New financing method crowdfunding: Quality signals and other success factors for equity crowdfunding

Crowdfunding has emerged as a new method of entrepreneurial financing in the early 2000s. There are various crowdfunding models like reward, donation, equity and lending based crowdfunding. Information asymmetry problem of entrepreneurial finance is also emphasized in many crowdfunding studies. However, studies on determining the quality signals and other success factors are mostly limited to the reward based model. For this reason in this Thesis an empirical study was conducted in order to determine the equity crowdfunding success factors. Within the scope of the study, comprehensive literature on reward based crowdfunding and the few studies on equity crowdfunding were examined firstly. Then, the information presented to the investors through the Crowdcube equity crowdfunding platform were analyzed to determine whether they are serving as quality signals or as other success factors. In the research, the data from 209 equity crowdfunding campaigns launched by Crowdcube in between January 2017 and May 2018 were analysed via structural equations modelling and path analysis. Findings of the analysis showed that pre-money valuation of the venture, targeted amount of funds, number of campaign followers and number of investor discussions variables had an indirect effect on total funds collected. Thus, it was understood that the increase in total funds collected can be realized with the antecedent variables of pre-money valuation of the venture and number of campaign followers. On the other hand it was determined that number of investors and largest investment amount had a direct effect on total funds collected and that increase in number of investors and largest investment amount would increase total funds collected. In addition, as a result of the mediation analysis performed, it was found that the effect of targeted amount of funds on total funds collected was mediated by largest investment amount and the effect of number of investor discussions on total funds collected was mediated by number of investors. Accordingly, it was seen that increase in total funds collected was dependent on targeted amount of funds and number of investor discussions variables and largest investment amount and number of investors had mediating effect in this increase. Our findings showed that the quality signals were more important than other success factors for equity crowdfunding campaign success. Moreover, an additional important inference from our findings is that the level of development of the new venture and its added value that reflected to its pre-money valuation, matter in equity crowdfunding success. Keywords: Crowdfunding success factors, entrepreneurial finance, equity crowdfunding, quality signals, structural equations modelling