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How do backers manage investment uncertainty in equity crowdfunding?
Blekinge Institute of Technology, Faculty of Engineering, Department of Industrial Economics.ORCID iD: 0000-0001-8861-5656
2024 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This thesis aims to understand how investment uncertainty is managed in equity

crowdfunding (ECF). It does so by exploring backer behaviors at different stages of

the investment decision process during funding windows, based on information and

communication technology (ICT) and innovation. The included papers in this thesis

are also linked to a conceptual model for an overall view of backer behaviors during

this phase of the investment decision process. This expands the research on investment

decision-making in this domain and provides insights regarding the management of

investment uncertainty in ECF.

 

ECF is a result of the fintech revolution supported by ICT and innovation as key

catalysts. These catalysts have created a structural change in early-stage financing,

which is burdened by investment uncertainty. Investment uncertainty arises from

information asymmetry, and highlights the importance of information availability in

managing uncertainty. However, the absence of face-to-face meetings with

entrepreneurs and the lack of knowledge among backers are key concerns in the

investment decision process. This reduces access to information and reduces the

possibility of making independent and accurate decisions.

 

Hence, backers must find ways to obtain information, and ICT-driven innovations have

become an important solution to this problem. In contrast to traditional funding

alternatives in this domain, ECF offers unique opportunities based on social capital (the

wisdom of the crowd) and context (designed functionalities). These opportunities have

full potential during funding windows on digital platforms and come in the shape of

interactions and collaborations vital for ICT-driven innovations.

 

This thesis comprises four papers. Paper 1 analyses the conditions for ICT and

innovation that lead to structural changes. Paper 2 evaluates the characteristics

embedded in demand-driven signals from discussion boards. Paper 3 explores

investment dynamics based on signaling during funding windows. Finally, Paper 4

examines investment strategies based on investor type and portfolio theory.

Consequently, Paper 1 presents the conditions for this phenomenon to occur, while

Papers 2-4 explore how this affects backer behaviors in relation to theoretical models

to draw conclusions about the management of investment uncertainty.

 

Various patterns emerged from these studies. First, the drivers of ICT and innovation

can be clustered and positioned within the innovation lifecycle. Early in this lifecycle,

they rely on networks based on interactions and collaboration for new knowledge

production. Second, backers tend to appreciate clarity in feedback loops (answers)

based on demand-driven signals (questions) from discussion boards when evaluating.

Third, some backers invest early, whereas others invest late and receive all available

signals during the funding windows. Fourth, more sophisticated backers invest more

aggressively than less sophisticated ones. Hence, all patterns depend on ICT and

innovation, and enable conclusions about the management of investment uncertainty

during funding windows in ECF.

Place, publisher, year, edition, pages
Karlskrona: Blekinge Tekniska Högskola, 2024. , p. 168
Series
Blekinge Institute of Technology Doctoral Dissertation Series, ISSN 1653-2090 ; 2024:05
Keywords [en]
Early-stage finance, equity crowdfunding, backer behaviours, investment uncertainty, ICT, innovation
National Category
Economics and Business Business Administration
Research subject
Industrial Economics a nd Managemen
Identifiers
URN: urn:nbn:se:bth-26056ISBN: 978-91-7295-477-9 (print)OAI: oai:DiVA.org:bth-26056DiVA, id: diva2:1847164
Public defence
2024-05-21, J1630, Karlskrona, 13:00 (English)
Opponent
Supervisors
Available from: 2024-04-02 Created: 2024-03-26 Last updated: 2024-04-30Bibliographically approved
List of papers
1. ICT as a driver of innovation: A life-cycle approach
Open this publication in new window or tab >>ICT as a driver of innovation: A life-cycle approach
2018 (English)In: Globalization, International Spillovers and Sectoral Changes: Implications for Regions and Industries / [ed] Charlie Karlsson, Andreas P. Cornett, Tina Wallin, Edward Elgar Publishing Ltd. , 2018, p. 154-174Chapter in book (Refereed)
Place, publisher, year, edition, pages
Edward Elgar Publishing Ltd., 2018
Series
New Horizons in Regional Science series
National Category
Business Administration
Identifiers
urn:nbn:se:bth-16185 (URN)10.4337/9781786432483.00012 (DOI)2-s2.0-85046506742 (Scopus ID)9781786432483 (ISBN)9781786432476 (ISBN)
Available from: 2018-05-18 Created: 2018-05-18 Last updated: 2024-03-26Bibliographically approved
2. Backer behaviours: the value of demand-driven signals in the equity crowdfunding evaluation process
Open this publication in new window or tab >>Backer behaviours: the value of demand-driven signals in the equity crowdfunding evaluation process
(English)Manuscript (preprint) (Other academic)
Keywords
equity crowdfunding, backer behaviours, evaluation, investment uncertainty
National Category
Economics and Business
Research subject
Industrial Economics a nd Managemen
Identifiers
urn:nbn:se:bth-26054 (URN)
Available from: 2024-03-14 Created: 2024-03-14 Last updated: 2024-03-26Bibliographically approved
3. Backer behaviors – changing investment dynamics in equity crowdfunding markets
Open this publication in new window or tab >>Backer behaviors – changing investment dynamics in equity crowdfunding markets
2023 (English)In: Baltic Journal of Management, ISSN 1746-5265, E-ISSN 1746-5273, Vol. 18, no 6, p. 1-16Article in journal (Refereed) Published
Abstract [en]

Purpose: This study aims to establish the shape of investment dynamics in equity crowdfunding to better understand backer behavior. Design/methodology/approach: This study provides insights into when backers invest in successful funding campaigns. It uses t-tests to compare differences in means between observation windows during successful funding campaigns. It is based on 4,938 transactions from 61 campaigns, focusing on the first and last tail ends. Findings: In contrast to previous findings, the current investment dynamics seem more U-shaped than L-shaped. This supports previous findings about a strong start but also suggests a late collective attention effect. The strength is higher at the first tail end. However, differences in the later tail ends are statistically significant and emphasize the presence of late investment activities, especially in crowded or less complex campaigns. Practical implications: These findings emphasize the importance of signaling during the entire funding window. This encourages platforms to invest in user-friendly functionalities that guide entrepreneurs and help backers when investing in successful campaigns. Originality/value: This study improves the understanding of backer behavior and suggests changing investment dynamics in equity crowdfunding. In addition, this pattern contrasts with previous findings on dynamic collective attention effects in rich digitally informative markets, implying two attention effects when uncertainty is high. © 2023, Ola Olsson.

Place, publisher, year, edition, pages
Emerald Group Publishing Limited, 2023
Keywords
Backer behaviors, Collective attention effects, Equity crowdfunding, Investment dynamics, Investment uncertainty
National Category
Business Administration
Identifiers
urn:nbn:se:bth-24495 (URN)10.1108/BJM-06-2022-0210 (DOI)000976948900001 ()2-s2.0-85153741916 (Scopus ID)
Available from: 2023-05-07 Created: 2023-05-07 Last updated: 2024-03-26Bibliographically approved
4. Backer behaviours: An explorative study of investor types in equity crowdfunding
Open this publication in new window or tab >>Backer behaviours: An explorative study of investor types in equity crowdfunding
2021 (English)In: International Journal of Entrepreneurship and Small Business, ISSN 1476-1297, E-ISSN 1741-8054, Vol. 42, no 1-2, p. 156-168Article in journal (Refereed) Published
Abstract [en]

Equity crowdfunding (ECF) is a new source of early-stage finance where ordinary people are the investors. In this context, investors are called backers, and their behaviours are less well understood. The contribution of this paper is to explore differences between backer investment behaviours. This is important, as it further positions backers when it comes to behaviour of different investor types, but also enables a discussion of attitudes and management of uncertainty from a portfolio theory perspective. The data include 4, 938 backer transactions collected from FundedByMe.com during 2012-2016. Most backers invest in single campaign portfolios (single-portfolio backers) and seem less attracted to uncertainty. However, 16% of the crowd invest in multiple campaign portfolios (multi-portfolio backers). They seem more attracted to uncertainty and most of them diversify to manage the portfolio uncertainty. Hence, a minority of the crowd seem to care about uncertainty and manage it in a professional manner. Copyright © 2021 Inderscience Enterprises Ltd.

Place, publisher, year, edition, pages
Inderscience Publishers, 2021
Keywords
Backer behaviour, Diversification, Early-stage finance, ECF, Equity crowdfunding, Investment patterns, Investor behaviour, Management of uncertainty, Portfolio management, Specialisation
National Category
Business Administration
Identifiers
urn:nbn:se:bth-20953 (URN)10.1504/IJESB.2021.112266 (DOI)2-s2.0-85099082664 (Scopus ID)
Available from: 2021-01-22 Created: 2021-01-22 Last updated: 2024-03-26Bibliographically approved

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