A new study published in Small Business Economics: An Entrepreneurship Journal by faculty at Florida Atlantic University College of Business and the University of Bergamo in Italy suggests equity crowdfunding has boosted opportunities for younger entrepreneurs, while helping to bridge the distance between startup companies and their investors. However, female and minority entrepreneurs, typically considered financially constrained in traditional entrepreneurial markets, do not have higher chances to raise funds in equity crowdfunding.
“We found that those entrepreneurs using equity crowdfunding are much more likely to be younger people and to come from remote places,” said Douglas Cumming, Ph.D., professor of finance at FAU and co-author of the study. “Those who go through a more formal offering tend to be older and have relocated to an investment center such as London to do this. With equity crowdfunding, that proximity is not nearly as important.”
Since equity crowdfunding hasn’t been around in the United States for very long, the researchers turned to the United Kingdom to examine data from the largest equity crowdfunding platform in the world, Crowdcube, and for comparison, the Alternative Investment Market (AIM), one of the most popular second markets for initial public offerings (IPOs) in the world. They looked at 167 equity offerings on Crowdcube and 99 IPOs offered on the AIM between 2013 and 2016 that raised between 300,000 and 5 million British pounds ($400,000-$6.6 million).
The researchers found that age matters in equity crowdfunding, as companies with younger top management team members are more likely to launch equity crowdfunding offerings than IPOs and have higher chances to successfully complete an equity crowdfunding offering. Results showed that remotely located companies are more likely to launch equity crowdfunding offerings than IPOs and have higher chances to successfully complete an equity crowdfunding offering – alleviating some of the distance-related economic frictions between entrepreneurs and investors.
However, female and minority entrepreneurs are being left behind. While minority entrepreneurs attracted a higher number of investors, ultimately they were not more likely to secure their target funding.
“Female and minority entrepreneurs have been notoriously underserved by traditional raising of capital,” Cumming said. “Crowdfunding platforms like Kickstarter and Indiegogo have been more welcoming to women and minorities, giving them better chances at meeting investors. We were expecting to see similar things with equity crowdfunding, but that did not turn out to be the case.”
About Florida Atlantic University
Florida Atlantic University, established in 1961, officially opened its doors in 1964 as the fifth public university in Florida. Today, the University, with an annual economic impact of $6.3 billion, serves more than 30,000 undergraduate and graduate students at sites throughout its six-county service region in southeast Florida. FAU’s world-class teaching and research faculty serves students through 10 colleges: the Dorothy F. Schmidt College of Arts and Letters, the College of Business, the College for Design and Social Inquiry, the College of Education, the College of Engineering and Computer Science, the Graduate College, the Harriet L. Wilkes Honors College, the Charles E. Schmidt College of Medicine, the Christine E. Lynn College of Nursing and the Charles E. Schmidt College of Science. FAU is ranked as a High Research Activity institution by the Carnegie Foundation for the Advancement of Teaching. The University is placing special focus on the rapid development of critical areas that form the basis of its strategic plan: Healthy aging, biotech, coastal and marine issues, neuroscience, regenerative medicine, informatics, lifespan and the environment. These areas provide opportunities for faculty and students to build upon FAU’s existing strengths in research and scholarship. For more information, visit www.fau.edu.
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