The evolution of equity crowdfunding: Insights from co-investments of angels and the crowd

Abstract

Equity crowdfunding platforms are at the center of the digital transformation of early-stage venture funding. These digital platforms were originally heralded as a democratizing force in early stage finance, due to their role in facilitating the exchange between entrepreneurs and a multitude of non-professional small investors ("the crowd"). Equity crowdfunding platforms have experienced considerable growth and now attract professional investors including business angels. The presence of angels alongside the crowd on equity crowdfunding platforms has raised questions whether these digital platforms can continue to play their role in democratizing access to capital. Using data from a leading equity crowdfunding platform, we examine the interplay between the investment decisions of angels and the crowd. We find evidence of information flows in crowdfunding platforms between angels, and from angels to the crowd. We find angels play an important role in funding of large ventures, whereas the crowd not only fill the funding gaps for such large ventures but also play a pivotal role in the funding of small ones. The complementarity between angels and crowd investors seems to increase the overall efficiency in an otherwise highly asymmetric and uncertain market, confirming that digitization can indeed bring important benefits to venture investment.

Does a Local Bias Exist in Equity Crowdfunding?

“…Although we cannot confirm whether these investors actively engage in the start-up, investing higher amounts at least provides them with stronger incentives to do so. Wang, Mahmood, Sismeiro, and Vulkan (2019) find that in an equity crowdfunding context, angel investors invest first and crowd investors fill funding gaps when ventures are large. Goldfarb, Hoberg, Kirsch, and Triantis (2013) find that 60% of U.S. business angels are located within three hours' driving time from the firms they invested in, and 18% are located within the same zip code region.…”

Equity Crowdfunding: Principles and Investor Behaviour

“…Thus far, the majority of equity crowdfunding investments have been made by individuals who have no professional affiliation with investing. However, platforms are also attracting angel investors and venture capitalists who are seeking portfolio diversification and the convenience of standardized online investment processes (Bessière et al 2019;Wang et al 2019). For instance, in the Australia-based sample of Guenther et al (2018), 10% of equity crowdfunding investors were accredited or professional investors.…”

“…It allows ventures to gather funds for growth and expansion, and some ventures have indeed reached strong growth after their equity crowdfunding campaign, although many others have failed (Schwienbacher 2019). The investor base is composed of unaccredited as well as accredited investors, and increasingly also professional investors such as angel investors and venture capital funds (Wang et al 2019).…”

Fomento Às Micro E Pequenas Empresas Inovação Por Meio Dos Contratos De Investimento-Anjo

“…De pronto, observa-se que o regime jurídico do contrato de investimento-anjo descrito a partir do artigo 61-A, da Lei Complementar nº 123/2006, preocupa-se com a segurança jurídica, em especial com a do investidor-anjo, ou seja, aquele que deseja aportar recursos em determinada micro ou pequena empresa, a fim de fomentar a inovação e/ou investimentos produtivos, estimulando a captação de recursos em suas atividades. Isso porque, se o investimento-anjo é um dos instrumentos que visa fechar a lacuna do financiamento de micro e pequenas empresas de base tecnológica, o estímulo buscado pelo legislador está relacionado com mitigar os riscos do investidor-anjo (WANG et al, 2019).…”