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Article

Enrico Battisti, Fabio Creta and Nicola Miglietta

This paper gathers initial evidence about the nature and features of the equity crowdfunding model in Italy, especially in terms of regulations. The purpose of this study…

Abstract

Purpose

This paper gathers initial evidence about the nature and features of the equity crowdfunding model in Italy, especially in terms of regulations. The purpose of this study is to examine how equity crowdfunding might support the real estate sector in Italy.

Design/methodology/approach

To explore the recent initiatives in the development of FinTech in Italy, especially referring to equity crowdfunding’s instrument, a qualitative perspective is used. In particular, this paper relies on primary data from regulations and secondary data from the public domain, which are examined in relation to the current literature.

Findings

The results of this study show that equity crowdfunding represents a funding method that is rapidly increasing in Italy, despite rather rigid regulation. Among the various sectors involved, the real estate sector could benefit from the crowdfunding models and, specifically, from the equity one. The development of new real estate equity crowdfunding portals that allow diversification of investment (by reducing the typical entry barriers for real estate investment) could guarantee greater investment transparency and simplicity.

Practical implications

Real estate crowdfunding can be a simple way to invest in the real estate industry. Thanks to the use of technology, specifically internet-based platforms, this type of crowdfunding allows for small investors, as well as professional investors, to access an asset class otherwise not open to small investment tickets and improve the diversification of investments.

Originality/value

Although recent literature has examined the concept of crowdfunding and highlighted different models, aspects and campaigns, no prior studies, to the authors’ knowledge, have explicitly and jointly investigated, also based on the state of art of regulation, the equity crowdfunding model and the real estate sector in Italy.

Details

Journal of Financial Regulation and Compliance, vol. 28 no. 3
Type: Research Article
ISSN: 1358-1988

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Article

Elena Smirnova, Katarzyna Platt, Yu Lei and Frank Sanacory

Since May 2016, small firms have been able to issue debt and equity securities in accordance with the Securities and Exchange Commission's “Regulation Crowdfunding”. This…

Abstract

Purpose

Since May 2016, small firms have been able to issue debt and equity securities in accordance with the Securities and Exchange Commission's “Regulation Crowdfunding”. This regulation provides unsophisticated investors a chance to participate in the securities markets, and it gives small businesses an opportunity to raise funds. This paper investigates the determinants of crowdfunding success, security design in a crowdfunding setting, the amount of crowdfunding campaign proceeds and campaign duration.

Design/methodology/approach

The sample used in this study is based on 750 completed securities crowdfunding offerings that were launched between May 2016 and May 2018. The data on crowdfunding issues were webscraped from Form C filings available through SEC EDGAR filing system. Additional data were hand-collected from a variety of platforms that list and aggregate crowdfunding offerings.

Findings

We show that relatively larger and more profitable companies have a better chance to achieve crowdfunding success. We find that the issuance of equity results in a lower probability of success compared to issuing debt. In addition, the issuance of equity is negatively correlated with the amount of proceeds from a crowdfunding campaign. A novel finding is that a choice of a funding instrument has a negligible impact on the amount of proceeds. This finding, combined with reduced probability of success for equity issuers, can be interpreted as a signal to rely more on debt and convertibles when designing crowdfunding campaigns.

Research limitations/implications

Organized under “Regulation Crowdfunding,” the US securities-based crowdfunding market has been operating for several years. Relative to other securities markets it is still considered to be in its infancy. Given a relatively small data sample, the results have to be interpreted with caution.

Practical implications

The paper shows that small businesses and unsophisticated investors can benefit from securities-based crowdfunding, which is subject to oversight of the Securities and Exchange Commission (SEC). Although the mission of the regulator is to protect investors, the SEC took on a rather relaxed approach in regulating types of instruments used in crowdfunding. Our paper shows that equities, including “Simple Agreements For Future Equity” (SAFEs) might not be the best choice for crowdfunding success. This sentiment is mirrored in law literature which considers securities known as SAFEs more suitable for venture capital campaigns rather than for crowdfunding.

Originality/value

The paper adds value to the novel field of securities-based crowdfunding by testing several hypotheses on the crowdfunding success, the amount of proceeds and campaign duration.

Details

Review of Behavioral Finance, vol. 13 no. 2
Type: Research Article
ISSN: 1940-5979

Keywords

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Article

Antonella Francesca Cicchiello, Maria Cristina Pietronudo, Daniele Leone and Andrea Caporuscio

The aim of this research is to contribute to the existing literature about the entrepreneurial conditions in crowd-based contexts by describing how different European…

Abstract

Purpose

The aim of this research is to contribute to the existing literature about the entrepreneurial conditions in crowd-based contexts by describing how different European countries regulate equity crowdfunding market in order to incentive the investments and protect investors.

Design/methodology/approach

Based on a legal acts' analysis, we conduct a qualitative study comparing the crowdfunding regulation addressed to investors. In particular, we focus our analysis on the European countries with the highest concentration of crowdfunding platforms (i.e. the UK, Germany, France, Italy and Spain).

Findings

The results show that some countries, such as the UK, Germany and France, present an investor-oriented approach based on non-restrictive regulation, while other countries, such as Spain and Italy, have a restrictive approach that protects investors excessively and discourages them. In particular, the case study of France shows how the introduction of unrestricted regulation can produce positive effects on the volume of crowdfunding transactions.

Practical implications

The paper is addressed to investors, policymakers and intermediaries (platforms) to help the first in orienting themselves between the different crowdfunding regulations and the latter in aligning and orchestrating rules and norms.

Originality/value

This is the first study that analyses the role of investor-oriented regulations in the promotion of entrepreneurship through the identification of four key factors to monitor equity crowdfunding regulations.

Details

Journal of Entrepreneurship and Public Policy, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2045-2101

Keywords

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Article

Stuart Gelfond and Burcin Eren

To summarize the technical guidelines for complying with the final crowdfunding rules issued by the US Securities and Exchange Commission (“SEC”) after more than three…

Abstract

Purpose

To summarize the technical guidelines for complying with the final crowdfunding rules issued by the US Securities and Exchange Commission (“SEC”) after more than three years of consideration pursuant to the Jumpstart Our Business Startups Act (“JOBS Act”) to permit companies to offer and sell securities through crowdfunding.

Design/methodology/approach

Gives an overview of the JOBS Act and the proposed and final crowdfunding rules issued by the SEC; explains how start-ups and other companies can qualify under the final rules; summarizes the disclosure requirements for the issuers; explains the final rules regarding intermediary platforms; and summarizes the proposed rules to facilitate intrastate and regional securities offerings.

Findings

While new crowdfunding rules will enable start-up companies to raise money through the Internet in ways that were previously prohibited, the success of these rules in helping start-ups to raise capital easily and efficiently is still to be seen, as there are still significant restrictions and procedural hurdles for a would-be crowdfunding issuer, which makes crowdfunding costly, especially compared to other forms of capital raising.

Originality/value

Provides an overview and summary of the rules from experienced securities lawyers so that start-up companies and investors would be able to comply with the new rules.

Details

Journal of Investment Compliance, vol. 17 no. 1
Type: Research Article
ISSN: 1528-5812

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Book part

Abbey Stemler

The purpose of this chapter is to expose the limitations of the equity-based crowdfunding provisions of the 2012 JOBS Act. These provisions have received much attention…

Abstract

Purpose

The purpose of this chapter is to expose the limitations of the equity-based crowdfunding provisions of the 2012 JOBS Act. These provisions have received much attention because they have the potential to open funding opportunities to countless underfunded entrepreneurs and small businesses. In addition, they can provide everyday investors with new ways to diversify their portfolios. However, the author asserts that the JOBS Act is unlikely to be successful in its current incarnation, because it overly burdens the entrepreneur with reporting and accountability requirements, among other things. The author resolves these issues by articulating a regulatory alternative to the JOBS Act.

Methodology/approach

This chapter reviews the general requirements for equity-based crowdfunding under the 2012 JOBS Act. It also reviews the various approaches individual states and other countries have taken to promote equity-based crowdfunding.

Findings

The existing law and proposed regulations for equity-based crowdfunding under the JOBS Act are overly burdensome and will impair the ability of entrepreneurs and small-businesses to successfully use equity-based crowdfunding throughout the United States. Regulators and other lawmakers need to adopt new rules focused on protecting consumers via spending limits.

Research limitations/implications

Most of the research is based on theory, because the equity-based regulations have not been finalized or implemented at the federal level. However, the United States can learn much from the equity-based crowdfunding efforts of individual states and other countries.

Originality/value

This chapter’s critique is designed to engage lawmakers, regulators, entrepreneurs, and small businesses in a new discussion about equity-based crowdfunding regulations.

Details

International Perspectives on Crowdfunding
Type: Book
ISBN: 978-1-78560-315-0

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Book part

Franck Juredieu and Sébastien Mayoux

Even if crowdfunding is now practiced on all continents, not all countries have reached the same stage in creating a legal framework. The countries based on common law…

Abstract

Even if crowdfunding is now practiced on all continents, not all countries have reached the same stage in creating a legal framework. The countries based on common law were the first to practice crowdfunding and have, for the majority of them, already regulated the use of crowdfunding. On continental Europe, the countries experienced a later development of crowdfunding but they nevertheless wished to be at the forefront of crowdfunding legislation. The purpose of this chapter is to present the main legislation or projects related to crowdfunding seeking to compare, as far as possible, the different legal frameworks together.

Details

International Perspectives on Crowdfunding
Type: Book
ISBN: 978-1-78560-315-0

Keywords

Abstract

Details

Corporate Fraud Exposed
Type: Book
ISBN: 978-1-78973-418-8

Content available
Article

Zaiyu Huang, Candy Lim Chiu, Sha Mo and Rob Marjerison

The purpose of this paper is to develop initial evidence about the nature and features of crowdfunding in China, given it is largely unregulated regulatory frameworks.

Abstract

Purpose

The purpose of this paper is to develop initial evidence about the nature and features of crowdfunding in China, given it is largely unregulated regulatory frameworks.

Design/methodology/approach

The paper used extensive desk research using data collected from the public and private sectors, after which the data was analyzed parallel to existing academic literature, that is, institutional context by Bruton et al. (2014). This paper uncovered patterns of development, profiling crowdfunding platforms, examining the regulatory landscape and providing antecedents of successful crowdfunding projects in China.

Findings

When the traditional financial markets are hard to reach, micro, small and medium enterprises (MSMEs) were starved for capital. Crowdfunding can play a major role in funding and risk sharing. It is an innovative and dynamic vehicle for MSMEs as well as enthusiastic investors in China. Since its initial introduction to China in 2009, crowdfunding has gained substantial popularity in a relatively short period. Currently, there is still not an identifiable guideline on how to delineate the significance of the crowdfunding platform. The development of crowdfunding in China faces a few unresolved key issues. As researchers exploring this phenomenon in new ways, crowdfunding platforms can be enhanced in a manner that benefits the capital seeker, investors and society as a whole.

Originality/value

There is a dearth of information on start-up crowdfunding in Asia. With little data available to analyze, so this paper hopes to contribute to knowledge and provide valuable information to researchers and industry representations. Crowdfunding represents a potentially disruptive change in the way that new ventures are funded. This paper represents an initial analysis in the study of new ventures in China. Finally, the authors provide recommendations for entrepreneurs, investors and policymakers as well as researchers and practitioners with suggestions about yet unexplored avenues of research.

Details

Asia Pacific Journal of Innovation and Entrepreneurship, vol. 12 no. 3
Type: Research Article
ISSN: 2398-7812

Keywords

Content available
Article

Giancarlo Giudici, Massimiliano Guerini and Cristina Rossi-Lamastra

The authors investigate whether matchings in equity crowdfunding are more likely to happen if homophily exists between investors and investees. They focus on gender, age…

Abstract

Purpose

The authors investigate whether matchings in equity crowdfunding are more likely to happen if homophily exists between investors and investees. They focus on gender, age and geographical proximity as crucial dimensions of similarity among individuals and thus of homophily. Furthermore, they investigate whether the effect of homophily depends on the risk of opportunism, which investors allegedly attribute to proponents basing on their area of residence.

Design/methodology/approach

The authors analyze a hand-collected database of 13 equity crowdfunding campaigns launched by Italian innovative start-ups from January 2013 to June 2016, which includes information about 384 equity crowdfunding investments carried out by 361 different investors.

Findings

The authors find a significant effect of geographical proximity and age similarity in explaining the probability that an investor finances a campaign. Moreover, these effects are particularly relevant if the proponent is located in areas characterized by a high risk of opportunistic behavior. Interestingly enough, they do not detect any significant effect related to gender.

Originality/value

In this paper, the authors have the unique opportunity to analyze a whole market (the Italian market) during three years, from inception (2013–2016), and to collect the identities of the investors in all successful campaigns.

Details

Baltic Journal of Management, vol. 15 no. 2
Type: Research Article
ISSN: 1746-5265

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Article

Peter Yeoh

This paper aims to examine the implications of exemptions to facilitate small businesses’ access to crowdfunding (CF) schemes. The aftermath of the 2008 global financial…

Abstract

Purpose

This paper aims to examine the implications of exemptions to facilitate small businesses’ access to crowdfunding (CF) schemes. The aftermath of the 2008 global financial crisis and even now witnessed many small profits and non-profits encountering significant difficulties in accessing funding from the conventional sources and on many occasions have to turn to the newly emerging Internet-enabled donation or product compensation CF schemes. Access to securities-based CF schemes has, however, been seriously difficult due to securities laws obstacles. Regulatory authorities in the USA and the UK have responded with exemptions to facilitate small businesses’ access to CF.

Design/methodology/approach

The paper driven by the qualitative doctrinal approach would rely extensively on primary data from the applicable regulations and secondary data from industry sources and other publicly available commentaries.

Findings

Securities-based CF schemes hitherto heavily restricted in the USA and the UK are under current regulatory interventions-accorded exemption status, thereby enabling enhanced access for those small businesses seeking alternatives to conventional financing and enhanced investment opportunities for small investors. The paper’s preliminary analysis suggests that the proposed new regulatory rules in the USA and the UK are generally well-balanced with adequate small investors’ protection, while simultaneously not hampering the innovative growth of small businesses with excessive restrictions. Further, the preparedness of the regulators to fine-tune the proposed rules as the CF industry evolves would likely ensure its orderly growth, thereby helping to address various humanitarian and social challenges in these jurisdictions.

Originality/value

The added value of the analysis lies in its substantive evaluation of the proposed rules in both jurisdictions to ascertain the feasibility of securities-based CF schemes as alternatives for small businesses in relation to traditional financing and enhanced investment opportunities for small unsophisticated investors.

Details

Journal of Financial Regulation and Compliance, vol. 22 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

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