Dissertation: Pursuing returns or supporting a cause? Investors are choosing equity crowdfunding for various reasons
In recent years, equity crowdfunding has become an increasingly popular financing method where a large number of people make relatively small equity investments in a company. Since these companies are usually at the growth stage, investment risks are high.
Anna Lukkarinen, who will defend her doctoral dissertation at the Aalto University School of Business, examined investors’ motivations and decision criteria with an extensive survey focused on people who had invested through the equity crowdfunding platform of financial technology company Invesdor.
According to the survey, most investors are highly educated people who already have experience in investing in public equities. However, there are clear differences between investors’ motives. Although many are specifically looking for capital gain, and some even dividend income, the motives of many investors go beyond returns. This is reflected in investors’ decision criteria and the companies they choose to invest in.
‘For example, most people who invested in Cityvarasto, a self storage chain, aimed at earning returns, whereas nearly everyone who participated in football club HIFK's equity crowdfunding campaign wanted to support the club and be a part of the phenomenon that it represents, without financial motives’, says Lukkarinen.
Investing in increasingly professional companies
The survey is part of Anna Lukkarinen's doctoral dissertation where she examines the drivers of investment activity in equity crowdfunding. According to Lukkarinen, equity crowdfunding complements other early-stage financing mechanisms.
The success of equity crowdfunding campaigns depends on many factors, such as campaign characteristics, the company's ability to leverage its networks and how easily understandable the products are.
As a relatively new industry, equity crowdfunding is constantly developing and changing. Companies using this investment model are becoming larger and more professional, and at the same time, investors’ motives are increasingly focused on returns.
‘When considering an investment, it is useful for an individual investor to be conscious of the goal of their investment. When assessing a potential company to invest in, it is also good for investors to acknowledge that entrepreneurs are often very optimistic in their plans’, says Lukkarinen.
The doctoral dissertation of Anna Lukkarinen, Lic.Sc. (Econ. & Bus. Admin.), “Drivers of investment activity in equity crowdfunding” will be reviewed at Aalto University School of Business on Friday 29 March.
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