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The so-called “FinTech revolution” is beginning to have a significant impact on the way new companies are financed. The UK is widely acknowledged as the most developed market, largely because the Financial Conduct Authority (FCA, the relevant regulator) adopted a laissez-faire approach in the early days of the industry. A 2017 report estimated over 300 successful investment campaigns in 2017, making crowdfunding the second largest investor category in the UK (by number of companies), after venture capital, but ahead of corporate investors or angel networks. Equity crowdfunding platforms are increasingly favoured by angel investors who contribute a substantial fraction of investments. Many regulators around the world are now following the FCA model, and equity crowdfunding is growing fast in much of the developed world.

Our central research question is what determines fundraising campaign outcomes in equity crowdfunding? We are not just interested in whether campaigns succeed or not, but how much money entrepreneurs actually raise for their ventures. A central theme is to distinguish whether certain entrepreneurs want to raise less money, a choice made by the entrepreneur, versus receive less money, a choice made collectively by the investors. The unique strength of our data is that in addition to the usual information about the amounts actually raised, we also observe specific choices made by the entrepreneur. First, at the beginning of the campaign, entrepreneurs set their campaign goal, which is a signal of what they want. They also specify how much equity they give up in return. Second, at the end of a successful campaign that has met its campaign goal, entrepreneurs decide when to close the campaign. This decision reveals further information about the amount of money the entrepreneurs truly want, beyond what they asked for at the start.

We find that teams with more entrepreneurial experience ask for more money upfront, have a higher probability of success, and end up raising more money. Interestingly, the additional funding amount is fully reflected in the higher campaign goals, so once we control for goals, there is no more significant experience effect. This suggests that experienced entrepreneurs fully take their strengths into account when setting their investment goals.

Next, we find that teams with more business education ask for more money and higher valuations. Their success probability is the same, but the total amount of funding raised is significantly higher. Again, we find that this higher amount is fully reflected in their higher initial fundraising goals. We measure business education by whether founders have an MBA, although our results are robust to using other measures of business education.

In our data, 9% of all founder teams are all-female, and another 16% of teams have founders from both genders. We find that having more female founders is associated with lower fundraising goals and lower valuations. This applies to both female-only and mixed gender teams. Next, we find that gender does not have a significant effect on the probability of campaign success, as defined by meeting the minimum investment goal. However, the amounts of money eventually raised are significantly lower for female teams. The average amount of money raised in successful campaigns is £115,561 for female-only teams, £182,596 for mixed gender teams, and £335,539 for male-only teams. In our regression analysis we find that even after accounting for their lower investment goals and lower valuations, all-female and mixed gender teams still raise significantly less money.

To further explore this last finding, we jointly estimate investors’ investment and entrepreneurs’ stopping decisions, using a panel regression based on daily investment flows. The idea is to look at which founder teams are particularly eager to continue raising money beyond the original investment goal. We first find that all-female teams attract lower daily investment flows, both before and after reaching their investment goal. Importantly, we also find that female teams hold out for longer, i.e., they keep their campaigns open for longer to raise more money. While the evidence for this last finding is statistically not very strong, it suggests that even though female founders ask for less, they actually do want more funding.

Overall, our research finds that the amount of money raised by entrepreneurs depends on two important aspects: who they are, and what they ask for. The final amount of money raised is not only a function of founder team characteristics such as experience, business education and gender, it is also determined by what the founders ask for in the first place. Hence the title of the paper: “Be careful what you ask for” … you may get it.

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