation (i.e., the propensity to act as lead investors rather than follower investors in its past syndication investments) influences its decision to enter new investment markets, and how such a relationship is altered by VC firm's position in the syndication network. Based on empirical analyses that use detailed information on 11,219 investment deals in China from January 1999 to June 2016, we find an inverted U-shaped relationship between VC firms' lead orientation and the distance between the new-entered market and the existing markets. In addition, a VC firm's network centrality weakens the inverted U-shaped relationship, while the level of network constraint strengthens the main effect. To establish our findings' reliability, we conducted robustness checks using different measures and subsamples. Additionally, we employed the instrumental variable approach and the Heckman selection model to address potential endogeneity issues, further strengthening the validity of our findings.

An Analysis of the Crowdfund Syndicates Sector in Thailand: Exploring the Influence of General and Specialized Human Capital on Fundraising Success for Lead Investors

Background and Aim: Equity crowdfunding platforms enhance startup fundraising but may widen information disparity, leaving investors' roles in crowdfunding campaigns understudied. This paper aims to investigate the impact of general and specialized human capital on the fundraising performance of a lead investor in Thailand. Materials and Methods: This study is quantitative research. The study analyses the social capital of Thai investors, focusing on 384 active lead investors and 154 final investors. An online questionnaire assessed the lead investor's perception of general human capital, specialized human capital, and fundraising performance using closed-ended response inquiries. A seven-point Likert scale was used to measure agreement. Multiple regression analysis evaluated research hypotheses using the enter method. Results: Based on the research findings, a statistically significant positive correlation exists between the fundraising success of lead investors and two independent factors, namely general human capital (GHC) and specialized human capital (SHC). The model demonstrates both statistical significance and explanatory power, as it can explain 70.40 percent of the total variation in the model. Conclusion: According to the findings of certain studies, there is a substantial and positive connection between the effectiveness of lead investor fundraising and general and specialist human capital. To improve the results of fundraising efforts and establish confidence, Thai lead investors should make the cultivation of social capital on investment platforms their top priority.

Shareholder litigation and short selling ahead of private equity placements

AbstractWe examine the impact of shareholder litigation on short selling ahead of private investments in public equity (PIPEs). We find that PIPE issuers that incurred securities class action lawsuits prior to the PIPE are shorted more heavily ahead of the PIPE issue. The case status at the PIPE date, the severity of the lawsuit, and the timing of the private placement after the litigation event also affect the extent of short selling activity ahead of PIPEs. Consistent with hedging incentives, the effects of prior shareholder litigation on short selling are more pronounced in PIPEs where lead investors are hedge funds and in traditional PIPEs.

Startup category membership and boundary expansion in the field of artificial intelligence

PurposeAn important but neglected area of investigation in digital entrepreneurship is the combined role of both core and peripheral members of an emerging technological field in shaping the symbolic and social boundaries of the field. This is a serious gap as both categories of members play a distinct role in expanding the pool of resources of the field. I address this gap by exploring how membership category is related to funding decisions in the emerging field of artificial intelligence (AI).Design/methodology/approachThe first quantitative study involved a sample of 1,315 AI-based startups which were founded in the period of 2011–2018 in the United States. In the second qualitative study, the author interviewed 32 members of the field (core members, peripheral members and investors) to define the boundaries of their respective role in shaping the social boundaries of the AI field.FindingsThe author finds that core members in the newly founded field of AI were more successful at attracting funding from investors than peripheral members and that size of the founding team, number of lead investors, number of patents and CEO approval were positively related to funding. In the second qualitative study, the author interviewed 30 members of the field (core members, peripheral members and investors) to define their respective role in shaping the social boundaries of the AI field.Research limitations/implicationsThis study is one of the first to build on the growing literature in emerging organizational fields to bring empirical evidence that investors adapt their funding strategy to membership categories (core and peripheral members) of a new technological field in their resource allocation decisions. Furthermore, I find that core and peripheral members claim distinct roles in their participation and contribution to the field in terms of technological developments, and that although core members attract more resources than peripheral members, both actors play a significant role in expanding the field’s social boundaries.Practical implicationsCore AI entrepreneurs who wish to attract funding may consider operating in fewer categories in order to be perceived as core members of the field, and thus focus their activities and limited resources to build internal AI capabilities. Entrepreneurs may invest early in filing a patent to signal their in-house AI capabilities to investors.Social implicationsThe social boundaries of an emerging technological field are shaped by a multitude of actors and not only the core members of the field. The author should pay attention to the role of each category of actors and build on their contributions to expand a promising field.Originality/valueThis paper is among the first to build on the growing literature in emerging organizational fields to study the resource acquisition strategies of entrepreneurs in a newly establishing technological field.

Lead investors' insider ownership and crowd investors' agency concerns in investor-led equity crowdfunding

This study examines how crowd investment in investor-led equity crowdfunding is influenced by professional lead investors who act as an agent to lead the fundraising and manage the syndicate on behalf of the principal - crowd investors. Complementing existing equity crowdfunding research where the dominant view of professional endorsement is positive signaling, we apply agency theory and argue that concentrated insider ownership by a lead investor limits crowd investors' bargaining power, increasing agency concerns of potential exploitation. Consistent with this argument, this paper finds that high capital contribution by the lead results in less subsequent crowd investment. We also extend the agency theory by embedding trust in the analysis of the lead and crowd relationship. We find that the level of trust reduces the crowd's insider ownership concerns and moderates the negative impact on fundraising. In contrast to lead investors, capital contribution from early peers attracts follow-on crowd investment. The investor-led model is advocated as the future of equity crowdfunding and crowd investors are encouraged to free ride on the decisions of lead investors. This study brings attention to the costs of investing along with lead investors and provides the first empirical evidence on whether they indeed inject investment confidence.

The effect of lead investors’ trustworthiness on funding performance: The moderating effect of investment-specific human capital

Crowdfunding provides many opportunities for the development of society by supporting entrepreneurial and innovative activities. This article concerns equity crowdfunding syndicates; innovative entrepreneurial financing that introduces professional lead investors to online platforms. Equity crowdfunding syndicates facilitate crowdfunding by mitigating the information asymmetry between crowd investors and entrepreneurs. Based on a multidimensional view of trustworthiness, we investigate the effects of lead investors' integrity, ability, and benevolence on their funding performance. Focusing our analysis on data from a sample of 179 lead investors on AngelList, a world-leading equity crowdfunding platform in the U.S., we find that lead investors’ integrity and ability are, as predicted, positively associated with their funding performance. However, we do not find a significant effect from benevolence. The results also show that the investment-specific human capital of lead investors moderates the effect of integrity on their funding performance. Our study contributes to the crowdfunding literature by providing insights into the multidimensional trustworthiness of a capital provider in determining funding performance. It also contributes to the under-researched area of technological innovation since a crowdfunding syndicate is an alternative means of financing for entrepreneurs.

Equity crowdfunding syndicates and fundraising performance: the effect of human capital and lead investor reputation

PurposeThis paper is about equity crowdfunding syndicates as a form of entrepreneurial finance and looks specifically at the lead investors' human capital and their ability to raise funds.Design/methodology/approachThe authors develop regressions on a unique hand-collected dataset of 178 lead investors taken from the US-based platform AngelList.FindingsResults indicate that lead investors' specialized human capital has a positive effect on their syndicate fundraising performance. However, it does not find a significant effect of general human capital. It also finds that specialized human capital is mediated by the reputation of the lead investor on the platform.Research limitations/implicationsThis study extends human capital theory in the crowdfunding context by providing a more comprehensive portrait of human capital and in doing so, shifts the focus from an entrepreneur to an investor perspective, an approach much neglected in the crowdfunding literature.Originality/valueThis study advances the current knowledge on crowdfunding as it is one of the first to understand syndicate investment as an innovative and alternative platform-based financial channel. It also contributes to the current debate on the role of human capital in crowdfunding and more generally to entrepreneurial finance.

Industry update, December 2022.

Industry update, December 2022.

Venture capital firms’ lead orientation, network position, and selection of familiar syndicate partners

This study explores how a venture capital (VC) firm’s lead orientation (i.e., acting more as a lead investor rather than a follower investor in past syndication investments) influences its selection of familiar syndicate partners. By conducting empirical research that uses detailed information of 11,219 investment deals in China from January 1999 to June 2016, we find that a VC firm’s lead orientation has an inverted U-shaped relationship with its propensity to select familiar syndicate partners. In other words, as a VC firm’s lead orientation increases, its familiarity degree with the partners in the subsequent syndicated investment will first increase and then decrease. In addition, a VC firm’s network centrality and network constraint imposed by the VC network structure both weakens the inverted U-shaped relationship between its lead orientation and the selection of familiar partners. Robustness checks with different measures and samples, together with the instrumental variable approach and the Heckman selection model that address potential endogeneity problems, show the reliability of our findings.

How do the network structures of lead investors affect the following of distant strangers? Evidence from Chinese equity crowdfunding

By employing an integrated network perspective, this article aims to explain how the network structures of lead investors impact the following of distant strangers in the context of equity crowdfunding (ECF). We conduct an empirical analysis of our thesis based on a Chinese ECF platform. The findings show that the lead investors occupying less central positions in an entire network attract more distant strangers and that the density of ego networks not only has a U‐shaped relationship with the following of distant strangers but also positively moderates the relationship between centrality and the following of distant strangers.

Conformity by information or relation? An exploration of investors' response in equity crowdfunding

PurposeThis paper aims to investigate the role of informational and relational mechanisms on equity crowdfunding investors' conformity behaviors by focusing on a relational culture of China.Design/methodology/approachThe data of 108 financing projects and 7,688 investment records from a union of Chinese equity crowdfunding platforms are gathered. Lead investors' response to a campaign and follow-investors’ former links explain investors' conformity by social network analysis (SNA) and ordinary least squares (OLS) analysis.FindingsThe results show that informational and relational influences drive conformity in Chinese equity crowdfunding. Moreover, the informational influence weakens in a highly centralized structure of linked investors.Research limitations/implicationsThe results add new knowledge to follow-investors’ conformity behaviors in equity crowdfunding and enrich the literature on conformity theory by finding the contextual effect of information-influenced conformity and the adaption of conformity theory to cultural uniqueness. Besides, this preliminary work also suggests opportunities for future research.Practical implicationsThe paper inspires new consideration on a strategical use of follow-investors’ conformity mentality to promote successfully financing and reminds platform managers to be alert to the interference of small groups formed based on informal relationships to the normal financing order.Originality/valueThis is the first study that discovers the non-informational influence and the limited influence of information on equity crowdfunding conformity through contextual concerns.

Improving Funding Operations of Equity‐based Crowdfunding Platforms

Equity‐based crowdfunding platforms enable investors to come together to invest in startups and help lay‐investors to follow the lead of investors with good startup evaluation skills. Crowdfunding platforms often gather users’ inputs to evaluate investors and startups, but such inputs are quite noisy and often rely on past performance. Many investors with good evaluation skills do not have substantial past investment experience but still can lead investment rounds. This helps provide investment opportunities to lay‐investors who otherwise do not get to join investors with proven records. Without identifying such investors with potential, platforms lose the opportunity to put together investors to fund worthy startups and lose business. We develop a Bayesian model to address this problem and improve funding operations of equity‐based crowdfunding platforms. Specifically, the model helps platforms to better assess investors’ evaluation skills, identify lead investors for lay‐investors to follow, and increase funding opportunities on the platforms. To test the effectiveness of the proposed model, we gathered data from 319 actual investors listed on one of the largest crowdfunding platforms in the United States, picked startups randomly for investors to evaluate, and had investors evaluate startups in two ways—our approach and the conventional approach. We also discuss an extension of this Bayesian model that penalizes investors in case investors perform well by randomness. Furthermore, we used a Bayesian framework to help platforms better predict startup valuations accounting for investors’ evaluation skills.

Lead investors’ Human Capital and Fundraising Performance: Mediating Role of Reputation

Equity crowdfunding syndicate emerged in recent years characterised as crowd investors (co-investors) using online platforms to co-invest with other professional investors (lead investors). We investigate the effects of lead investors’ general human capital and specialised human capital on their fundraising performance. We also examine the role of reputation in mediating the relationship between human capital and fundraising performance. Result indicates that lead investors’ specialised human capital is indeed mediated by their reputation.

Wind energy in the Gulf Cooperation Council region: progress, challenges and strategies for development

PurposeUntil recently, the Gulf Cooperation Council (GCC) region, whose members consist of Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Oman and Bahrain, has not significantly focused on the green transition. Specifically, wind energy development has made minimal progress relative to that of other regions.Design/methodology/approachThe abundance of cheap fossil fuels in the region has not incentivized renewable energy development, and where this has taken place solar technologies are often preferred.FindingsHowever, lower technology costs together with lost investment opportunities – also common elsewhere in the world, has increased the pressure on the GCC region from developers. This work qualitatively addresses the challenges and the strategies for the wind development in the area. It focuses on the analysis of different proposed type of investments – driven by a state-supported proposed fund – such as utility-scale investments, industry-specific investments, manufacturing investments and regional accelerators.Originality/valueThe work also suggests that Gulf sovereign wealth funds should act as the lead investors under new schemes, such as joint ventures, for wind development in the GCC, using their wealth to offering their populations with new sources of employment as well as energy that is sustainable.

Intellectual Capital and Firm Performance in the Context of Venture-Capital Syndication Background in China

This paper is intended to investigate the role of Venture-Capital Syndication (VCS) background in the relationship between intellectual capital (IC) and portfolio firm performance (PFP); specifically, this article examines the moderating effect of VCS’s leading firm background and member heterogeneity on the effect of IC on PFP. This study used a modified VAIC model to measure IC to compose a 4-component variable including human capital, structural capital, relational capital, and innovation capital. The data were collected from VCS-backed and listed firms in China during 2014 to 2018 applying the pooled OLS model for hypotheses test, Generalized Method of Moments (GMMs) to reduce endogeneity and unobserved factor control, and also return on equity (ROE) instead of ROA for the robustness test. Empirical results showed that IC and its components can improve PFP for VCS-backed firms in China; in detail, IC showed greater impact on performance of firms invested by foreign lead investors than in private or government VCS, specially reflected in the impact of innovation capital on PFP. Furthermore, IC showed weaker impact on PFP of mixed VCS-backed firms compared to pure VCS-backed firms and showed diminished effect on higher VCS member heterogeneity mainly reflected in the impact of relational capital on firm performance. These findings propose a new way of combining IC and VC to improve firm performance and are beneficial to theoretical development of IC and VC as well as a perspective for VC firm managers to choose suitable partners prior to join a VCS.

Protein-from-CO2 firm raises funds

The fanciful concept of making food from the air is getting some financial support. Deep Branch, a British start-up, has raised $10 million in series A funding to produce animal-feed protein from single-cell microbes fed waste carbon dioxide and hydrogen. The lead investors are the chemical maker DSM and the venture capital firm Novo Holdings. This is on top of $5 million that Deep Branch recently received from the UK government and the European Union. Named Proton, Deep Branch’s protein comprises dried up microbes. The powder is 70% protein and contains all the amino acids required to feed fish or land animals, the firm says. The latest funding round will enable Deep Branch to start pilot-scale production of its protein at Brightlands Chemelot Campus, an incubator in the Netherlands for young, circular-economy technology companies. Deep Branch will then provide Proton to the feed producers BioMar and AB Agri to evaluate