Equity crowdfunding: Determinants of company’s success on a crowdfunding platform

Abstract

Equity crowdfunding, a form of company financing through equity investments, has become increasingly relevant in recent years. This paper analyzes the advantages of this financing mechanism, the motives of issuers and investors — participants of the crowdinvesting process. Most participants of investing are non-professional investors, for whom recommendations for choosing companies on the platform based on the determinants of investment attractiveness are of practical value. The authors conducted an empirical study to establish the relationship between investment attractiveness and the characteristics of issuing companies emerging on the crowdfunding platforms. The study sample includes 299 companies that raised equity capital on one of the leading platforms in the UK, Crowdcube, between 2011 and 2020. The results of the study showed that the investment attractiveness of companies is higher if during placement they offer a larger share proportion of non-voting than voting shares during the placement. Companies in which managers own a share in capital, firms with registered patents as an indicator of their innovative activity, and companies that do not demonstrate industry diversification have a higher attractiveness for investors. This research contributes to the existing studies of determinants of the success of equity crowdfunding, provides recommendations to investors on the choice of companies with particular characteristics that determine the investment attractiveness of issuers on crowdfunding platforms.