Equity based crowdfunding - understanding what attracts investors

Abstract

Equity based crowdfunding, a form of alternative finance, has become a popular alternative for early stage financing, filling a funding gap in the financial ecosystem. The main objective of the research was to understand what attracts investors to equity based crowdfunding. The research includes an empirical study carried out in 2016. The study found that the motive to invest in equity based crowdfunding is a combination of intrinsic, social and financial motives. Equity based crowdfunding was most often perceived as a way of investing in a new asset class of emerging companies. Investors were not indifferent to financial motives, but social and intrinsic motives were more significant. Investors were found capable of identifying signals of quality and using them to evaluate potential ventures. Factors that increased investor interest the most were; human capital, relevant company information and product or service. The behavior of other investors, retail and professional, was less influential than signals of quality. Investors preferred platforms that invested in companies or offered extensive banking and financial services.