Equity crowdfunding as an alternative source of entrepreneurial finance

Abstract

Equity-based Crowdfunding (EBC) has been playing an increasingly important role in financing entrepreneurial companies (Signori & Vismara, 2018). Project founders raise funds via online platforms, such as Crowdcube, which also gives project founders direct interaction with potential investors. Through their feedback, investors provide opinions of the business idea, which may prove useful in reshaping and improving the products or services. Although current research on equity-based crowdfunding has correlated various campaign and projects’ features to success, there is a lack of convincing conceptual framework that has the potential to incorporate the interplay of the different factors in crowdfunding. In particular, the extant literature has so far attempted to explain success in terms of project characteristics, generally ignoring the characteristics of fund structure and their interrelationship with project characteristics in the success (or failure) of equity crowdfunding. This thesis is aiming to address this gap by building upon signalling theory, goal setting theory and social capital theories to develop a comprehensive conceptual framework that incorporate projects characteristics, fundraising structure and their interplay in the EBC campaign. Hypotheses are developed based on the conceptual framework. The data of the thesis were collected from the 850 projects funded between 2011 and 2019 on EBC platform, Crowdcube, in UK. The data was analysed using a quantitative method, with the dataset being analysed using an Ordinary least squares (OLS) regression and a series of robustness tests using a logistic regression to assess the reliability of my results. The result of this study found that higher firm age, more social media channels, and more management team members in project characteristics can contribute to the success of EBC campaigns, whilst lower funding target, less equity offered, and moderate investment threshold value to gain voting rights in fundraising characteristics can also contribute to the success of EBC campaigns. The results also suggest that project founders may establish a higher investment threshold value for investors to obtain voting rights if they are confident in the project's ability to create substantial cash flows or revenue in the future. Moreover, investors may waive their voting rights if project founders provide signals of higher-quality projects. More importantly, the result of this study found significant interaction effect between different factors, including firm age and social media, equity offered and social media, and equity offered and investment. The findings help to depict a complex web of interacting factors that when considered together, are contributing to the success of EBC. Through investigation of the factors of project characters and its fund structure characters in equity crowdfunding, this thesis assists project founders in setting up their crowdfunding campaign and investors screening out projects with growth potential and advances understanding of Crowdfunding, especially for equity crowdfunding.