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Innovation and Entrepreneurship Research

Internet-Based Entrepreneurial Finance: Lessons from Germany

Hornuf, Lars; Schwienbacher, Armin (2018). Internet-Based Entrepreneurial Finance: Lessons from Germany California Management Review 2018, forthcoming.

This paper presents the development of the Internet-based crowdinvesting market in Europe since its start in 2007. It evidences a great variety in portal design and contract forms used by crowdinvesting portals. By analyzing more detailed, hand-collected data on the complete set of successful and unsuccessful crowdinvesting campaigns run in Germany, the paper further tests whether different portal and contractual mechanisms affect crowd participation. The latter is a necessary, though not sufficient, precondition for achieving “wisdom of the crowd”. Consistent with predictions on the different mechanisms used, the results show that crowd participation is largest when the minimum ticket size is small, the crowd is pooled in a financial vehicle, and the crowd is offered investments in the form of profit-particiapting loans (so-called partiarische Darlehen). Moreover, the very same mechanisms increase the chance of achieving successful campaigns and of raising larger amounts. These findings are useful for entrepreneurs who need to choose among a large range of crowdinvesting portals and other forms of entrepreneurial finance.

Also published at SSRN under the title: The Emergence of Crowdinvesting in Europe: With an In-Depth Analysis of the German Market

Also published as LMU Discussion Paper 43 under the title: The Emergence of Crowdinvesting in Europe