67 Pages Posted: 20 Nov 2015 Last revised: 17 Jul 2017
Date Written: May 3, 2017
Securities-based crowdfunding is characterized by (i) all-or-nothing financing, (ii) scarce investor profits, and (iii) non-cooperative investors. Privately informed investors internalize all-or-nothing financing as a hedge: good projects are likely to be funded and bad projects are likely canceled, i.e., a loser's blessing. Investors internalize scarce profits as a winner's curse: of funded projects, good projects are likely to be split among many investors and bad projects are likely to be split among fewer. Both the loser's blessing and the winner's curse adversely affect financing efficiency. If investors are not pivotal, efficiency breaks down completely and financing outcomes reflect no information.
Keywords: Crowdfunding, Financing Efficiency, JOBS Act, Sophisticated Investors, Regulation Crowdfunding, Crowdinvesting
JEL Classification: G10, G18, G24, G28
Suggested Citation: Suggested Citation
Brown, David C. and Davies, Shaun William, Financing Efficiency of Securities-Based Crowdfunding (May 3, 2017). Available at SSRN: https://ssrn.com/abstract=2692828 or http://dx.doi.org/10.2139/ssrn.2692828