Founders' Commitment and Firm Financing: Multiple 'Skins in the Game' as a Signal to Investors

22 Pages Posted: 29 Dec 2018

See all articles by Aleksandar Giga

Aleksandar Giga

University of Southern California

Date Written: November 15, 2018

Abstract

A new method of financing known as equity crowdfunding, propelled by internet technology and deregulation, has emerged rapidly as a promising new source of startup financing and a window into early-stage investment process. By studying companies raising funds on one of the largest US equity crowdfunding platforms, this study finds that companies with multiple founders with prior personal financial commitment (“Skin in the Game” (SITG)) raise more funds, suggesting a signaling mechanism to investors of founders’ cross-validation of the project’s prospects. Single founders lack such mechanism. The study uncovers a link between the team structure, a key organizational aspect, and signaling to future stakeholders. The same mechanism may be at work in other contexts, such as venture capital syndication and mutual fund management decisions. In addition, the work offers insights into the potential of crowdfunding.

Keywords: Equity Crowdfunding, Signaling, Startup Financing, Team Architecture

JEL Classification: G32, G20

Suggested Citation

Giga, Aleksandar, Founders' Commitment and Firm Financing: Multiple 'Skins in the Game' as a Signal to Investors (November 15, 2018). Available at SSRN: https://ssrn.com/abstract=3290378 or http://dx.doi.org/10.2139/ssrn.3290378

Aleksandar Giga (Contact Author)

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

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