Equity crowdfunding and the role of investor discussion boards

ABSTRACT

Start-ups are increasingly using equity crowdfunding to raise necessary funding at an early stage. In this rather new form of financing, potential investors communicate with each other and the entrepreneurs typically through the discussion boards of mediating online platforms. Using a mixed-methods approach, this explorative study analyses the role of investor-initiated discussions in equity crowdfunding. First, we develop a framework and categorize 574 interactions between potential investors and entrepreneurs posted on the project-related discussion boards of the Crowdcube equity crowdfunding platform. The framework is built on deductive criteria from the context of business angels and inductive criteria that are unique to the equity crowdfunding context. Five discussion topics stand out in relevance: valuation, financial snapshot, likely returns, shareholder rights, and market risk. Exploring the qualitative data reveals that investors are concerned about high information asymmetries and agency risks. Second, we use panel data of 2,258 funding days to analyse whether discussions signal endorsement and increase funding success. The econometric results show that discussions generally propel investments. However, discussions on topics like market risk and shareholder rights harm funding success. The study highlights the complementarity of discussion boards as an information source for investors, providing a more nuanced picture of the investor perspective in equity crowdfunding and proposing avenues for future research.

KEYWORDS:

• Entrepreneurial finance
• crowdfunding
• equity offerings
• discussion boards
• signalling theory

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

1. A recent study by Kleinert, Volkmann, and Grünhagen (2018) shows that affiliations with third parties, such as with venture capitalists, can also signal quality in an equity crowdfunding context.

2. One of the authors and an external researcher with experience in qualitative content analysis.

3. According to Crowdcube, there was a case when a firm lowered its valuation after controversial comments on the discussion board.

4. The descriptive statistics are presented for the total data set, i.e. 2,258 campaign days. On most campaign days no discussion was initiated and, thus, the means and standard deviation of discussion views and replies have to be taken with caution.