Financing Efficiency of Securities-Based Crowdfunding

106 Pages Posted: 20 Nov 2015 Last revised: 20 Aug 2019

See all articles by David C. Brown

David C. Brown

University of Arizona - Department of Finance

Shaun Davies

University of Colorado at Boulder - Leeds School of Business

Date Written: August 19, 2019

Abstract

We analyze early-venture fundraising from dispersed, endogenously informed investors. An entrepreneur chooses a payoff-maximizing offering, and investors communicate their information by either contributing capital or by abstaining. The entrepreneur uses the information conveyed by fundraising amounts to decide whether or not to undertake a risky venture. His decision threshold hedges investors against bad projects, creating a "loser's blessing'" that encourages contributing without information. Making the offering less attractive to investors mitigates the loser's blessing but can give rise to a winner's curse. Both tensions lower the information content of fundraising amounts and reduce financing efficiency.

Keywords: Crowdfunding, Loser's Blessing, Venture Finance, FinTech

JEL Classification: G10, G18, G24, G28

Suggested Citation

Brown, David C. and Davies, Shaun, Financing Efficiency of Securities-Based Crowdfunding (August 19, 2019). Available at SSRN: https://ssrn.com/abstract=2692828 or http://dx.doi.org/10.2139/ssrn.2692828

David C. Brown

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-626-0746 (Phone)

HOME PAGE: http://www.davidclaytonbrown.com

Shaun Davies (Contact Author)

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
730
Abstract Views
3,561
rank
34,581
PlumX Metrics