Which Updates During an Equity Crowdfunding Campaign Increase Crowd Participation?

Block, Joern; Hornuf, Lars; Moritz, Alexandra

doi:10.2139/ssrn.2781715

Cited by 80 publications

(175 citation statements)

References 67 publications

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“…Besides quality signals, updates also play a role in the success of crowdfunding campaigns (Block et al. , Mollick , Xu et al. ).…”

Section: Communicating Work: Funding Transparency and Crowdfundingmentioning

confidence: 99%

“…Signals are powerful because they give information about the quality of the campaign to investors (donors). Besides quality signals, updates also play a role in the success of crowdfunding campaigns (Block et al 2018, Mollick 2014, Xu et al 2014). The argument is that updates generate more attention, visibility and excitement around a campaign (Kuppuswamy and Bayus 2018).…”

Section: Crowdfundingmentioning

confidence: 99%

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Operational Transparency on Crowdfunding Platforms: Effect on Donations for Emergency Response

Mejía

Urrea

Pedraza‐Martinez

2019

Production and Operations Management

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Online crowdfunding has emerged as a powerful tool to raise funds for emergency response. Crowdfunding campaigns can use two transparency tools to attract donors: updates and certification. Updates are additional messages that the organizer issues after launching the campaign and are a form of operational transparency when they communicate the campaign’s work to donors. Alternatively, certification is a form of conventional transparency that ensures the campaign truly benefits a charitable purpose. Using an econometric analysis, we investigate the effects of transparency on donations. We study the direction of causality and mechanisms behind work‐related updates by conducting an experiment. Results from the econometric analysis using over 100,000 campaigns benefiting victims of emergencies reveal that both updates and certification have positive effects on donations. Each additional work‐related word in an update (operational transparency) increases donations on average by $65 per month, while certification (conventional transparency) raises funds on average by $22 per month. Results from the experiment confirm the direction of causality; posting work‐related updates in crowdfunding campaigns increases donations. Two mechanisms explain this effect: donors’ enhanced perceptions of effort and perceptions of trust.

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“…Besides quality signals, updates also play a role in the success of crowdfunding campaigns (Block et al. , Mollick , Xu et al. ).…”

Section: Communicating Work: Funding Transparency and Crowdfundingmentioning

confidence: 99%

Section: Crowdfundingmentioning

confidence: 99%

Operational Transparency on Crowdfunding Platforms: Effect on Donations for Emergency Response

Mejía

Urrea

Pedraza‐Martinez

2019

Production and Operations Management

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“…Before we outline our hypotheses, it should be noted that whether a startup can build an enduring business generally depends on two factors. First, startups capable of sending effective signals (see Spence, ) to potential investors should receive more capital and, as a result, also have a lower probability of firm failure (see also Block, Hornuf, & Moritz, ). Second, regardless of whether firms can send effective signals, some firms might be inherently more valuable and thus have a lower probability of failure.…”

Section: Theory and Hypothesesmentioning

confidence: 99%

Equity crowdfunding in Germany and the United Kingdom: Follow‐up funding and firm failure

Hornuf

Schmitt

Stenzhorn

2018

Corporate Governance

Self Cite

100

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Manuscript type Empirical Research question/issue Today, startups frequently obtain financing via the Internet through many small contributions of nonsophisticated investors. Yet, little is known whether these startups can ultimately build enduring businesses. This study investigates the determinants of follow‐up funding and firm failure after an equity crowdfunding campaign has taken place. Research findings/insights We use hand‐collected data from 13 different equity crowdfunding portals and 413 firms that ran at least one successful equity crowdfunding campaign in Germany or the United Kingdom between 2011 and 2016. Our findings show that German firms that received equity crowdfunding stood a higher chance of obtaining follow‐up funding through business angels or venture capitalists but also had a higher likelihood of failure. The number of senior managers and the number of initial venture capital investors both had a positive impact on obtaining postcampaign financing, whereas the average age of the senior management team had a negative impact. The number of initial venture capital investors and the valuation of the firm were significant predictors increasing the hazard of firm failure, whereas the number of senior managers and the amount raised during previous equity crowdfunding campaigns had a negative impact. Theoretical/academic implications This study provides some first empirical evidence regarding the firm and campaign characteristics that determine follow‐up funding and firm failure after an equity crowdfunding campaign has taken place. Given the absence of research on this topic so far, this study inevitably remains original and exploratory to some extent. The empirical findings suggest various avenues of research for human capital theory, organizational ecology, and the comparative corporate governance literature. Practitioner/policy implications Identifying influencing factors of follow‐up funding and firm survival is important to make this new and potentially welfare enhancing form of entrepreneurial finance more predictable by decreasing the risk of individual investments. Furthermore, this study offers insights to policy makers, which are currently expected to implement appropriate regulations for this new market segment. In addition, it provides important insights for portal managers as well as firms raising capital via equity crowdfunding, which may learn about their chances to build an enduring business. https://youtu.be/w_4lIfnOaQY

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“…Mollick (2014) showed that including a video that presents the project and the quality of the pitch increase the chances of success. Hornuf and Schwienbacher (2018a) and Block et al (2018b) found that the updates posted by the entrepreneurs and comments posted by the crowd on the platform play a significant role in explaining the success of a campaign. Allison et al (2013) empirically validated these results regarding the rhetoric of the project presentation.…”

Section: Necessary Conditions For the Development Of Innovationmentioning

confidence: 99%

Crowdfunding and Innovation

Hervé

Schwienbacher

2018

Journal of Economic Surveys

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Entrepreneurs have started relying on crowdfunding to fund their investments. This paper surveys the literature linking crowdfunding with innovation in entrepreneurial firms. Two distinct areas are discussed. First, crowdfunding has the potential to foster innovation by offering new sources of capital to innovation‐driven firms and thereby reduce the funding gap for innovative startups. Second, crowdfunding offers a way for the crowd to participate in the innovation process by providing feedback to the entrepreneur. This feedback can take various forms, including providing ideas on the development of the product during and after the campaign (in the spirit of crowdsourcing), and providing valuable information on the future demand for the new product.

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Which Updates During an Equity Crowdfunding Campaign Increase Crowd Participation?

Cited by 80 publications

References 67 publications

Operational Transparency on Crowdfunding Platforms: Effect on Donations for Emergency Response

Operational Transparency on Crowdfunding Platforms: Effect on Donations for Emergency Response

Equity crowdfunding in Germany and the United Kingdom: Follow‐up funding and firm failure

Crowdfunding and Innovation

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