Success factors in Title II equity crowdfunding in the United States

Abstract Title II of the JOBS Act has expanded the opportunities for entrepreneurial ventures to raise funds from accredited investors via online equity crowdfunding platforms in the United States. Over $1.4 billion in capital has been committed by the accredited investors in Title II platforms since 2013, yet little is known about how venture characteristics influence the success of raising funds from investors via online equity crowdfunding platforms. Further, it is not known whether online equity crowdfunding is supplementing or replacing traditional venture funding sources. To address these gaps in our knowledge, we draw on research in traditional offline risk capital investments and we evaluate the effects of market, execution and agency risks on equity crowdfunding success by examining 337 ventures that engaged in equity crowdfunding under Title II. We find evidence consistent with investors in online equity crowdfunding platforms giving consideration to all three types of risks. We also find that investors in equity crowdfunding platforms are particularly responsive to the venture ability to attract traditional venture capital funding prior to engaging in equity crowdfunding. These results suggest that online equity crowdfunding platforms are supplementing rather than replacing traditional venture funding sources.