IDEAS home Printed from https://ideas.repec.org/a/eee/corfin/v65y2020ics0929119920302170.html
   My bibliography  Save this article

Is equity crowdfunding always good? Deal structure and the attraction of venture capital investors

Author

Listed:
  • Butticè, Vincenzo
  • Di Pietro, Francesca
  • Tenca, Francesca

Abstract

This paper provides evidence that equity crowdfunding has implications for firms long after the capital raised through the campaign is injected. Using a unique dataset of 290 firms that successfully fundraised via the two most prominent UK equity crowdfunding portals, we examine how different shareholder structures, namely the nominee vs. the direct shareholder structure, affect the attraction of venture capital financing. From the comparison with a control group of twin firms that did not receive any external seed financing, we find that a successful equity crowdfunding campaign facilitates the attraction of VC financing. This association is stronger for equity crowdfunding campaigns with a nominee shareholder structure, while it results weaker when the direct shareholder structure is chosen. Compared to a different control sample of angel-backed firms, receiving equity crowdfunding through a nominee structure facilitates the attraction of VC financing.

Suggested Citation

  • Butticè, Vincenzo & Di Pietro, Francesca & Tenca, Francesca, 2020. "Is equity crowdfunding always good? Deal structure and the attraction of venture capital investors," Journal of Corporate Finance, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:corfin:v:65:y:2020:i:c:s0929119920302170
    DOI: 10.1016/j.jcorpfin.2020.101773
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0929119920302170
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jcorpfin.2020.101773?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Mahmood, Ammara & Luffarelli, Jonathan & Mukesh, Mudra, 2019. "What's in a logo? The impact of complex visual cues in equity crowdfunding," Journal of Business Venturing, Elsevier, vol. 34(1), pages 41-62.
    2. Thomas H. Allison & Blakley C. Davis & Jeremy C. Short & Justin W. Webb, 2015. "Crowdfunding in a Prosocial Microlending Environment: Examining the Role of Intrinsic versus Extrinsic Cues," Entrepreneurship Theory and Practice, , vol. 39(1), pages 53-73, January.
    3. Bergemann, Dirk & Hege, Ulrich, 1998. "Venture capital financing, moral hazard, and learning," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 703-735, August.
    4. Di Pietro, Francesca & Butticè, Vincenzo, 2020. "Institutional characteristics and the development of crowdfunding across countries," International Review of Financial Analysis, Elsevier, vol. 71(C).
    5. Evila Piva & Cristina Rossi-Lamastra, 2018. "Human capital signals and entrepreneurs’ success in equity crowdfunding," Small Business Economics, Springer, vol. 51(3), pages 667-686, October.
    6. James J. Heckman & Hidehiko Ichimura & Petra E. Todd, 1997. "Matching As An Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(4), pages 605-654.
    7. Dan K. Hsu & J. Michael Haynie & Sharon A. Simmons & Alexander McKelvie, 2014. "What matters, matters differently: a conjoint analysis of the decision policies of angel and venture capital investors," Venture Capital, Taylor & Francis Journals, vol. 16(1), pages 1-25, January.
    8. Norbert Steigenberger & Hendrik Wilhelm, 2018. "Extending Signaling Theory to Rhetorical Signals: Evidence from Crowdfunding," Organization Science, INFORMS, vol. 29(3), pages 529-546, June.
    9. Shleifer, Andrei & Vishny, Robert W, 1997. "A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    10. Hornuf, Lars & Schwienbacher, Armin, 2018. "Market mechanisms and funding dynamics in equity crowdfunding," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 556-574.
    11. Fabio Bertoni & Massimo Colombo & Anita Quas, 2015. "The patterns of venture capital investment in Europe," Small Business Economics, Springer, vol. 45(3), pages 543-560, October.
    12. Shai Bernstein & Arthur Korteweg & Kevin Laws, 2017. "Attracting Early-Stage Investors: Evidence from a Randomized Field Experiment," Journal of Finance, American Finance Association, vol. 72(2), pages 509-538, April.
    13. Walthoff-Borm, Xavier & Schwienbacher, Armin & Vanacker, Tom, 2018. "Equity crowdfunding: First resort or last resort?," Journal of Business Venturing, Elsevier, vol. 33(4), pages 513-533.
    14. Douglas Cumming & Uwe Walz & Jochen Christian Werth, 2016. "Entrepreneurial Spawning: Experience, Education, and Exit," The Financial Review, Eastern Finance Association, vol. 51(4), pages 507-525, November.
    15. Mark Van Osnabrugge, 2000. "A comparison of business angel and venture capitalist investment procedures: An agency theory-based analysis," Venture Capital, Taylor & Francis Journals, vol. 2(2), pages 91-109, April.
    16. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    17. Hellmann, Thomas, 2002. "A theory of strategic venture investing," Journal of Financial Economics, Elsevier, vol. 64(2), pages 285-314, May.
    18. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    19. Bertoni, Fabio & Colombo, Massimo G. & Grilli, Luca, 2011. "Venture capital financing and the growth of high-tech start-ups: Disentangling treatment from selection effects," Research Policy, Elsevier, vol. 40(7), pages 1028-1043, September.
    20. Hellmann, Thomas & Thiele, Veikko, 2015. "Friends or foes? The interrelationship between angel and venture capital markets," Journal of Financial Economics, Elsevier, vol. 115(3), pages 639-653.
    21. Paul Gompers & Josh Lerner, 2000. "The Determinants of Corporate Venture Capital Success: Organizational Structure, Incentives, and Complementarities," NBER Chapters, in: Concentrated Corporate Ownership, pages 17-54, National Bureau of Economic Research, Inc.
    22. Barry, Christopher B. & Muscarella, Chris J. & Peavy, John III & Vetsuypens, Michael R., 1990. "The role of venture capital in the creation of public companies*1: Evidence from the going-public process," Journal of Financial Economics, Elsevier, vol. 27(2), pages 447-471, October.
    23. Will Drover & Matthew S. Wood & Andrew Zacharakis, 2017. "Attributes of Angel and Crowdfunded Investments as Determinants of VC Screening Decisions," Entrepreneurship Theory and Practice, , vol. 41(3), pages 323-347, May.
    24. Gerrit K.C. Ahlers & Douglas Cumming & Christina Günther & Denis Schweizer, 2015. "Signaling in Equity Crowdfunding," Entrepreneurship Theory and Practice, , vol. 39(4), pages 955-980, July.
    25. Magdalena Cholakova & Bart Clarysse, 2015. "Does the Possibility to Make Equity Investments in Crowdfunding Projects Crowd Out Reward–Based Investments?," Entrepreneurship Theory and Practice, , vol. 39(1), pages 145-172, January.
    26. Roma, Paolo & Messeni Petruzzelli, Antonio & Perrone, Giovanni, 2017. "From the crowd to the market: The role of reward-based crowdfunding performance in attracting professional investors," Research Policy, Elsevier, vol. 46(9), pages 1606-1628.
    27. McDonald, John F & Moffitt, Robert A, 1980. "The Uses of Tobit Analysis," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 318-321, May.
    28. Hsu, David H., 2007. "Experienced entrepreneurial founders, organizational capital, and venture capital funding," Research Policy, Elsevier, vol. 36(5), pages 722-741, June.
    29. Manju Puri & Rebecca Zarutskie, 2012. "On the Life Cycle Dynamics of Venture-Capital- and Non-Venture-Capital-Financed Firms," Journal of Finance, American Finance Association, vol. 67(6), pages 2247-2293, December.
    30. Alice Rossi & Silvio Vismara & Michele Meoli, 2019. "Voting rights delivery in investment-based crowdfunding: a cross-platform analysis," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 46(2), pages 251-281, June.
    31. Ajay Agrawal & Christian Catalini & Avi Goldfarb, 2015. "Crowdfunding: Geography, Social Networks, and the Timing of Investment Decisions," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(2), pages 253-274, June.
    32. Vincenzo Capizzi, 2015. "The returns of business angel investments and their major determinants," Venture Capital, Taylor & Francis Journals, vol. 17(4), pages 271-298, October.
    33. Thomas Hellmann & Manju Puri, 2002. "Venture Capital and the Professionalization of Start‐Up Firms: Empirical Evidence," Journal of Finance, American Finance Association, vol. 57(1), pages 169-197, February.
    34. Cumming, Douglas & Meoli, Michele & Vismara, Silvio, 2019. "Investors’ choices between cash and voting rights: Evidence from dual-class equity crowdfunding," Research Policy, Elsevier, vol. 48(8), pages 1-1.
    35. Davidsson, Per & Honig, Benson, 2003. "The role of social and human capital among nascent entrepreneurs," Journal of Business Venturing, Elsevier, vol. 18(3), pages 301-331, May.
    36. Alberto Abadie & Guido W. Imbens, 2012. "A Martingale Representation for Matching Estimators," Journal of the American Statistical Association, Taylor & Francis Journals, vol. 107(498), pages 833-843, June.
    37. Christopher Courtney & Supradeep Dutta & Yong Li, 2017. "Resolving Information Asymmetry: Signaling, Endorsement, and Crowdfunding Success," Entrepreneurship Theory and Practice, , vol. 41(2), pages 265-290, March.
    38. Roland Strausz, 2017. "A Theory of Crowdfunding: A Mechanism Design Approach with Demand Uncertainty and Moral Hazard," American Economic Review, American Economic Association, vol. 107(6), pages 1430-1476, June.
    39. Amit, Raphael & Brander, James & Zott, Christoph, 1998. "Why do venture capital firms exist? theory and canadian evidence," Journal of Business Venturing, Elsevier, vol. 13(6), pages 441-466, November.
    40. Maxwell, Andrew L. & Jeffrey, Scott A. & Lévesque, Moren, 2011. "Business angel early stage decision making," Journal of Business Venturing, Elsevier, vol. 26(2), pages 212-225, March.
    41. Cheryl R. Mitteness & Melissa S. Baucus & Richard Sudek, 2012. "Horse vs. Jockey? How stage of funding process and industry experience affect the evaluations of angel investors," Venture Capital, Taylor & Francis Journals, vol. 14(4), pages 241-267, October.
    42. Signori, Andrea & Vismara, Silvio, 2018. "Does success bring success? The post-offering lives of equity-crowdfunded firms," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 575-591.
    43. Garry D. Bruton & Salim Chahine & Igor Filatotchev, 2009. "Founders, Private Equity Investors, and Underpricing in Entrepreneurial IPOs," Entrepreneurship Theory and Practice, , vol. 33(4), pages 909-928, July.
    44. Michaël Dewally & Louis Ederington, 2006. "Reputation, Certification, Warranties, and Information as Remedies for Seller-Buyer Information Asymmetries: Lessons from the Online Comic Book Market," The Journal of Business, University of Chicago Press, vol. 79(2), pages 693-730, March.
    45. Francesca Tenca & Annalisa Croce & Elisa Ughetto, 2018. "Business Angels Research In Entrepreneurial Finance: A Literature Review And A Research Agenda," Journal of Economic Surveys, Wiley Blackwell, vol. 32(5), pages 1384-1413, December.
    46. Baum, Joel A. C. & Silverman, Brian S., 2004. "Picking winners or building them? Alliance, intellectual, and human capital as selection criteria in venture financing and performance of biotechnology startups," Journal of Business Venturing, Elsevier, vol. 19(3), pages 411-436, May.
    47. Silvio Vismara, 2016. "Equity retention and social network theory in equity crowdfunding," Small Business Economics, Springer, vol. 46(4), pages 579-590, April.
    48. Nahata, Rajarishi & Hazarika, Sonali & Tandon, Kishore, 2014. "Success in Global Venture Capital Investing: Do Institutional and Cultural Differences Matter?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 49(4), pages 1039-1070, August.
    49. Strausz, Roland, 2017. "A Theory of Crowdfunding," Rationality and Competition Discussion Paper Series 2, CRC TRR 190 Rationality and Competition.
    50. Juanjuan Zhang & Peng Liu, 2012. "Rational Herding in Microloan Markets," Management Science, INFORMS, vol. 58(5), pages 892-912, May.
    51. Wm. Gerard Sanders & Steven Boivie, 2004. "Sorting things out: valuation of new firms in uncertain markets," Strategic Management Journal, Wiley Blackwell, vol. 25(2), pages 167-186, February.
    52. Fisher, Greg & Kuratko, Donald F. & Bloodgood, James M. & Hornsby, Jeffrey S., 2017. "Legitimate to whom? The challenge of audience diversity and new venture legitimacy," Journal of Business Venturing, Elsevier, vol. 32(1), pages 52-71.
    53. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 87(3), pages 355-374.
    54. Robert E. Carpenter & Bruce C. Petersen, 2002. "Capital Market Imperfections, High-Tech Investment, and New Equity Financing," Economic Journal, Royal Economic Society, vol. 112(477), pages 54-72, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Vincenzo Butticè & Silvio Vismara, 2022. "Inclusive digital finance: the industry of equity crowdfunding," The Journal of Technology Transfer, Springer, vol. 47(4), pages 1224-1241, August.
    2. Sophie Pommet & Alexandra Rufini & Dominique Torre, 2024. "The role of lead investors in equity crowdfunding campaigns with a secondary market," Small Business Economics, Springer, vol. 63(1), pages 243-273, June.
    3. Massimiliano Barbi & Valentina Febo & Giancarlo Giudici, 2023. "Community-level social capital and investment decisions in equity crowdfunding," Small Business Economics, Springer, vol. 61(3), pages 1075-1110, October.
    4. Camilla Civardi & Andrea Moro & Joakim Winborg, 2024. "“All that glitters is not gold!”: The (Unexplored) Determinants of Equity Crowdfunding," Small Business Economics, Springer, vol. 63(1), pages 299-324, June.
    5. Chun-Yueh Lin & Yi-Hsien Wang, 2021. "Evaluating the Optimal External Equity Financing Strategy and Critical Factors for the Startup of Lending Company in Taiwan: An Application of Expert Network Decision Model," Mathematics, MDPI, vol. 9(18), pages 1-15, September.
    6. Silvio Vismara, 2022. "Expanding corporate finance perspectives to equity crowdfunding," The Journal of Technology Transfer, Springer, vol. 47(6), pages 1629-1639, December.
    7. Francesca Pietro, 2021. "The rationale for listing on equity crowdfunding: actual and expected benefits for companies," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 48(4), pages 527-549, December.
    8. Maarten Cerpentier & Tom Vanacker & Ine Paeleman & Katja Bringmann, 2022. "Equity crowdfunding, market timing, and firm capital structure," The Journal of Technology Transfer, Springer, vol. 47(6), pages 1766-1793, December.
    9. Vincenzo Butticè & Francesca Pietro & Francesca Tenca, 2022. "They do not look alike: what kind of private investors do equity crowdfunded firms attract?," The Journal of Technology Transfer, Springer, vol. 47(6), pages 1707-1736, December.
    10. Coakley, Jerry & Cumming, Douglas J. & Lazos, Aristogenis & Vismara, Silvio, 2021. "Enfranchising the crowd: Nominee account equity crowdfunding," CFS Working Paper Series 664, Center for Financial Studies (CFS).
    11. Laffey, Des & Durkin, Mark & Cummins, Darryl & Gandy, Anthony, 2021. "A shift in power? Value co-creation through successful crowdfunding," Technological Forecasting and Social Change, Elsevier, vol. 172(C).
    12. Alice Rossi & Tom Vanacker & Silvio Vismara, 2023. "Unsuccessful Equity Crowdfunding Offerings and the Persistence in Equity Fundraising of Family Business Start-Ups," Entrepreneurship Theory and Practice, , vol. 47(4), pages 1327-1355, July.
    13. KURIHARA Koki & HONJO Yuji, 2022. "Determinants of Campaign Success: Empirical evidence from equity crowdfunding in Japan," Discussion papers 22057, Research Institute of Economy, Trade and Industry (RIETI).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Francesca Pietro, 2021. "The rationale for listing on equity crowdfunding: actual and expected benefits for companies," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 48(4), pages 527-549, December.
    2. Roma, Paolo & Vasi, Maria & Kolympiris, Christos, 2021. "On the signaling effect of reward-based crowdfunding: (When) do later stage venture capitalists rely more on the crowd than their peers?," Research Policy, Elsevier, vol. 50(6).
    3. Vincenzo Butticè & Francesca Pietro & Francesca Tenca, 2022. "They do not look alike: what kind of private investors do equity crowdfunded firms attract?," The Journal of Technology Transfer, Springer, vol. 47(6), pages 1707-1736, December.
    4. Johannes Wallmeroth & Peter Wirtz & Alexander Peter Groh, 2017. "Institutional Seed Financing, Angel Financing, and Crowdfunding of Entrepreneurial Ventures: A Literature Review," Working Papers hal-01527999, HAL.
    5. Simon Kleinert & Christine Volkmann & Marc Grünhagen, 2020. "Third-party signals in equity crowdfunding: the role of prior financing," Small Business Economics, Springer, vol. 54(1), pages 341-365, January.
    6. Massimo G. Colombo & Benedetta Montanaro & Silvio Vismara, 2023. "What drives the valuation of entrepreneurial ventures? A map to navigate the literature and research directions," Small Business Economics, Springer, vol. 61(1), pages 59-84, June.
    7. Mochkabadi, Kazem & Kleinert, Simon & Urbig, Diemo & Volkmann, Christine, 2024. "From distinctiveness to optimal distinctiveness: External endorsements, innovativeness and new venture funding," Journal of Business Venturing, Elsevier, vol. 39(1).
    8. Di Pietro, Francesca & Butticè, Vincenzo, 2020. "Institutional characteristics and the development of crowdfunding across countries," International Review of Financial Analysis, Elsevier, vol. 71(C).
    9. Regan Stevenson & Sean R. McMahon & Chaim Letwin & Michael P. Ciuchta, 2022. "Entrepreneur fund-seeking: toward a theory of funding fit in the era of equity crowdfunding," Small Business Economics, Springer, vol. 58(4), pages 2061-2086, April.
    10. Michael E. Cummings & Hans Rawhouser & Silvio Vismara & Erin L. Hamilton, 2020. "An equity crowdfunding research agenda: evidence from stakeholder participation in the rulemaking process," Small Business Economics, Springer, vol. 54(4), pages 907-932, April.
    11. Daniel Blaseg & Douglas Cumming & Michael Koetter, 2021. "Equity Crowdfunding: High-Quality or Low-Quality Entrepreneurs?," Entrepreneurship Theory and Practice, , vol. 45(3), pages 505-530, May.
    12. Felix Reichenbach & Martin Walther, 2021. "Signals in equity-based crowdfunding and risk of failure," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-30, December.
    13. Walthoff-Borm, Xavier & Schwienbacher, Armin & Vanacker, Tom, 2018. "Equity crowdfunding: First resort or last resort?," Journal of Business Venturing, Elsevier, vol. 33(4), pages 513-533.
    14. Michael M. Moedl, 2021. "Two’s a company, three’s a crowd: Deal breaker terms in equity crowdfunding for prospective venture capital," Small Business Economics, Springer, vol. 57(2), pages 927-952, August.
    15. Vincenzo Butticè & Diego Useche, 2022. "Crowdfunding to overcome the immigrant entrepreneurs’ liability of outsidership: the role of internal social capital," Small Business Economics, Springer, vol. 59(4), pages 1519-1540, December.
    16. Nguyen, Thang & Cox, Joe & Rich, Judy, 2019. "Invest or regret? An empirical investigation into funding dynamics during the final days of equity crowdfunding campaigns," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 784-803.
    17. Borello, Giuliana & De Crescenzo, Veronica & Pichler, Flavio, 2019. "Factors for success in European crowdinvesting," Journal of Economics and Business, Elsevier, vol. 106(C).
    18. Anglin, Aaron H. & Short, Jeremy C. & Drover, Will & Stevenson, Regan M. & McKenny, Aaron F. & Allison, Thomas H., 2018. "The power of positivity? The influence of positive psychological capital language on crowdfunding performance," Journal of Business Venturing, Elsevier, vol. 33(4), pages 470-492.
    19. Vincenzo Butticè & Silvio Vismara, 2022. "Inclusive digital finance: the industry of equity crowdfunding," The Journal of Technology Transfer, Springer, vol. 47(4), pages 1224-1241, August.
    20. Pietro, Francesca Di & Bogers, Marcel L.A.M. & Prencipe, Andrea, 2021. "Organisational barriers and bridges to crowd openness in equity crowdfunding," Technological Forecasting and Social Change, Elsevier, vol. 162(C).

    More about this item

    Keywords

    Equity crowdfunding; Post-campaign performance; Venture capital; Shareholder structure;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:corfin:v:65:y:2020:i:c:s0929119920302170. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jcorpfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.