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Entrepreneurship Theory and Practice Vol. 45 No. 3 2021

Equity Crowdfunding: High-Quality or Low-Quality Entrepreneurs?

Daniel Blaseg1; Douglas J. Cumming2,3; Michael Koetter4

1 Universitat Ramon Llull, ESADE, Sant Cugat, Spain · 2 College of Business, Florida Atlantic University, Boca Raton, FL, USA · 3 Birmingham Business School, University of Birmingham, UK · 4 IWH, Otto-von-Guericke University, Deutsche Bundesbank, Halle (Saale), Germany

open access

Abstract

Equity crowdfunding (ECF) has potential benefits that might be attractive to high-quality entrepreneurs, including fast access to a large pool of investors and obtaining feedback from the market. However, there are potential costs associated with ECF due to early public disclosure of entrepreneurial activities, communication costs with large pools of investors, and equity dilution that could discourage future equity investors; these costs suggest that ECF attracts low-quality entrepreneurs. In this paper, we hypothesize that entrepreneurs tied to more risky banks are more likely to be low-quality entrepreneurs and thus are more likely to use ECF. A large sample of ECF campaigns in Germany shows strong evidence that connections to distressed banks push entrepreneurs to use ECF. We find some evidence, albeit less robust, that entrepreneurs who can access other forms of equity are less likely to use ECF. Finally, the data indicate that entrepreneurs who access ECF are more likely to fail.

DOI
10.1177/1042258719899427
Volume
45
Issue
3
Pages
505-530
Language
en
Sources
openalex crossref

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