Hornuf and Schwienbacher analyze data from four equity crowdfunding platforms in Germany and highlight that investors base their decisions on information provided by the entrepreneur in form of updates during the campaign and by the investment behavior and comments of other crowd investors. Lukkarinen et al.
Vismara shows that informational cascades exist in the equity crowdfunding market: contributions in the early days of the campaign are fundamental in attracting other investors and thus increase the probability of fundraising success. Wallmeroth studies the investors in a specific German crowdfunding platform and documents a relevant heterogeneity of behavior, with a minority of pledgers contributing to the majority of the funds raised.
The matching between the characteristics of entrepreneurs and investors in equity crowdfunding has been analyzed in the literature focusing on gender issues only. Vismara et al. Our study extends the perspective, considering a more complete set of investors' characteristics age, gender, geographical proximity referred to a whole market. Ewens and Townsend analyze a sample of deals from the US AngelList platform, open to accredited investors only: they find that male investors express less interest in female entrepreneurs compared to observably similar male entrepreneurs.
In contrast, female investors express more interest in female entrepreneurs. Cumming et al. In our study, we analyze all the investments made by investors into different projects and platforms and simultaneously compare a larger set of investor's data including geographical proximity and age with the characteristics of the entrepreneur. This substantially increases the significance of our results and adds a valuable contribution to the existing literature.
Hypothesis development: homophily theory and the formation of investor—investee dyads in equity crowdfunding From the earlier review, it appears clear that to date the literature has treated proponents and investors of crowdfunding campaigns separately and has left their individual characteristics largely unaddressed.
In particular, to the best of our knowledge, no prior work has studied how the characteristics of the entrepreneurs proposing equity crowdfunding campaigns interact with those of the investors to determine the matching between the two and the formation of investor—investee dyads in the equity crowdfunding realm. Accordingly, our research hypotheses revolve around this overarching issue: does homophily between a potential investor i and a proponent of an equity crowdfunding campaign j increase the probability that i invests in j?
Scholars concur that homophily plays a crucial role in the entrepreneurship field, in general and in entrepreneurial finance in particular. It drives important entrepreneurial processes, such as the formation of entrepreneurial teams Reuf et al.
In addition, the notion of homophily and homophily theory closely relate to the financial literature, which increasingly stresses that investment decisions are driven by psychological and social factors, which go beyond pure rational financial considerations MacGregor et al. The notion of homophily is close to the notion of affinity for a company, which Aspara et al.
Aspara and Tikkanen posit that individuals with an affinity relationship with a company tend to give preferential and supportive treatment to the company, investing in its stock beyond its expected financial return. Building on the earlier research, we state that homophily mechanisms are of paramount importance in driving investment decisions in equity crowdfunding. Indeed, equity campaigns are mostly promoted by proponents without a track record, while — contrary to venture capital funds and business angels — crowdfunding investors have limited possibility to engage in due diligence activity and to collect private information about the venture.
They rely on the limited public information posted on crowdfunding portals. Thus, homophily, in terms of similarity between investors and proponents, helps in reducing uncertainty and molding information asymmetries. In addition, it also breeds trust, thus increasing the probability that an investment relation between an investor and a proponent emerges. In other words, when recognizing similarities in proponents, investors feel reassured about their unobservable characteristics and their trustworthiness.
In sum, they resort to these similarities to compensate for information asymmetries. More specifically, homophily theory stresses the importance of similarities in individuals' age and gender, together with that of similarity in geographical locations, as reflected in geographical proximity see again Reuf et al.
Accordingly, we state that the probability that investor i finances the campaign j increases if the investor i and the proponents of the campaign j are geographically proximate Hypothesis H1 , have the same gender Hypothesis H2 and belong to the same age cohort Hypothesis H3. In short, we assume that investors' decisions are driven by their homophily with proponents along the crucial dimensions of gender, age similarity and geographical proximity.
As we explained in Section 1 , the importance of similarity in driving investors' decision depends on investors' perception of the risk of opportunism by proponents, which, in turn, depends, among other things, on the level of opportunism existing in the geographical area where proponents of a campaign reside i. These arguments are in line with the work of Giudici et al. The authors note that when running a crowdfunding campaign, entrepreneurs leverage, build and draw upon local resources Brown et al.
Social capital built at the local level is one of these resources: it is the goodwill available to individuals from the structure and content of their social relations Adler and Kwon, , in terms of network connections and assets that may be mobilized Nahapiet and Ghoshal, At the local level, collective social capital is an environment feature, permitting cooperation and enhancing economic activity and resource mobilization Coleman, As we discussed earlier, the presumption that proponents do not indulge in opportunistic behavior and are trustworthy is particularly important for equity crowdfunding investors.
Homophily along the gender, age and geographical dimensions compensates for information asymmetries and creates trust, but we expect that these effects are less intense when proponents reside in areas where the risk of opportunistic behavior is lower Hypothesis H4. Indeed, in these areas, investors use the trustworthiness of local residents to estimate how trustworthy are the venture initiators. In addition, investors perceive projects proposed by proponents residing in areas with low risk of opportunism as less uncertain, while this local characteristic acts as a positive signal of the unobserved qualities of the proponents and of their projects.
Thus, according to Hypothesis H4, we expect that the homophily between investors and proponents is less salient if the latter resides in areas where the risk of opportunism is lower. Data and methodology We test our hypotheses by taking advantage of a hand-collected database comprising equity crowdfunding investments carried out by Italian investors in 13 equity crowdfunding campaigns. These campaigns have been launched by Italian start-ups from January to June on seven equity crowdfunding platforms.
We obtained data from the official Register of Business companies in Italy Registro delle Imprese , which allowed to unambiguously identify all investors starting from their tax ID codes. Unfortunately, we are not able to observe pledges by investors in unsuccessful campaigns. During the considered period, 12 unsuccessful campaigns have been registered.
In nine cases these campaigns have been backed by less than five investors. Therefore, the possible bias in the results is negligible. According to Ziegler et al. Equity crowdfunding was introduced in Italy by a specific law at the end of , in derogation to the general rules for public offerings, and came into force in According to the law, up to only innovative start-ups were allowed to raise equity capital on the Internet.
Under the Italian law, innovative start-ups are young i. Innovative start-ups cannot distribute dividends and cannot be listed on a stock exchange. Interestingly, contrary to other countries, Italy did not impose any restriction on the maximum amount to be invested in equity crowdfunding by a single citizen. We think that our sample period is an interesting case study, because of two reasons. First, we have the opportunity to observe the first stage of development of a new industry and to analyze how relations are established and trust is created in an emerging and growing business, when investors cannot base on track record to make their decisions.
Second, we have the unique opportunity to observe the generalities of investors for all the active platforms in the market, since these data are publicly available in Italy. According to Garg and Furr , we focus on board members because they are in charge of the management of the company and their role in the future is fundamental to ensure that the money raised during the crowdfunding campaign will be invested efficiently.
Therefore, investors will scrutinize their identities in deciding whether to fund the start-up or not. Moreover, it is worth considering that, most of the time, board members in a start-up include the initial founders. We consider all the possible combinations between the 13 start-ups and the investors in our sample, resulting in 4, potential realized and 4, unrealized investor—investee dyads for a similar approach in the context of corporate venture capital investments, see Dushnitsky and Shaver, ; see also Lin and Viswanathan, , who study loans on the P2P lending platform Prosper.
We run Probit models with errors clustered at the investor level , where the dependent variable Realized tie is the probability that investor—investee dyad forms, that is, that an investor i and a start-up j will form an investment relationship. Our main independent variables refer to the geographical proximity between the investor i and the board members of the startup j, their homophily in terms of gender and age and the local level of opportunism associated to the location of the start-up's board members.
From the official Register of the Italian companies, we collected data about gender, age, place of residence of both investors and board members. Following D'Este et al. Same gender is defined as a dummy variable that equals 1 if an investor i and at least one of the board members of the start-up j belong to the same gender.
Same age class is a dummy variable equal to 1 if an investor i and at least one of the board members of the start-up j belong to the same age class i. More specifically, we measure the tendency of the population that resides in the same area of the board members to behave opportunistically by considering the local i.
In Italy — as in many other European countries — a national law forces all households that own a television equipment to pay a television fee, the so called Canone Rai. As an external agent can hardly observe the private ownership of a television equipment, the extent to which households in an area do not denounce their possession of a television and do not pay such a fee may be considered as a good proxy of their tendency to behave opportunistically Ghio et al.
So, it is very unlikely that differences across regions in the evasion rate are due to differences in the number of households that did not own a television equipment. Finally, borrowing from the existing literature Ahlers et al. Platform-level dummies are also included in the regressions to take into account for differences in the screening criteria and visibility. We describe the variables included in our models in Table 1. Table 2 reports summary statistics, and Table 3 lists the correlations.
Results and implications 5. Model 1 includes controls and the three homophily variables i. Geographical proximity, Same gender and Same age class. Model 2 adds Local Opportunism and its interaction with the three homophily variables. Results shown in Model 1 of Table 4 are in line with H1 and H3.
Conversely, we do not find support for H2, as the coefficient of Same gender is not significant at conventional levels. Let us turn attention to Model 2. First, the perceived risk of opportunistic behavior of start-up's board members is negatively associated to the likelihood of an investment tie formation. Conversely, similarity in gender does not seem to play any significant role. However, given the nonlinear specification of the Probit model, looking at the significance and the magnitude of the estimated coefficients is not sufficient to assess the impact of the variables of interest and the existence of interactive effects.
To ascertain whether the importance of geographical proximity, gender similarity and age similarity in reducing the negative effect of local opportunism on the creation of investment ties, we report in Table 5 the average marginal effects i. We find that when the risk of opportunism is very low high , a 0.
Then, when the risk of opportunism is very high, age similarity leads to an increase of 5. First, our measure for opportunism might reflect differences in local household income the lower the income, the lower the propensity of households to own a television , rather than differences in the tendency to behave opportunistically.
In Model 3 see Table 6 , we control for local household income by including the GDP per capita at the local level. Results concerning the main variables of interest are very similar to those shown in Table 4. Second, certain individual investors could be potentially more likely to choose a campaign because of the presence of institutional investors i. Although the presence of a generic professional investor is a necessary condition to validate the issue see Section 4 , specialized institutional investors could provide a special signal to the crowd.
Yet, it is worth noting that in most platforms included in the sample, it is not possible for investors to know the identity of early investors in a campaign. However, in Model 4 of Table 6 , we included a dummy variable that equals 1 if there is at least one institutional investor in the campaign. The coefficient of this additional control is not significant, while results concerning the main variables of interest are very similar to those reported in Table 4.
The penalties for a securities violation can vary greatly and depend on the amount of profit obtained by the "promoter", the damage done to the investors, and whether a violation is a first time offense. According to Section 5 of the Securities Act, it is illegal to sell any security unless such a sale is accompanied or preceded by a prospectus that meets the requirements of the Securities Act.
Creators on crowdfunding platforms are often inexperienced and lack the ability to complete funded projects by agreed deadlines. Additionally, amateur investors are susceptible to fraud when they fail to verify projects and "free-ride" on other investors' funding histories. Above all, there is an overall risk of failure in early, platform-driven projects. The Argentine crowdfunding model will flow through collective financing platforms, which must be in charge of a corporation authorized and registered by the CNV.
It must have a legal structure, statute and corporate purpose, name, registered addresses, shareholder registration, own website and email, among other requirements. Australia[ edit ] Crowdfunding as a discrete activity is not prohibited in Australia when raising funds with donations.
The provisions of the Corporations Act need to be considered if raising funds with either debt or equity. In the Federal Budget, as part of its small business package, the government announced that it would make it easier for small businesses to access capital by allowing crowd-sourced equity funding and by simplifying related reporting and disclosure requirements.
Through and proposed amendments to the Corporations Act were debated and finally passed on 22 March in the form of the Corporations Amendment Crowd-sourced Funding Bill Bill. The law is meant to set a clear legal framework for crowdfunding to not only make this form of investment more accessible to entrepreneurs, but also to protect the investors better and prevent misuse. The most successful campaign in Austria so far was introduced by Hanfgarten.
In a single run, they gathered almost one million Euro. Since this law adaptation was limited, regional governments have confirmed that further improvements of the legislation would remain a priority to address before , and this was officially confirmed by the Flemish government in a published act.
These exemptions will be in effect until May 13, There is no special law regarding crowdfunding but there is a Good Practice of Crowdfunding guidelines that were set up by Finance Estonia industry association and Deloitte in However the legislation about Equity and Rewards-based Crowdfunding is more similar to the rest of Europe, and the legal situation is clear. The largest crowdfunding project was launched by the company Brainpool in December For the movie of the successful TV series Stromberg , the company wanted to collect one million euros by March , [47] and the total amount was reached within one week.
Hong Kong[ edit ] An equity crowdfunding platform may need to be licensed under the Securities and Futures Ordinance Cap. In addition, the Securities and Futures Commission, Hong Kong's securities regulator, may impose certain legal restrictions or licensing conditions on equity crowdfunding platforms, such as the requirement to provide services only to professional investors as defined by the Securities and Futures Ordinance and the Securities and Futures Professional Investor Rules Cap. The law with regard to crowdfunding, and in particular equity based crowdfunding is complex.
The Investment Intermediaries Act The Consumer Credit Act Israel[ edit ] Israel has yet to enact legal framework for equity crowdfunding. Therefore, any equity crowdfunding activity is currently regulated under the Israeli Securities Law which permits the offering of securities to 35 non accredited individuals and an unlimited amount of accredited investors as defined in Israel Securities Law.
The Israeli Securities Authority has proposed a new regulatory framework for equity crowdfunding in Israel, which has not been adopted yet. Italy[ edit ] In July , Italy became the first country in Europe to implement a complete regulation on equity-crowdfunding, which applies only to innovative startups and establishes, among other rules, a national registry for equity crowdfunding portals and disclosure obligations for both issuers and portals. In December , the Netherlands Authority for the Financial Markets published 'Crowdfunding — Towards a sustainable sector' which provides insight into how the crowdfunding market in the Netherlands can develop into a sustainable one.
The platforms are not subject to special regulations, and can act on the basis of the Act on Entrepreneurs' Law, stating that the entrepreneur may take all actions except those prohibited by law. For a platform to allow to make investment decisions, it's obliged to provide detailed information about a financial instrument offered. Hence, it can be assumed that the equity crowdfunding platform acts as an "advertising column" enabling issuers to carry out only promotional campaigns.
The directive entered into force on July 21,
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If you take a look at the development in the area of crowd investing, you can justifiably call it rapid. Projects come from the corporate sector as well as from the real estate, shipping and energy sectors and, according to the Crowdinvest Market Report, totalled By comparison, in the figure was In the long term, the development is naturally even more positive and parallel to this the awareness of crowd investing and crowdfunding is growing in Germany.
Why Crowdinvesting? At this point, one might ask what distinguishes crowd investing from other forms of investment. There are plenty of answers to this simple question, where the arguments in favour of crowd investing can be weighted differently.
Simplicity First of all there is the openness and the simple handling. Compared to buying shares or ETFs and other forms of securities, a digital account is sufficient to invest money. Every investor is welcome — even with amounts of euros or more, which can be increased in increments of 50 euros each. Those who decide to work with Marvest can choose and invest directly from one of the numerous projects after registration.
It should be noted that the financing phase is limited in time and must therefore be traded within a time window. An early investment is particularly worthwhile, however, as there is an immediate interest claim if the funding is successful. A further advantage that the crowdinvestment offers is that it can be processed at your own desk.
You do not need to enter a bank and, if you wish, you do not even need to pick up the telephone to place money. Our Internet platform has been developed to such an extent that you receive all information online and the complete settlement is carried out securely and digitally.
The possible profits are impressive. Yield Speaking of profits: the returns on crowd investment are currently up to seven percent per year. Interest is paid either quarterly or at the end of each year, so you can have your money working for you in the best sense of the word.
One advantage is that at Marvest you do not become a limited partner in a company, but a direct creditor of a project. As soon as the agreed term has ended, the money paid in for the crowd investment is repaid. In the event that a ship is sold earlier, there is usually compensation for any loss of interest income. You alone determine the level of your financial commitment, whereby the legislator has set a maximum limit of 25, euros. This is the maximum amount that can be brokered via an Internet platform.
Of course, you can also receive an individual offer if you are interested in a more far-reaching investment. Transparency A major advantage of crowd investing is its transparency. It could also be said that your investment gets a real face and you invest in a tangible way. You can also select your investment amount via the additional rewards section the fields below , if it is offered.
Information Investor You will now see your personal data. If you do not want to invest as a natural person, but with your company, click now on the "As a company" button. Contracts and confirmation You will now see an overview of your investment as well as all contract data for download.
We will also send you these by e-mail for your filing. Now you only have to confirm that you have taken note of all the risks and click on the green button "Confirm investment". Payment Your investment is now completed and you will see the bank details to which you can transfer your investment amount, or you will get the option to pay by credit card.
Of course, you will receive all the information again by e-mail and we will remind you if you forget to transfer the money. Will I receive a security or certificate after my investment? This is up to the respective company, which is the subject of the investment. As an investor you have information rights about the status of the company. The tax implications depend on the current legal status and may vary from investor to investor.
Please note that we are therefore unable to provide individual information on the subject of taxes. If necessary, please consult a tax advisor to clarify what applies to your personal situation.
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| Bodog betting bonus | First, we have the opportunity to observe the first stage of development of a new industry and to analyze how relations are established and trust is created in an emerging and growing business, when investors cannot base on track record to make their decisions. The platform, facilitated with a computer database, should provide information on the business plans and offer additional professional risk-assessment services to crowd investing stromberg investing audience. State legislation[ edit ] Some people see the federal crowdfunding legislation as unworkable, and several U. It was approved in July and was launched to the public in First, crowdfunders are unsophisticated investors, and thus they are likely unable to provide value-added activities typically brought by professional investors e. |
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