The Wisdom of Crowds in Equity Crowdfunding - A Randomised Field Experiment

In the rapidly growing world of crowdfunding, what factors drive the investment process of early-stage investors? How do investors choose which start-up to fund?

A large and growing literature demonstrates the impact of early stage investments on start-up success and the factors that affect the terms of financing. But, what factors drive the investment process of early-stage investors, that is, how do they choose which start-up to fund? While this issue is often debated among academics and practitioners, there is little systematic, non-survey evidence on the selection process of early stage investors. This stands in sharp contrast to the wealth of evidence on investment decisions in public equity markets by institutional and retail investors. This project attempts to fill part of this gap.

By monitoring Seedrs, a European online equity investment platform that matches start-ups and angel investors, this trial observes start-up companies at the stage at which they approach investors to raise capital through the site. Using randomly chosen categories of information which are first presented to a potential investor, this trial exploits the variation across angels’ reactions within each start-up.