Research Says Equity Crowdfunding Makes Firms More Appealing to Future Investors
Successful equity crowdfunding campaigns make companies more appealing to future venture capital financing, reveals new research from Trinity Business School.
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Research Says Equity Crowdfunding Makes Firms More Appealing to Future Investors
Successful equity crowdfunding campaigns make companies more appealing to future venture capital financing, reveals new research from Trinity Business School.
According to research from Dr Francesca Di Pietro, Assistant Professor in Business Strategy at Trinity Business School, firms that successfully obtain equity crowdfunding, in which people invest in a company in return for shares in that firm, are more likely to attract future venture capital financing.
The researchers suggest that this is because receiving equity crowdfunding signals an entrepreneurs’ quality, as well as the firms’ market appeal, making the company more appealing to venture capital investors.
In undertaking the study, the researchers used a dataset of 290 UK firms that had successfully fundraised using two prominent equity crowdfunding sites.
Di Pietro and her colleagues also analysed and compared how different shareholder structures impacted the likelihood of future venture capital investment, finding that firms who used the nominee shareholder structure (in which shares are held and managed by crowdfunding platforms in place of actual shareholders) were more likely to receive subsequent venture capital finance than companies using a direct shareholder structure.
The research adds to discussions around the entrepreneurship and signalling theory by recognising the role of crowdfunding as a mechanism for companies to signal their value using those who have already invested.
Dr Francesca Di Pietro, Assistant Professor in Business Strategy at Trinity Business School, says:
“For entrepreneurs: If you are thinking about launching an equity crowdfunding campaign, you may want to consider the “nominee shareholder structure”, i.e. one legal shareholder (i.e., the nominee/platform) that holds the shares on behalf of the crowd investors.”
This research was published in the Journal of Corporate Finance.
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