Predicting business failure after crowdfunding success: Are platforms the unsung heroes?

Mari-Liis Kukk

Journal of Business Venturing Insights, 2022, vol. 17, issue C

Abstract: Initial rules introduced in 2016 for U.S. Regulation Crowdfunding were considered overbearingly strict by industry insiders, but were argued by regulators to have a pronounced mandate of protecting against investment losses. Five years later the rules were relaxed without much ado. This paper is the first to explore how the uniquely restrictive initial ruleset fared, focusing on business failure as a straightforward measure of investment losses. We empirically test company-, campaign- and platform-level characteristics observable during a campaign against ensuing business failure. We hand-collect a sample of 380 companies that successfully raised crowdfunding between May 16, 2016 and March 30, 2018, and record their operating status as of February 15, 2021. Overall, 17.4% had failed. Our results suggest that filtering by investors may be important, but the role of platforms in protecting investors warrants considerable attention.

Keywords: Crowdfunding; Startup; Business failure; Due diligence; Information asymmetry (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jobuve:v:17:y:2022:i:c:s2352673422000063

DOI: 10.1016/j.jbvi.2022.e00308

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