The evolution and adoption of equity crowdfunding: entrepreneur and investor entry into a new market

Equity crowdfunding (ECF) offers entrepreneurs an online social media marketplace where they can access numerous potential investors who, in exchange for an ownership stake, may supply them with finance. In this paper, we describe the evolution of this market in the UK. Using an inductive qualitativ...

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Bibliographic Details
Published in:Small business economics 2018-08, Vol.51 (2), p.425-439
Main Authors: Estrin, Saul, Gozman, Daniel, Khavul, Susanna
Format: Article
Language:English
Subjects:
Business and Management
Crowdfunding
Customers
Entrepreneurial finance
Entrepreneurs
Entrepreneurship
Equity
Finance
High risk
Industrial Organization
Investors
Management
Mass media
Microeconomics
Ownership
Policy making
Portfolios
Social media
Social networks
Ventures
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Summary:Equity crowdfunding (ECF) offers entrepreneurs an online social media marketplace where they can access numerous potential investors who, in exchange for an ownership stake, may supply them with finance. In this paper, we describe the evolution of this market in the UK. Using an inductive qualitative longitudinal research design, we analyse the emerging views of entrepreneurs and investors towards ECF. Our interviewees include large and small-scale investors, as well as market participants who have chosen not to invest or raise funds via ECF. We find that the large financial flows to entrepreneurs in the UK via the ECF platforms, nearly half a billion GBP since 2011, have probably been largely incremental to traditional sources of early stage entrepreneurial finance. Moreover, our research indicates that for the most part, investors appear to understand and appropriately evaluate the risks that they are bearing; ECF investments are perceived as a high risk, high return component within individuals' portfolios. Investors also use their communication with peers and entrepreneurs via the ECF platform as a learning tool. On the entrepreneurs' side, ECF allows them to test their products, to develop their brand, to build a loyal customer base and to turn customers into investors. We conclude that policymakers, with the support of a locally appropriate regulatory framework, could support equity crowdfunding as one of the market choices available for entrepreneurs looking to start or grow their ventures.
ISSN:0921-898X
1573-0913
DOI:10.1007/s11187-018-0009-5