Abstract
A growing number of young and emerging businesses obtain financial resources through open calls over the Internet. Such campaigns are often hosted on specialised platforms that serve as intermediaries between founders and potential funders. In recent years, equity crowdfunding platforms in particular have had remarkably high success rates in these published campaigns. Although they play a central role in the overall investment process, their behaviour is a black box in many ways. Based on semi-structured interviews with platform operators, funded start-ups and external experts, this study reveals how German portals preselect businesses for their audiences and thereby shows how capital-seeking ventures can successfully engage in this new form of financing. Thus, platforms’ preselection follows a structured process that is based on strong network relationships and active search. In addition to the conventional criteria used by established equity providers, these platforms’ decisions are driven by specific criteria related to the facilitation of later funding success. Once platforms make their decision, they support the venture in effectively reducing information asymmetries with investors. Hence, they possess rich knowledge about the information needs of their audiences, which they share with entrepreneurs.
Notes
1. See https://www.crowdcube.com/pg/businessfinance-3 (accessed 27 November 2015).
2. See https://learn.seedrs.com/2014-infographic/ (accessed 27 November 2015).
3. IfM Bonn database: Based on hand-collected data of the four most active equity crowdfunding portals in Germany between August 2011 and March 2015. The portals were selected based on the number of initiated campaigns and their content (mainly start-up-focused). The final data-set included 163 campaigns, of which 89% ultimately reached at least their minimum required funding volume. This was the case for all 34 campaigns launched on Companisto and 70 out of 72 campaigns launched on Seedmatch. These numbers are in line with the data of Hornuf and Schwienbacher (Citation2014b, 38), who document similar success rates for Companisto (24/24) and Seedmatch (50/51) from August 2011 to March 2014.
4. Similar process steps: Haines, Madill, and Riding’s (Citation2003) BA investment process consists of seven sequential steps (deal origination, initial screening, due diligence, negotiation, decision-making, post-investment activity and exit), whereas Tyebjee and Bruno’s (Citation1984) VC investment process consists of five sequential steps (deal origination, screening, evaluation, deal structuring and post-investment activity).
5. Based on IfM Bonn database (including Companisto, Fundsters, Innovestment and Seedmatch) and an additional platform (Bergfürst).
6. IfM Bonn database: average amount raised per campaign and the year in which they were initiated: €83.218 (2011), €104.448 (2012), €214.013 (2013), and €631.985 (2014).
7. Based on a telephone survey with 40 crowdfunded ventures from the IfM database between March and May 2015: 13 had a BA, and three already had a VC investor prior to their campaign launch.