Risk-reducing options in crowdinvesting: An experimental study

Financial constraints are a striking difficulty of entrepreneurial ventures in the early stages of their development. Recently, emerging crowdinvesting platforms try to fill this finance gap by involving an anonymous crowd into the funding process. Due to high information asymmetries, platform provi...

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Bibliographic Details
Published in:Journal of small business strategy 2018-01, Vol.28 (3), p.1-17
Main Authors: Angerer, Martin, Niemand, Thomas, Kraus, Sascha, Thies, Ferdinand
Format: Article
Language:English
Subjects:
Compensation
Crowdfunding
Entrepreneurial finance
Entrepreneurs
Entrepreneurship
Equity
Information systems
Internet
Small business
Social research
Sociology
Startups
Venture capital
Web 2.0
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Summary:Financial constraints are a striking difficulty of entrepreneurial ventures in the early stages of their development. Recently, emerging crowdinvesting platforms try to fill this finance gap by involving an anonymous crowd into the funding process. Due to high information asymmetries, platform providers and start-ups alike try their best to reduce the risk for investors. We therefore examine existing and thinkable mechanisms of option-based risk reduction in crowdinvesting. We use a 2x3x3 mixed subject design to manipulate the availability and characteristics of risk-reducing options and the project attractiveness. With 210 participants, we are able to show that the introduction of different risk-reducing options in crowdinvesting solely favors high quality projects and increases capital concentration in a market that was originally built to make start-up funding available to a broader range of capital seekers. We also suggest reasonable prices for options and prove them to be accurate relatively to each other. Further implications for theory and practice are discussed.
ISSN:1081-8510
2380-1751