Market Mechanisms and Funding Dynamics in Equity Crowdfunding

47 Pages Posted: 12 Jun 2015 Last revised: 31 Aug 2017

See all articles by Lars Hornuf

Lars Hornuf

Technische Universität Dresden; CESifo (Center for Economic Studies and Ifo Institute)

Armin Schwienbacher

SKEMA Business School

Date Written: August 3, 2017


Equity crowdfunding is a new form of entrepreneurial finance, in which investors do not receive perks or engage in pre-purchase of the product, but rather participate in the future cash flows of a firm. In this paper, we analyze what determines individual investment decisions in this new financial market. One important factor that may influence the behavior of investors is the way the portal allocates securities. We use unique data from four German equity crowdfunding portals to examine how the allocation mechanism affects funding dynamics. In contrast with the crowdfunding campaigns on Kickstarter, on which the typical pattern of project support is U shaped, we find that equity crowdfunding dynamics are L shaped under a first-come, first- served mechanism and U shaped under a second-price auction. The evidence also shows that investors base their decisions on information provided by the entrepreneur in the form of updates as well as by the investment behavior and comments of other crowd investors.

Keywords: Equity crowdfunding, Crowdinvesting, Startups, Securities issuance, investment dynamics, Entrepreneurial finance

JEL Classification: G11, G20, K22, M13

Suggested Citation

Hornuf, Lars and Schwienbacher, Armin, Market Mechanisms and Funding Dynamics in Equity Crowdfunding (August 3, 2017). Journal of Corporate Finance, Forthcoming, Available at SSRN: or

Lars Hornuf (Contact Author)

Technische Universität Dresden ( email )

Dresden, 01307


CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679

Armin Schwienbacher

SKEMA Business School ( email )

Avenue Willy Brandt
Euralille, 59777


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