Why Do Firms Fail after Equity Crowdfunding Campaigns? Evidence from France
30 Pages Posted: 4 Apr 2018
Date Written: March 30, 2018
The purpose of this article is to study the failure of companies that have used crowdfunding equity financing. We assume that certain characteristics of the different campaigns carried out by equity crowdfunding (ECF) can be explanatory elements of the final failure of the firm. Based on evidence from 202 firms that conducted ECF campaigns on the four leading ECF platforms in France from January 2010 to July 2017, we revealed with logit regression analysis several factors that led to the failure of 32 firms (15.84% of the sample). A lower level of investor participation in ECF campaigns and a lower amount of capital requested are associated with failure. The failure probability is also associated with the low amount of capital requested. The lack of ambition in fundraising leads to failure due to the absence of an increased monitoring effect exerted by additional investors. There is no evidence that one failed ECF campaign leads to an escalation of the firm’s failure. Absence of a B2B business model; higher number of entrepreneurial team founders; and lack of women in the entrepreneurial team were also predictive of failure. We conclude with suggestions to reduce the probability of failure for firms conducting ECF campaigns.
Keywords: equity crowdfunding; failure; entrepreneurial finance
JEL Classification: L26
Suggested Citation: Suggested Citation