The Rationale for Listing on Equity Crowdfunding: Actual and Expected Benefits for Companies

Equity crowdfunding can provide significant resources for new ventures. However, little is known about the drivers and rationale influencing entrepreneurs’ desire to approach crowd investors for financing. Drawing on a qualitative study of 38 companies that fundraised via equity crowdfunding in the UK, our evidence shows that a successful fundraising campaign reduces the uncertainty for new ventures regarding market acceptance of their product and demonstrates the potential for uninformed third parties such as professional investors. Also, we found that entrepreneurs pursue crowdfunding to minimize dilution of their equity stake and retain the maximum level of autonomy. In certain respects, crowdfunding creates a ‘diluted’ form of equity funding with less prohibitive limitations on entrepreneurial autonomy than other forms of equity funding, allowing more informal and relational partnership with investors.