Determinants of Overfunding in Equity Crowdfunding: An Empirical Study in the UK and Spain

Abstract

Crowdfunding constitutes one of the financial solutions to achieve the sustainable development goals, by fostering innovation and economic growth. This paper conducts an empirical two-country analysis (the UK and Spain) of characteristics of successful offerings to assess the distribution of overfunding in equity crowdfunding. Unlike previous research, which has usually comprised campaigns posted on single-country portals, our study is based on an international leading platform operating with country-differentiated websites, Crowdcube. Such an approach allows us to identify influential factors which are dependent on country and, simultaneously, to control for those platform-related factors. To focus on the overfunding distribution, a quantile regression methodology is adopted for a total sample of 299 overfunded campaigns from 2015 to 2018. Overall, empirical results show that the effects of key campaign features (equity, voting rights and social capital) are stronger and more significant at the 75th and 90th quantiles for the overfunding level and the number of investors. Furthermore, we find significant differences across countries, which persist along the distributions of overfunding. Yet, interestingly, between-country differences in overfunding level vanish for the technological sector. Our research provides further insights into the relation between equity crowdfunding and sustainable finance.

Role of successive round as a quality signal in equity crowdfunding: Novel evidence from the perspective of investors’ preferences

“…Thus, a subsequent equity crowdfunding campaign may help to achieve high funding targets even with lower level of equity interest in the venture in subsequent fund-raising campaign. These results are in line with the findings of studies by [ 95 , 97 ].…”

“…Empirical evidence also suggests that certain campaigns experience higher degrees of overfunding compared to others [ 95 ]. This phenomenon of overfunding holds significant relevance for entrepreneurs as it allows them to secure additional resources beyond their initial funding goals, aiding in covering startup cost.…”

“…Consequently, entrepreneurs not only accept overfunding but also leverage it as a quality signal to draw in a larger pool of investors. Extant literature also reveals that quality signals like provision of documents [ 42 ], provision of financial projection in equity crowdfunding [ 96 ], length of the project description [ 6 ], provision of video [ 62 ] positively influences funding success in crowdfunding, and magnitude of these quality signals as success factors increase the overfunding of a campaign [ 95 ]. A study by Hornuf et al [ 97 ] investigated the connection between a firm’s achievement of a successful equity crowdfunding campaign and its higher likelihood of securing funds from venture capital firms Their findings imply that a successful equity crowdfunding campaign can serve as a quality signal for investors in subsequent fundraising rounds, potentially contributing to the phenomenon of overfunding in subsequent equity crowdfunding campaign.…”

Social Finance and Banking Research as a Driver for Sustainable Development: A Bibliometric Analysis

“…More generally, the term SF indicates different models and approaches, such as crowdfunding, alternative currencies, social investment, microfinance, socially responsible investments, social impact bonds and venture philanthropy [5][6][7][8]. Therefore, as suggested by the latest results of Rizzi et al (2018) [9], two forms of SF have emerged, including primarily social impact investment and ethical banking.…”

Financial Risk Management and Sustainability

“…The first contribution to this section by [12] conducted an empirical analysis of characteristics of successful offerings to assess the distribution of overfunding in equity crowdfunding in the UK and Spain. Crowdfunding constitutes one of the financial solutions to achieve sustainable development goals by fostering innovation and economic growth.…”