Crowdfunding Market Research Articles

Tackling gender bias in equity crowdfunding: an exploratory study of investment behaviour of Latin American investors

PurposeBelonging to the financial technologies’ companies, equity-based crowdfunding platforms offer investors the opportunity to become shareholders through the purchase of small equity stakes of new innovative ventures. This paper aims to investigate gender-related differences in the behaviour of investors in firms seeking equity financing in Latin America.Design/methodology/approachUsing a unique database, with combined information from different equity crowdfunding platforms in Brazil, Chile and Mexico, the authors study the population of 492 projects between 2013 and 2017. To analyse the relationship between investors’ gender-related differences and equity crowdfunding investment, this paper applies Poisson regression.FindingsResults suggest that the probability that an investor finances a firm is based on gender bias. Investors prefer firms led by entrepreneurs that are similar to them in terms of gender. Furthermore, the authors find evidence that both female and male investors are risk-averse and are more likely to invest in the equity of firms that are older and offer a higher percentage of equity. However, female investors are associated with firms that are on average older and offer 0.02% more equity.Practical implicationsThese findings have implications for crowdfunding platforms managers when selecting their target companies and policymakers when defining political actions to promote greater use of equity crowdfunding among female entrepreneurs and decrease barriers hindering women’s access to investment.Originality/valueUnique in its proposition and data usage, this study sheds light on the relationship between investors and entrepreneurs in the Latin American equity crowdfunding market.

Model Types of Crowdfunding: a Comparative Analysis of the Russian and European Experience

The article is devoted to the analysis of modern European model types of crowdfunding and the Russian practice of crowdfunding. The methodological component of the work was made up of general scientific and special methods, which include statistical and comparative analysis. The purpose of this study is to compare the modern European crowdfunding market with the Russian alternative finance market. At the first stage, the process of transformation of model types of crowdfunding in the European region and the UK from 2015 to the present has been studied. At the second stage, the situation on the Russian crowdfunding market is considered. As a result of the comparison of the European and Russian alternative finance markets, the latter has revealed a huge lag in terms of the variety of model types of crowdfunding offered, available and used on the market, as well as the volume of resources attracted through crowdfunding platforms.

КРАУДФАНДИНГОВА МОДЕЛЬ ФІНАНСУВАННЯ БІЗНЕСУ

The article considers the formation and development of crowdfunding models of business financing. Quite often companies have difficult accessing credit through traditional ways, such as bank loans. Information technology offers entrepreneurs a wide range of financial innovations through which they can obtain resources. Crowdfunding is one of the most popular types of alternative financing. The purpose of this work is to reveal the essence of crowdfunding and its basic models; analysis of the functioning of the crowdfunding market in the world, study of its regulation and provide proposals for the development of the regulatory framework in Ukraine. The theoretical bases of crowdfunding, motives for its use by enterprises are revealed. The main models of crowdfunding are described and classified according to the forms of financing and expected return. The main crowdfunding models include: P2P Consumer Lending, Balance Sheet Consumer Lending, P2P, Business Lending, Real Estate Crowdfunding, Equity-based Crowdfunding, Invoice Trading, etc. The main characteristics of the global crowdfunding market are analyzed, including by categories of crowdfunding models. The focus is on the functioning of the European market. The EU crowdfunding market has been found to be underdeveloped compared to other major economies of the world. For many years, one of the biggest obstacles facing crowdfunding platforms, which were seeking to offer their services abroad, has been the lack of common rules and different licensing requirements in the European Union. Only in 2020 the EU adopted The Regulation on European crowdfunding service providers for business, which strengthened the protection of investors. In Ukraine, crowdfunding financing models are evolving at a high speed. Ukraine should actively implement the regulation of crowdfunding and provide incentives for such activities and protect all participants. The basic principles of settlement of the crowdfunding investment market in Ukraine are offered. Crowdfunding is suitable for companies at any stage of development, but is most often used at an early stage of development, in particular, at the stage of the idea or the finished prototype.

A Blessing or a Curse: The Impact of Sampling in Crowdfunding Market

A Blessing or a Curse: The Impact of Sampling in Crowdfunding Market

Project Certification and Screening in the Reward-Based Crowdfunding Market

Project Certification and Screening in the Reward-Based Crowdfunding Market

TÜRKİYE VE BAE’DEKİ KİTLE FONLAMA PLATFORMLARINA YÖNELİK YASAL DÜZENLEMELERİN KARŞILAŞTIRILMASI

Small and medium enterprises (SMEs) are crucial for economies in terms of their contributions to gross national product, employment, and innovation. Besides their contribution, the issue of financial inclusion of SMEs has not been solved yet. The unsatisfied needs of SMEs for financing and the improvements in the technological facilities lead to new financial solutions within the scope of financial technologies. Among them, crowdfunding comes into prominence with its enormous growth in the last decade. In this study, the current regulatory framework for the crowdfunding platforms in Turkey launched in 2019 has been analyzed comparatively with the regulation in the United Arab Emirates (UAE), the most benchmarked jurisdiction in the Middle East and North Africa, in terms of the scope of the crowdfunding platforms, Shari’ah-compliance, the conditions for the entrepreneurs and the investors, and secondary markets. Based on the comparison, the findings imply that the legislative framework of the UAE is more flexible and less restrictive compared to that of Turkey. Although both regulations consist of the same type of conditions for the entrepreneurs and the investors, regulators in Turkey specify each condition with specific limits, while the regulators in UAE only define the types of conditions and charge the platforms with setting the limits and other details. It can be said that the second approach leads to a more competitive crowdfunding market in the UAE.

Is there a gender gap in equity-based crowdfunding?

Compared to their male peers, female entrepreneurs tend to face greater obstacles in raising venture funding from business angels, venture capitalists, and financial institutions. In this paper, we investigate whether this gender gap also exists in equity crowdfunding. Based on data from the German equity crowdfunding market, we find that ventures with and without female managing directors are equally successful in raising capital when launching their first equity crowdfunding campaign. In contrast, the former are significantly less successful than their peers in seasoned equity crowdfunding campaigns, and this disparity cannot be fully explained by differences in other venture-related or entrepreneur-related characteristics. However, we also find that the gender gap in seasoned offerings narrows if female entrepreneurs set more ambitious funding thresholds. Overall, our results indicate that pitching their equity crowdfunding campaigns in a more promotion-oriented way is a sensible strategy for female entrepreneurs to improve funding success.

Disentangling Crowdfunding from Fraudfunding

Fraud in the reward-based crowdfunding market has been of concern to regulators, but it is arguably of greater importance to the nascent industry itself. Despite its significance for entrepreneurial finance, our knowledge of the occurrence, determinants, and consequences of fraud in this market, as well as the implications for the business ethics literature, remain limited. In this study, we conduct an exhaustive search of all media reports on Kickstarter campaign fraud allegations from 2010 through 2015. We then follow up until 2018 to assess the ultimate outcome of each allegedly fraudulent campaign. First, we construct a sample of 193 fraud cases, and categorize them into detected vs. suspected fraud, based on a set of well-defined criteria. Next, using multiple matched samples of non-fraudulent campaigns, we determine which features are associated with a higher probability of fraudulent behavior. Second, we document the short-term negative consequences of possible breaches of trust in the market, using a sample of more than 270,000 crowdfunding campaigns from 2010 through 2018 on Kickstarter. Our results show that crowdfunding projects launched around the public announcement of a late and significant misconduct detection (resulting in suspension) tend to have a lower probability of success, raise less funds, and attract fewer backers.

Equity Crowdfunding in the U.S.

We assess the impact of the 2012 JOBS Act equity crowdfunding legislation that allows U.S.non-accredited investors to invest in private small businesses through online portals. The goals of new regulation were to spur small business growth and democratize investment in private startups by increasing access to capital. We find that the evidence is mixed:on the one hand, crowdfunding seems to expand access to finance to small business by targeting firms that are not usually served by institutional investors like angel and venture capital. Furthermore, having a successful crowdfunding campaign has a causal positive effect on future firm performance relative to a failed campaign. On the other hand, the equity crowdfunding market faces severe adverse selection that limit the expansion of this new form of business financing. Moreover, relative to angel-backed firms, successfully crowdfunded firms are less likely to progress through the financing funnel and thus provide exit to investors.

Communication and the role of third-party endorsement in social crowdfunding

ABSTRACT Many studies have underlined the role of updates, pictures, videos, and narrative sections in reducing information asymmetry and producing positive signaling effects for crowdfunding projects. However, research on the role of external entities that partially co-finance projects and thus mitigate information asymmetry problems is almost non-existent. Based on fuzzy-set qualitative comparative analysis (fsQCA), this study focuses on two groups of factors capable of mitigating asymmetric information problems: content communication (measured by words, videos, pictures, and updates) and endorsement from third-party. The study sample consists of 114 successful social crowdfunding projects posted on Eppela, an Italian crowdfunding platform launched in 2011. The study provides new evidence of the role of third-party investors. In social crowdfunding, the relevance of content communication seems to vary depending on the presence or absence of a third-party investor. The study also highlights the role of a broad content communication approach in fundraising in the social crowdfunding market.

In women, we trust! Exploring the sea change in investors’ perceptions in equity crowdfunding

PurposeWomen’s entrepreneurial activity can significantly impact economic and social development globally, particularly in developing countries. The significant challenges entrepreneurial women face draw the attention of researchers and policymakers. This paper aims to analyse the impact of gender disparity on the likelihood of obtaining equity financing through crowdfunding. The equity crowdfunding industry was selected because it is a non-traditional financial market where gender bias may act differently for women.Design/methodology/approachTo investigate the relationship between gender and equity financing through crowdfunding, this paper applies ordinary least squares regression. The analysis is based on a unique data set of 492 equity crowdfunding campaigns launched between 2013 and 2017 on all existing platforms in Brazil, Chile and Mexico.FindingsThe analysis reveals that the involvement of at least one woman on the board of firms seeking equity financing increases campaign success rates in terms of the investors’ average pledge, the target amount reached at the end of the campaign and the percentage raised at the end of the campaign exceeding the initial fundraising goal. Altogether, this suggests that equity crowdfunding campaigns should be based on gender equality in the firms’ boards. The research finds evidence that there is no gender disparity in the likelihood of a campaign being financed by a greater number of investors.Practical implicationsThese findings have implications for Latin American female entrepreneurs when selecting funding sources and policymakers when defining political actions to remove the barriers at the root of this historic inequality in female entrepreneurs’ access to finance.Originality/valueTo the best of the authors’ knowledge, this document analyses the gender disparity in the Latin American equity crowdfunding market, shedding light on women’s access to crowdfunding financing for the first time.

Secondary Market Listings in Equity Crowdfunding: The Missing Link?

While equity crowdfunding has grown in prevalence, investors have had very few opportunities to exit their investments. To address this, several equity crowdfunding platforms have started considering developing secondary markets for buying and selling shares. Using detailed data from the world’s first secondary market for equity crowdfunding, we investigate whether committing to list on the secondary market after the fundraising campaign leads to greater investor participation and thus helps entrepreneurs to raise more money during the campaign. We find that in the early days of the secondary market, making a pre-commitment to list attracted more investors and larger investment sums. However, this positive effect disappeared after the first 18 months of secondary market operation, most likely because investors realized the lack of liquidity on the secondary market and thus the fact that secondary markets are currently unlikely to constitute a viable exit route. Our findings offer valuable insights to platforms aiming at launching secondary markets and regulators responsible for validating such initiatives. In particular, equity crowdfunding would benefit greatly from liquid secondary markets, which however are difficult to achieve due to high information asymmetries, price formation difficulties, reputational concerns, and competition effects from the primary market.

SCIENTIFIC CROWDFUNDING MARKET IN RUSSIA: ANALYSIS AND ASSESSMENT OF PROSPECTS

One of the main problems of Russian science is the lack of sufficient funding. State funding is the major source of providing research work in Russia. This study provides an overview of scientific crowdfunding in Russia as a new tool for financial support and research funding. The study examines the prospect of crowdfunding as a tool for financing and stimulating initiatives in Russian science. Within the framework of this study, an analysis of the current situation on the scientific crowdfunding market and an assessment of the directions of its development in Russia were carried out. It was revealed that the United States is the world center of crowdfunding. American crowdfunding platforms occupy most of the crowdfunding market share. The Russian market of scientific crowdfunding is not a full-fledged tool that can currently become an alternative to state financing. The theoretical analysis carried out within the framework of this scientific research convincingly shows that the national market of scientific crowdfunding is concentrated only on Planeta.ru and Boomstarter, the largest crowdfunding platforms of the country. It was revealed that creative and cultural crowd-funding projects are the leaders of the Russian crowdfunding market. It was also revealed that Planeta.ru is the first Russian platform that opened a special category for scientific research. It was found that the scale of accumulated funds of scientific projects of Planeta.ru exceeds Boomstarter. According to the results of the theoretical analysis, it was also found that Planeta.ru has more effective long-term strategy for the development and stimulation of scientific initiatives, and Boomstarter has more efficient short-term management decisions. On the one hand, scientists use crowdfunding as a source of co-financing of research or as an alternative to grant support, on the other hand, they do not accept such a fundraising tool. Based on the results of the analysis of interviews and literature, the tools for promotion of scientific crowdfunding and stimulation of its growth that include educational activities, the presence of crowdfunding producers in science and a model of synergy of information resources of academic structures and the experience of crowdfunding platforms, were identified. Educational activities are aimed at popularizing scientific crowdfunding, as well as encouraging more authors to use this tool and increasing the percentage of financially successful projects.

The Assessment of Economic Efficiency of Regulatory Impact on the Crowd Financing Market

In the last few years, conditions have been created in the world economy that contribute to the active crowdfunding market development, through which the so-called «alternative financing» is implemented. The paper describes the transformation of crowdfunding model types, emphasizes the importance of regulatory impact on the specified market. The general procedure for regulatory impact assessments (RIA), developed and recommended by the OECD based on scientific approaches, is considered. The specificity of the approach to RIA in Russia was studied and the conclusion was made about the need to apply RIA to the crowdfunding market, taking into account the improvement of approaches to assessing the costs and benefits of regulation.

Innovate forms of project financing under the conditions of globalization

Research background:Innovative approaches to financing innovative projects are a very important part of innovation and project management in the current global environment, given the rapid pace of the market. The article submitted consists of four parts. The first part deals with the issue of project financing as well as innovative approaches to project financing. The second part describes them as current forms of financing in the form of individual forms of financing for innovative projects, but also as a combined form of financing for innovative projects with classic forms of internal and external financial resources. The third part of the article consists of an analysis of market developments, the volume of countries using innovative forms of crowdfunding project financing. Part three also includes a discussion. The fourth part deals with conclusions on the subject.Purpose of the article:To describe innovative forms of project funding in a global innovation environment through entrepreneurial angels and crowdfunding. One of the objectives of the present article is to analyses the global development of the market, the volume of countries using innovative forms of project financing through crowdfunding.Methods:In the processing of the present paper, a descriptive method, analysis, mathematical and statistical methods, graphic methods, comparison and synthesis were used.Findings & Value added:Will provide an overview of the global market for crowdfunding. It includes financing models such as P2P consumer credit and P2P business loans, real estate crowdfunding, invoice trading, balance sheet loans, etc.

Reporting Frequency and Market Monitoring in Reward Crowdfunding Markets

I study the role of voluntary reporting by the entrepreneur and monitoring by the funders in improving reward crowdfunding outcomes. Reward crowdfunding is a growing source of funding for entrepreneurs with limited access to traditional financing. The limited regulation in reward crowdfunding markets, however, leaves it up to the entrepreneur and the funders to solve their agency problems. Using data from one of the largest reward crowdfunding platforms, I find that entrepreneurs who provide less frequent voluntary updates experience more market monitoring related to product development. The entrepreneur responds to this monitoring by adjusting their announcement quality but not the update frequency. Finally, I find that funders who are responsive in their monitoring of the entrepreneur improve project outcomes. Taken together, my results support that voluntary reporting and market monitoring can work together to self-regulate reward crowdfunding markets.

Gender Dynamics in Crowdfunding (Kickstarter): Evidence on Entrepreneurs, Backers, and Taste-Based Discrimination*

AbstractThis study focuses on the launch phase of the leading reward-based crowdfunding market—Kickstarter. It documents the behavior of male and female entrepreneurs in raising early stage capital. We find that women share as entrepreneurs in the platform (34.7%) does not equal to their share in the overall population, and they are concentrated in stereotyped sectors, both as entrepreneurs and as backers. We also find that women do not set lower funding goals than men, they enjoy higher rates of success than men, even after controlling for project categories and funding goals, and that backers of both genders have a tendency to fund entrepreneurs of their own gender. Our survey of Kickstarter backers finds evidence of taste-based discrimination by male backers.

The role you play, the life you have: Donor retention in online charitable crowdfunding platform

Crowdfunding was first used by individuals and entrepreneurs to collect small-sized investments from crowds to support for-profit ventures, but now it is being touted as a valuable alternative to raise money for non-profit causes. Similar to various online settings, a key challenge for online charitable crowdfunding platform is the problem of donor retention. In this research, we disentangle donor retention behavior and build up a structural model to jointly examine donors' donation and latent attrition. By incorporating donation relationship and action related covariates into the model, we illustrate the drivers of donor retention and quantitatively examine their influence on individual donor's contribution and attrition activity. After calibrating the model with longitudinal donation transaction data from a leading charitable crowdfunding platform which enables teachers to request materials and resources for their classrooms, we find that (1) Teacher-donors (people who can be both donation makers and fundraisers) usually exhibit higher donation rate and lower attrition rate than normal donors on the platform; (2) Compared with site-donors (donors directly acquired through website visit), donors acquired through teacher referral usually have lower contribution and attrition rates; (3) The provided “charity gift card” and “donation matching offer” prosocial marketing programs on the platform seem to be a double-edged sword to donor retention. They have positive impact on donors' contribution rate, at the same time, they significantly increase donors' attrition rate; (4) Donors' initial contribution amount to the platform, successful donation result and “Thank-You” feedback from fundraisers can significantly decrease their attrition rate. Our results provide insights on new donor acquisition and donor relationship management in online charitable crowdfunding market.

Pleasing the crowd: the determinants of securities crowdfunding success

PurposeSince May 2016, small firms have been able to issue debt and equity securities in accordance with the Securities and Exchange Commission's “Regulation Crowdfunding”. This regulation provides unsophisticated investors a chance to participate in the securities markets, and it gives small businesses an opportunity to raise funds. This paper investigates the determinants of crowdfunding success, security design in a crowdfunding setting, the amount of crowdfunding campaign proceeds and campaign duration.Design/methodology/approachThe sample used in this study is based on 750 completed securities crowdfunding offerings that were launched between May 2016 and May 2018. The data on crowdfunding issues were webscraped from Form C filings available through SEC EDGAR filing system. Additional data were hand-collected from a variety of platforms that list and aggregate crowdfunding offerings.FindingsWe show that relatively larger and more profitable companies have a better chance to achieve crowdfunding success. We find that the issuance of equity results in a lower probability of success compared to issuing debt. In addition, the issuance of equity is negatively correlated with the amount of proceeds from a crowdfunding campaign. A novel finding is that a choice of a funding instrument has a negligible impact on the amount of proceeds. This finding, combined with reduced probability of success for equity issuers, can be interpreted as a signal to rely more on debt and convertibles when designing crowdfunding campaigns.Research limitations/implicationsOrganized under “Regulation Crowdfunding,” the US securities-based crowdfunding market has been operating for several years. Relative to other securities markets it is still considered to be in its infancy. Given a relatively small data sample, the results have to be interpreted with caution.Practical implicationsThe paper shows that small businesses and unsophisticated investors can benefit from securities-based crowdfunding, which is subject to oversight of the Securities and Exchange Commission (SEC). Although the mission of the regulator is to protect investors, the SEC took on a rather relaxed approach in regulating types of instruments used in crowdfunding. Our paper shows that equities, including “Simple Agreements For Future Equity” (SAFEs) might not be the best choice for crowdfunding success. This sentiment is mirrored in law literature which considers securities known as SAFEs more suitable for venture capital campaigns rather than for crowdfunding.Originality/valueThe paper adds value to the novel field of securities-based crowdfunding by testing several hypotheses on the crowdfunding success, the amount of proceeds and campaign duration.

Is There Crowd Wisdom in Accounting? Evidence From Forecasts in Equity-Based Crowdfunding

In this article, we study detailed financial forecasts provided by entrepreneurs who seek funds via equity-based crowdfunding on a leading U.K. platform. We investigate (a) what forecast signals investors react to, (b) whether investors can filter out the optimistic bias in forecasts, and (c) whether forecasts are predictive of a venture’s likelihood of survival. We provide strong evidence that entrepreneurs systematically overestimate sales, earnings, profit margin, and assets, and underestimate leverage. Despite the poor forecast quality, investors incorporate forecasted sales, subsequent equity and debt financing, and dividend payments in their investment decisions, but they do not react strongly to other signals. Some evidence suggests that investors are able to detect ex post optimistically biased forecasts among funded projects. However, none of the forecast signals investors react to can predict a higher likelihood of a venture’s survival. Overall, we find mixed evidence regarding crowd wisdom in accounting in the equity-based crowdfunding market.