Here is what studies and research say on the subject
The equity crowdfunding phenomenon has experienced exponential growth in recent years. Between 2012 and 2017, the number of scientific publications on the topic increased by 620%, a sign of the growing interest in this innovative financing model (Mochkabad Khoramchahi, 2020). But what are the factors that determine the success of an equity crowdfunding campaign? Several economic studies and academic researches have analysed this issue, identifying numerous elements that can positively (or negatively) influence the likelihood of success.
1. Internal factors: signals from the entrepreneur
According to Mazzocchini and Lucarelli (2022), the success of an equity crowdfunding campaign depends on both internal company factors and external elements. Among the former, the information provided by the entrepreneur stands out, which can be classified into two categories: hard and soft. Hard information includes financial data, business characteristics and details of the project to be financed. Soft information, on the other hand, concerns the human capital, the network of contacts and the social footprint of the company. The transparency and reliability of the information offered contribute decisively to reducing information asymmetries between entrepreneur and investors, thus increasing trust and the likelihood of success.
Ahlers et al. (2015) also emphasise the importance of the degree of self-financing and clarity about a project's potential critical issues. Transparency about risks is interpreted by investors as a sign of quality. However, contrary to what one might think, social factors such as the size of the network of contacts or intellectual property do not seem to have a significant impact on investors' decisions.
2. Communication with investors
Another key aspect is the way the company communicates with potential investors. Moritz and Block (2015) point out that the overall impression an entrepreneur manages to convey - perceived friendliness, openness and trustworthiness - can reduce information asymmetries. Investors appreciate effective, 'pseudo-personal' communication via video and social media, which makes the interaction more human and credible. Testimonials from third parties, such as professional investors or external stakeholders, are equally crucial: their presence increases the credibility of the project (Piva and Rossi-Lamastra, 2018; Lukkarinen et al., 2019).
3. Equity retention and entrepreneur involvement
Many studies have shown that a key factor in the success of a campaign is equity retention, i.e. the amount of capital the entrepreneur keeps for himself (Ahlers et al., 2015; Vismara, 2016). Investors prefer to see an entrepreneur strongly committed to the project, the so-called 'skin-in-the-game', as this is a sign of confidence in their business. A dispersed shareholding, on the other hand, is associated with less involvement on the part of the entrepreneur and, thus, a lower probability of success.
4. Human capital and management composition
The quality of the management team is another determining factor. Piva and Rossi-Lamastra (2018) have shown that the skills and experience of entrepreneurs play a key role in the success of crowdfunding campaigns. Studies such as Barbi and Mattioli (2019) confirm that a large and qualified management team is perceived as more capable of managing risks and implementing winning strategies. Corporate training of the team, in particular, appears to be a positive factor, whereas other educational experiences seem less relevant (Shafi, 2019).
5. The role of the platform operator
The manager of the portal on which the campaign is launched plays a crucial role in the intermediation between entrepreneurs and investors. Löher (2017), analysing 21 interviews with crowdfunding platform managers, identified several critical steps for campaign success: from project pre-selection to communication with the public. The manager's ability to select the most promising projects and support companies in communication and legal compliance can make all the difference.
6. Crowdfunding and sustainability
One of the areas in which equity crowdfunding is growing is that of sustainable projects. Recent studies, such as that of Manganiello and Dragulanescu (2021), have shown that crowdfunding campaigns related to environmental sustainability are more likely to be successful, especially in the post-pandemic period. The increasing focus on environmental issues has made these initiatives particularly attractive for small investors, although less so for professional, more profit-oriented investors (Vismara, 2019).
Conclusions
Equity crowdfunding is an innovative form of financing that requires careful management of several factors to be successful. From the quality of the management team, to the clarity and transparency of the information provided, to the role of the platform manager, every aspect can affect the likelihood of reaching the funding goal. In addition, the entrepreneur's commitment and ability to communicate effectively with investors are key elements in reducing information asymmetries and increasing public trust. Finally, the growing interest in sustainability-related projects represents a significant opportunity, especially in a post-pandemic context that is more attentive to environmental issues.
For more information on the studies and research cited in this article: https://www.consob.it/web/area-pubblica/ft13