Investors’ evaluation criteria in equity crowdfunding

Kourosh Shafi ()
Additional contact information
Kourosh Shafi: California State University

Small Business Economics, 2021, vol. 56, issue 1, No 2, 3-37

Abstract: Abstract Equity crowdfunding can provide significant resources to new ventures. However, it is not clear how crowd investors decide which ventures to invest in. Building on prior work on professional investors as well as theories in behavioral decision-making, we examine the weight non-professional crowd investors place on criteria related to a start-up’s management, business, and financials. Our conceptual discussion raises the possibility that crowd investors often lack the experience and training to assess complex and sometimes technical investment information, potentially leading them to place larger weight on factors that appear easy to evaluate and less weight on factors that are more difficult to evaluate. Studying over 200 campaigns on the platform Crowdcube, we find that fundraising success is most strongly related to attributes of the product or service, followed by selected aspects of the team, in particular, founders’ motivation and commitment. However, financial metrics disclosed in campaign descriptions do not predict funding success. We discuss implications for investors and entrepreneurs, as well as platform organizers and policy makers.

Keywords: Equity crowdfunding; Decision-making criteria; Evaluability (search for similar items in EconPapers)
JEL-codes: D26 L26 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

Downloads: (external link)
http://link.springer.com/10.1007/s11187-019-00227-9 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:sbusec:v:56:y:2021:i:1:d:10.1007_s11187-019-00227-9

Ordering information: This journal article can be ordered from
http://www.springer. ... 29/journal/11187/PS2

DOI: 10.1007/s11187-019-00227-9

Access Statistics for this article

Small Business Economics is currently edited by Zoltan J. Acs and David B. Audretsch

More articles in Small Business Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().