Equity Crowdfunding: investigating the role of entrepreneurial quality in affecting the success of the campaigns

The "Equity-Crowdfunding phenomenon” is rapidly becoming popular in recent years and is receiving the attention of global institutions. Equity Crowdfunding (ECF hereafter) is considered a financial innovation (Nasrabadi, 2015) that can boost companies (especially the innovative ones) and encourage investments, particularly in the post-crisis period (De Buysere et al., 2012) and in the resulting contraction in credit supply (Yamen & Golfeder, 2015), the so-called credit crunch . ECF, in fact, has begun to be seen as a concrete source of funding in response to the scarcity of funds faced by small and medium-sized enterprises (SMEs), and to the increasing difficulties faced by start-ups, in obtaining financial resources from banks, venture capitalist and business angels. Despite the growth and spread of ECF, not all campaigns have success and many ventures do not get financing due to non-achievement of the funding goal. An important reason why many campaigns tend to fail is the strong presence of information asymmetries between founders and crowdfunders. These barriers can lead to the risk of adverse selection and potential market failure (Akerlof, 1970). In ECF, investors are characterized by limited experience and capability to evaluate investment opportunities (Ahlers et al., 2015), and the cost to perform due diligence could be high (Agrawal et al., 2011). These lacks could induce crowdfunders to make decisions based on non-objective parameters or following the orientation of the crowd, and then to finance a potential bad project (a “lemon”). The well-known “lemons problem" (Akerlof, 1970) refers to issues that arise due to asymmetric information possessed by investor and founder, regarding the value of the company. In this scenario, the separation between high quality and low quality projects is difficult. So a relevant issue is moral hazard due to possible opportunistic actions by entrepreneurs who have more knowledge of the quality underlying the initiative and have information about the venture that they might not reveal to the investors.