Dr. Michael Mödl

Articles in Refereed Journals

Mödl, Michael (2020). Two's a Company, Three’s a Crowd: Deal Breaker Terms in Equity Crowdfunding for Prospective Venture Capital, Small Business Economics, 57 (2), 927-952. DOI

• Crowd-based means of funding are emerging as a valid novel way of providing scarce seed-finance for entrepreneurial ventures. In recent years, securities-based variants such as equity crowdfunding or initial coin offerings (ICOs) are increasingly attracting higher funding amounts than reward-based models, in particular for commercially oriented ventures. However, securities-based crowdfundings also come along with the more complex contracts, since they introduce a large set of new shareholders in the firm, possibly with voting, information, and cash-flow rights. This might have implications for the ownership structure and future governance of a company, and in turn influence the evaluations by prospective investors. This paper is concerned with exploring potential knockout criteria in securities-based crowdfunding contracts and to what degree they serve as a deal breaker for the investment decision of subsequent professional venture investors. Using an explorative mixed methods approach, we find empirical evidence that, e.g., an inflated capitalization table owing to crowd investors holding direct securities in a company, redemption and voting rights by the crowd, as well as the non-existence of a drag-along clause, lead venture capitalists and business angels to refrain from an investment in an otherwise attractive but such-funded start-up firm. We conclude that contractual frictions play a decisive role in whether entrepreneurs can combine crowd-based means of funding with traditional forms of venture financing. Theoretical and managerial implications are discussed.
• Also published at SSRN under the title: Two's a Company, Three's a Crowd: Contractual Deal Breakers in Securities-based Crowdfunding for Later-stage Venture Capital as Max Planck Institute for Innovation & Competition Research Paper No. 18-25

Mödl, Michael (2019). The Crowd for Lemons: Venture Investors Perceptions of an Equity Pecking Order, Academy of Management Proceedings, 2019 (1). DOI

• Crowd-based means of financing are emerging as a novel way for entrepreneurs to secure scarce early-stage financing. With venture capital still being the most important source of funding for young innovative ventures in later stages, this raises the question of potential interactions between crowdfinancing and traditional forms of start-up funding. In this study we investigate whether professional venture investors perceive a seed-financing hierarchy by entrepreneurs, and whether this equity pecking order is affected by venture quality and could therefore serve as an uncertainty-reducing signal to prospective investors. Drawing on a choice experimental research design we find causal evidence that VCs believe that “lemons” (low-quality start-ups) have a higher relative likelihood of turning to crowd-based financing as first means of external equity funding rather than to traditional sources, than “peaches” (high-quality start-ups), suggesting a perceived negative selection bias for crowd-based financing. Theoretical and managerial implications are discussed.

Mödl, Michael (2017). Crowdfinancing as a Determinant of Venture Capitalists' Selection Decisions, Frontiers of Entrepreneurship Research, 37 (2), 44-49.

• Crowdfinancing is emerging as a novel way for entrepreneurs to secure early-stage financing. With
  venture capital still being the most important source of funding for growth-oriented ventures in later
  stages, this raises the question of potential interactions between crowdfinancing and traditional forms
  of start-up funding. In this study, we examine the impact and signaling effects that crowdfinancing has
  on subsequent venture capital funding rounds. Drawing on a choice experimental research design we
  find causal evidence that while the crowd itself is generally seen as a negative signal, it can generate
  certain positive signals to which professional venture investors react. Theoretical and managerial implications are discussed.

Haucap, Justus; Mödl, Michael (2013). Zum Verhältnis von Spitzenforschung und Politikberatung: Eine empirische Analyse vor dem Hintergrund des Ökonomenstreits, Perspektiven der Wirtschaftspolitik, 14 (3-4), 346-378. DOI

Further Publications, Press Articles, Interviews

Haucap, Justus; Mödl, Michael (2013). Warum engagieren sich nicht mehr ökonomische Spitzenforscher in der Politikberatung?, Leitartikel in: Haucap, Justus; Mödl, Michael; Schmidt, Christoph M.; aus dem Moore, Nils; Themann, Michael; Richter, Wolfram F.; Fratzscher, Marcel; Wagner, Gert G.; Güth, Werner; Kliemt, Hartmut; Koll, Willi: Entwickeln sich wirtschaftswissenschaftliche Forschung und Politikberatung auseinander?, Wirtschaftsdienst, 93 (8), 507-530. DOI

Discussion Papers

Mödl, Michael (2018). Is Wisdom of Crowds a Positive Signal? Effects of Crowdfinancing on Subsequent Venture Capital Selection, Max Planck Institute for Innovation & Competition Research Paper, No. 18-15.

• The seed funding gap is still a major obstacle for the initiation of new ventures and diffusion of innovation. Crowdfunding – an innovation in the market for startup finance – could offer a new market-based means of partly closing this gap. However, crowdfinancing cannot be regarded as a complete substitute for venture capital funding, e.g. since it is not likely to fully finance a technology-based venture over time and because professional venture investors provide crucial resources besides capital. It therefore appears important to study the interaction between crowdfunding and more traditional forms of start-up finance. We examine the impact and signaling effects that crowd-based funding has on subsequent venture capital financing rounds. Drawing on a choice experimental research design and data on 5,280 decisions of 120 venture investors, our results indicate that “the crowd” generally is a negative signal for professional venture investors, but that they do not ignore positive signals sent by the crowd. We find causal evidence that start-ups with a prior crowd-investing (securities-based crowdfunding) tend to be not selected by venture investors, while high sums of (reward-based) crowdfunding, collected fast by startups with a B2C business model, can have a positive effect on VC managers’ funding decisions. Our results also suggest that traditional forms of pre-funding, i.e., prior business angel investments, by contrast significantly increase the likelihood of subsequent financing rounds. Theoretical and managerial implications are discussed.
• Available at SSRN

Haucap, Justus; Mödl, Michael (2013). Zum Verhältnis von Spitzenforschung und Politikberatung: Eine empirische Analyse vor dem Hintergrund des Ökonomenstreits, DICE Ordnungspolitische Perspektiven, 40.

• Der vorliegende Beitrag trägt einige empirische Belege zum Verhältnis von wirtschaftspolitischer Beratung und ökonomischer (Spitzen-)Forschung in Deutschland zusammen, um die fortwährende Debatte über dieses Verhältnis mit einer - wenn auch nur etwas - breiteren Datenbasis zu versehen. Dazu haben wir ausgewertet, (a) in wie weit Publikationen deutschsprachiger Ökonomen in ökonomischen Top-Journalen einen expliziten Bezug zu wirtschaftspolitischen Problemen im deutschsprachigen Raum aufweisen und (b) welche Ökonomen in der deutschen Politikberatung aktiv sind. Für Frage (b) wurde ausgewertet, welche Ökonomen in der Legislaturperiode 2005 bis 2009 (i) gutachterlich für die drei wirtschaftsnahen Ministerien für Finanzen (BMF), für Wirtschaft und Technologie (BMWi) sowie für Arbeit und Soziales (BMAS) tätig waren, (ii) um Stellungnahmen zu den korrespondierenden Anhörungen der Fachausschüsse im Deutschen Bundestag gebeten wurde und (iii) Aufsätze im Wirtschaftsdienst publiziert hat. Wie sich zeigt, sind dies größtenteils Ökonomen, welche weder aktuell noch in der Vergangenheit Spitzenforschung im Sinne des Handelsblatt-Rankings produziert haben. Zugleich zeigt unsere Inhaltsanalyse der Beiträge in Spitzenzeitschriften (Frage a), dass der Großteil der dort von deutschprachigen Ökonomen publizierte Beiträge keinen direkten Bezug zur Wirtschaftspolitik im deutschsprachigen Raum hat. Die Gesamtschau der Befunde legt nahe, dass nicht nur aktuell ein starkes Maß an Arbeitsteilung zwischen Politikberatung und Spitzenforschung existiert, sondern auch über den Lebenszyklus von Ökonomen hinweg.
• http://hdl.handle.net/10419/70823