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

Estrin, Saul, Gozman, Daniel and Khavul, Susanna (2018) The evolution and adoption of equity crowdfunding: entrepreneur and investor entry into a new market. Small Business Economics, 51 (2). pp. 425-439. ISSN 0921-898X

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Identification Number: 10.1007/s11187-018-0009-5

Abstract

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

Item Type: Article
Official URL: https://link.springer.com/journal/11187
Additional Information: © 2018 The Authors © CC-BY 4.0
Divisions: Management
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G - Financial Economics > G3 - Corporate Finance and Governance
M - Business Administration and Business Economics; Marketing; Accounting > M2 - Business Economics > M21 - Business Economics
Sets: Departments > Management
Date Deposited: 26 Mar 2018 10:00
Last Modified: 20 Jul 2019 00:09
Projects: 649378
Funders: Horizon 2020
URI: http://eprints.lse.ac.uk/id/eprint/87351

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