Equity Crowdfunding. Crowdinvesting Symposium at LMU Munich

Transcription

1 Equity Crowdfunding Crowdinvesting Symposium at LMU Munich Prof. Dr. Denis Schweizer WHU Otto Beisheim School of Management Assistant Professorship of Alternative Investments Gerrit K.C. Ahlers Douglas Cumming Christina Günther Denis Schweizer A.T. Kearney GmbH York University WHU WHU

2 Agenda Motivation Research Hypotheses Data Collection and Sample Overview Empirical Analysis Summary of Main Results 2

3 Motivation Definition: Crowdfunding is an umbrella term used to describe an increasingly widespread form of fundraising whereby groups of people pool money, typically (very) small individual contributions, to support a particular goal Equity crowdfunding is a form of financing in which entrepreneurs make an open call to sell a specified amount of equity- or bond-like shares in a company on the Internet, hoping to attract a large group of investors Online platforms (such as, e.g., Crowdcube, ASSOB) provide the means for the transactions (the legal groundwork, pre-selection, the ability to process financial transactions, etc.) With the introduction of the JOBS (Jumpstart Our Business Startups) Act in the U.S., as of November 2013, the opportunity for entrepreneurs to obtain financing through equity crowdfunding in exchange for equity shares from other than so-called accredited investors became possible Small investors do not usually have the capability to extensively research and assess potential investments start-ups need to clearly signal their value to small investors 3

4 Motivation continued Two contrasting London-based crowdfunding cases illustrate this issue: In December 2011, The Rushmore Group, a start-up that operates three bars in London, sold 10% of its equity for 1,000,000 to 143 small investors through Crowdcube. The aspiring entrepreneurs of The Rushmore Group accomplished this feat in a little over two weeks In early April 2012, another owner and operator of a London bar, Meatballs, offered a 25% equity stake for 300,000 on Crowdcube. Two months after the start of the offering, they had raised only 4,750 What went wrong? Same service, same city, presented in the same fashion and on the same online platform Given different start-ups with similar observable characteristics, what leads small investors to invest in certain start-ups and not in others? 4

5 Theory Development Baum and Silverman (2004) Human Capital Social (alliance) Capital Venture Quality H1 (+) Intellectual Capital Funding Success Equity Share Financial Projections Uncertainty H2 (-) 5

6 Research Hypotheses H1 Higher venture quality positively affects funding success on equity crowdfunding platforms # Board, % Board MBA (Human Capital) * % Non-Executive Board Members (Social (Alliance) Capital) * Granted Patent (Intellectual Capital) * H2 The level of uncertainty negatively affects funding success on equity crowdfunding platforms Equity Offering (Equity Share) * Disclaimer x No Financial Forecast, No Disclaimer x No Financial Forecast (Financial Projections) * Additional Controls * Proxy Variables 6

7 Data Collection ASSOB (Australian Small Scale Offerings Board) Australian platform in business since 2006 With AUD 125 million funded as of April 2012, it is also the equity crowdfunding platform that has raised the largest total amount of capital All start-ups in our sample (104) and start-ups that actually received funding (67) Crowd Fin. Volume Crowd Fin. Count Crowd Fin. Volume Crowd Fin. Count Total 3,540 AUD 1,222 AUD 6,708 AUD 5,581 AUD 11,864 AUD 4,216 AUD 33,131 AUD < $ 500,000 0 AUD 90 AUD 2,345 AUD 1,552 AUD 4,621 AUD 1,552 AUD 10,159 AUD $500,000 - $1million 0 AUD 1,132 AUD 1,150 AUD 1,615 AUD 2,777 AUD 1,564 AUD 8,238 AUD $1 - $2million 0 AUD 0 AUD 1,200 AUD 2,415 AUD 4,466 AUD 1,100 AUD 9,180 AUD > $2 million 3,540 AUD 0 AUD 2,014 AUD 0 AUD 0 AUD 0 AUD 5,554 AUD < $ 500, $500,000 - $1 million $1 - $2 million > $2 million

8 Millions Volume of Crowdfunding Platforms by Type, as of April 2013 (Crowdsourcing.org) Donations Lending Reward-based Equity 8

9 Success Determinants of Crowdfunding Projects # of Investors Absolute Funding Amount Speed of Capital Allocation H1 Coefficient z-value Coefficient Beta t-value Coefficient z-value (1) Constant *** Human Capital (2) # Board.342 ** *.236 * (3) % Board MBA.017 * * 1.83 Social (Alliance) Capital (4) % Non-Executive Board Members Intellectual Capital (5) Granted Patent Equity Share (6) Equity Offering *** *** Financial Projections (7) Disclaimer x No Financial Forecast (8) No Disclaimer x No Financial Forecast ** ** *** Additional Controls (9) # Staff (10) Award (11) Government Grant (12) Intended Number of Rounds ** 2.43 (13) Most Likely Exit-Others *** (14) Most Likely Exit-Trade Sale * (15) Target Funding (16) Years in Business ** 2.22 (17) Years to Planned Exit Year Fixed Effects YES YES YES Industry Fixed Effects YES YES YES Big City Fixed Effects YES YES YES H2 9

10 Summary of Main Results Our empirical findings suggest that retaining equity and providing more detailed information about risks can be interpreted as effective signals fostering funding success Social (alliance) capital and intellectual capital, by contrast, have little or no impact on funding success 10