Skip to main content
SpringerLink
Log in

Human capital signals and entrepreneurs’ success in equity crowdfunding

  • Published:
Small Business Economics Aims and scope Submit manuscript

Abstract

Grounding on research about the role of signals in the attraction of equity finance, this paper studies the effects of diverse human capital signals on entrepreneurs’ success in equity crowdfunding. We argue that the human capital of an entrepreneur, who launches (alone or with other teammates) an equity crowdfunding campaign to finance her start-up, constitutes a set of signals of the start-up quality. The impact of each human capital signal on entrepreneur’s success in equity crowdfunding depends on both signal fit with start-up quality and signal ambiguity. Empirical estimates on 284 entrepreneurs who launched equity crowdfunding campaigns indicate that only entrepreneurs’ business education and entrepreneurial experience, two human capital signals that have both a good fit with start-up quality and a low degree of ambiguity, significantly contribute to entrepreneurs’ success in equity crowdfunding.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. Interestingly, the number of solo entrepreneurs who search for equity finance on the Internet is not negligible. For instance, in the sample we use in the present study, more than 10% of the entrepreneurs run their start-ups alone.

  2. SiamoSoci was the first equity crowdfunding platform created in Italy. More than 2 years after its establishment, the Consob Regulation no. 18592 “The collection of risk capital on the part of innovative start-ups via on-line portals” (http://www.consob.it/mainen/documenti/english/laws/reg18592e.htm) entered into force. This regulation included a set of rules and requisites for the managers of equity crowdfunding platforms aimed at reducing operational and legal risks and the risk of litigation and fraud. The regulation also established a register where platforms had to be included to be allowed to use the label “equity crowdfunding platforms”. In light of the new Italian regulation, SiamoSoci could not use the label equity crowdfunding platform any more and in 2014, it started changing its activity to become a marketplace for entrepreneurs searching for business angels’ investments. However, despite the lack of formal recognition by Consob, during the period under scrutiny in this study, SiamoSoci functioned de facto as an equity crowdfunding platform: it matched entrepreneurs and investors through the Internet, although the finalization of the financing contract had to be done off line. As a detailed analysis of this latter legal aspect goes beyond the purposes of this study, we refer to SiamoSoci as an equity crowdfunding platform.

  3. During the period of observation, 187 campaigns were launched on SiamoSoci, but 21 of them (about 11%) were still open and raising capital when we stopped the data collection.

  4. For about half of sample entrepreneurs, the number of LinkedIn connections was collected only at mid-December 2013. As for these individuals, the number of connections when the campaign was launched was unknown, we could have not computed ln_LinkedIn_connections. Hence, we resorted to regression imputation. Specifically, we first estimated an OLS regression model on the sole individuals for which the number of LinkedIn connections was available both when the campaign was launched and at mid-December 2013. The dependent variable was the number of LinkedIn connections when the campaign was launched, while the independent variables were the number of connections at mid-December 2013, the number of months elapsed since campaign launch and the number of entrepreneurs involved in the start-up. The estimated coefficients were then used to impute the missing values.

References

  • Agrawal, A., Catalini, C., & Goldfarb, A. (2011). Friends, family, and the flat world: the geography of crowdfunding. NBER Working Paper.

  • Agrawal, A., Catalini, C., & Goldfarb, A. (2014). Some simple economics of crowdfunding. Innovation Policy and the Economy, 14(1), 63–97.

    Article  Google Scholar 

  • Ahlers, G. K., Cumming, D., Günther, C., & Schweizer, D. (2015). Signaling in equity crowdfunding. Entrepreneurship Theory and Practice, 39(4), 955–980.

    Article  Google Scholar 

  • Allison, T. H., Davis, B. C., Short, J. C., & Webb, J. W. (2015). Crowdfunding in a prosocial microlending environment: examining the role of intrinsic versus extrinsic cues. Entrepreneurship Theory and Practice, 39(1), 53–73.

    Article  Google Scholar 

  • Arnold, T., Fishe, R. P., & North, D. (2010). The effects of ambiguous information on initial and subsequent IPO returns. Financial Management, 39(4), 1497–1519.

    Article  Google Scholar 

  • Barney, J. B., Busenitz, L. B., Fiet, J. O., & Moesel, D. D. (1996). New venture teams’ assessment of learning assistance from venture capital firms. Journal of Business Venturing, 4, 257–272.

    Article  Google Scholar 

  • Baucus, M. S., & Mitteness, C. R. (2016). Crowdfrauding: avoiding Ponzi entrepreneurs when investing in new ventures. Business Horizons, 59(1), 37–50.

    Article  Google Scholar 

  • Baum, J., & Silverman, B. (2004). Picking winners or building them? Alliance, intellectual, and human capital as selection criteria in venture financing and performance of biotechnology start-ups. Journal of Business Venturing, 19, 411–436.

    Article  Google Scholar 

  • Becker-Blease, J. R., & Sohl, J. E. (2015). New venture legitimacy: the conditions for angel investors. Small Business Economics, 45(4), 735–749.

    Article  Google Scholar 

  • Behrens, J., Patzelt, H., Schweizer, L., & Bürger, R. (2012). Specific managerial human capital, firm age, and venture capital financing of biopharmaceutical ventures: a contingency approach. Journal of High Technology Management Research, 23, 112–121.

    Article  Google Scholar 

  • Bergh, D. D., Connelly, B. L., Ketchen, D. J., & Shannon, L. M. (2014). Signalling theory and equilibrium in strategic management research: an assessment and a research agenda. Journal of Management Studies, 51(8), 1334–1360.

    Article  Google Scholar 

  • Block, J. H., Colombo, M. G., Cumming, D. J., & Vismara, S. (2017). New players in entrepreneurial finance and why they are there. Small Business Economics. https://doi.org/10.1007/s11187-016-9826-6.

  • Bottazzi, L., Da Rin, M., & Hellmann, T. (2008). Who are the active investors? Evidence from venture capital. Journal of Financial Economics, 89, 488–512.

    Article  Google Scholar 

  • Bourgeois III, L. J., & Eisenhardt, K. M. (1988). Strategic decision processes in high velocity environments: four cases in the microcomputer industry. Management Science, 34(7), 816–835.

    Article  Google Scholar 

  • Burton, M. D., Sørensen, J. B., & Beckman, C. M. (2002). Coming from good stock: career histories and new venture formation. In: Social structure and organizations revisited (pp. 229–262). Emerald Group Publishing Limited.

  • Busenitz, L. W., Fiet, J. O., & Moesel, D. D. (2005). Signaling in venture capitalist—new venture team funding decisions: does it indicate long-term venture outcomes? Entrepreneurship Theory and Practice, 29(1), 1–12.

    Article  Google Scholar 

  • Butticè, V., Franzoni, C., Rossi-Lamastra, C., & Rovelli, P. (2017). The road to crowdfunding success: a review of extant literature. Forthcoming.

  • Bygrave, W., & Timmons, J. (1992). Venture capital at the crossroads. Boston: Harvard Business School Press.

    Google Scholar 

  • Carmeli, A. (2004). Strategic human capital and the performance of public sector organizations. Scandinavian Journal of Management, 20(4), 375–392.

    Article  Google Scholar 

  • Carpentier, C., & Suret, J. M. (2015). Canadian business angel perspectives on exit: a research note. International Small Business Journal, 33(5), 582–593.

    Article  Google Scholar 

  • Certo, S. T. (2003). Influencing initial public offering investors with prestige: signaling with board structures. Academy of Management Review, 28(3), 432–446.

    Article  Google Scholar 

  • Cohen, B. D., & Dean, T. J. (2005). Information asymmetry and investor valuation of IPOs: top management team legitimacy as a capital market signal. Strategic Management Journal, 26(7), 683–690.

    Article  Google Scholar 

  • Colombo, M. G., Grilli, L., & Piva, E. (2006). In search for complementary assets: the determinants of alliance formation of high-tech start-ups. Research Policy, 35, 1166–1199.

    Article  Google Scholar 

  • Colombo, M. G., Franzoni, C., & Rossi-Lamastra, C. (2015a). Cash from the crowd. Science, 348(6240), 1201–1202.

    Article  Google Scholar 

  • Colombo, M. G., Franzoni, C., & Rossi-Lamastra, C. (2015b). Internal social capital and the attraction of early contributions in crowdfunding. Entrepreneurship Theory and Practice, 39(1), 75–100.

    Article  Google Scholar 

  • Connelly, B. L., Certo, S. T., Ireland, R. D., & Reutzel, C. R. (2011). Signaling theory: a review and assessment. Journal of Management, 37(1), 39–67.

    Article  Google Scholar 

  • Courtney, C., Dutta, S., & Li, Y. (2016). Resolving information asymmetry: signaling, endorsement, and crowdfunding success. Entrepreneurship Theory and Practice, 41(2), 265–290.

    Article  Google Scholar 

  • Drover, W., Busenitz, L., Matusik, S., Townsend, D., Anglin, A., & Dushnitsky, G. (2017). A review and road map of entrepreneurial equity financing research: venture capital, corporate venture capital, angel investment, crowdfunding, and accelerators. Journal of Management. https://doi.org/10.1177/0149206317690584.

  • Elitzur, R., & Gavious, A. (2003). Contracting, signaling, and moral hazard: a model of entrepreneurs, ‘angels,’ and venture capitalists. Journal of Business Venturing, 18(6), 709–725.

    Article  Google Scholar 

  • Epstein, L. G., & Schneider, M. (2008). Ambiguity, information quality, and asset pricing. The Journal of Finance, 63(1), 197–228.

    Article  Google Scholar 

  • EVCA (2013). EVCA annual report 2012–2013, European Venture Capital Association.

  • Feeser, H. R., & Willard, G. E. (1990). Founding strategy and performance: a comparison of high and low growth high tech firms. Strategic Management Journal, 11, 87–98.

    Article  Google Scholar 

  • Franke, N., Gruber, M., Harhoff, D., & Henkel, J. (2008). Venture capitalists’ evaluations of start-up teams: trade-offs, knock-out criteria, and the impact of VC experience. Entrepreneurship Theory and Practice, 32(3), 459–483.

    Article  Google Scholar 

  • Gifford, S. (1997). Limited attention and the role of the venture capitalist. Journal of Business Venturing, 12(6), 459–482.

    Article  Google Scholar 

  • Gimeno, J., Folta, T. B., Cooper, A. C., & Woo, C. Y. (1997). Survival of the fittest? Entrepreneurial human capital and the persistence of underperforming firms. Administrative Science Quarterly, 42, 750–783.

    Article  Google Scholar 

  • Gimmon, E., & Levie, J. (2010). Founder’s human capital, external investment, and the survival of new high-technology ventures. Research Policy, 39(9), 1214–1226.

    Article  Google Scholar 

  • Giudici, G., Guerini, M., & Rossi-Lamastra, C. (2017). Reward-based crowdfunding of entrepreneurial projects: the effect of local altruism and localized social capital on proponents’ success. Small Business Economics, 1–18.

  • Gorman, M., & Sahlman, W. A. (1989). What do venture capitalist do? Journal of Business Venturing, 4, 231–248.

    Article  Google Scholar 

  • Günther, C., Johan, S., & Schweizer, D. (2017). Is the crowd sensitive to distance?—how investment decisions differ by investor type. Small Business Economics, forthcoming. 10.13140/RG.2.2.29389.23523.

  • Hellmann, T., & Puri, M. (2002). Venture capital and the professionalization of start-up firms: empirical evidence. Journal of Finance, 57, 169–197.

    Article  Google Scholar 

  • Hoenig, D., & Henkel, J. (2015). Quality signals? The role of patents, alliances, and team experience in venture capital financing. Research Policy, 44(5), 1049–1064.

    Article  Google Scholar 

  • Hsu, D. H. (2006). Venture capitalists and cooperative start-up commercialization strategy. Management Science, 52, 204–219.

    Article  Google Scholar 

  • Hsu, D. H. (2007). Experienced entrepreneurial founders, organizational capital, and venture capital funding. Research Policy, 36(5), 722–741.

    Article  Google Scholar 

  • Hustedde, R. J., & Pulver, G. C. (1992). Factors affecting equity capital acquisition: the demand side. Journal of Business Venturing, 7(5), 363–374.

    Article  Google Scholar 

  • Janney, J. J., & Folta, T. B. (2003). Signaling through private equity placements and its impact on the valuation of biotechnology firms. Journal of Business Venturing, 18(3), 361–380.

    Article  Google Scholar 

  • Kahle, K. M., & Stulz, R. M. (2013). Access to capital, investment, and the financial crisis. Journal of Financial Economics, 110(2), 280–299.

    Article  Google Scholar 

  • Kaplan, S. N., & Strömberg, P. E. (2004). Characteristics, contracts, and actions: evidence from venture capitalist analyses. The Journal of Finance, 59(5), 2177–2210.

    Article  Google Scholar 

  • Lazear, E. P. (2004). Balanced skills and entrepreneurship. American Economic Review, 94(2), 208–211.

    Article  Google Scholar 

  • Lazear, E. P. (2005). Entrepreneurship. Journal of Labor Economics, 23(4), 649–680.

    Article  Google Scholar 

  • Lewis, B. W., Walls, J. L., & Dowell, G. W. (2014). Difference in degrees: CEO characteristics and firm environmental disclosure. Strategic Management Journal, 35(5), 712–722.

    Article  Google Scholar 

  • Lindsey, L., (2002). The venture capital Keiretsu effect: an empirical analysis of strategic alliances among portfolio firms. Working paper, Stanford University.

  • Lofstrom, M., Bates, T., & Parker, S. C. (2014). Why are some people more likely to become small-businesses owners than others: entrepreneurship entry and industry-specific barriers. Journal of Business Venturing, 29(2), 232–251.

    Article  Google Scholar 

  • Lukkarinen, A., Teich, J. E., Wallenius, H., & Wallenius, J. (2016). Success drivers of online equity crowdfunding campaigns. Decision Support Systems, 87, 26–38.

    Article  Google Scholar 

  • MacMillan, I. C., Siegel, R., & Subba Narasimha, P. N. (1985). Criteria used by venture capitalist to evaluate new venture proposals. Journal of Business Venturing, 1, 119–128.

    Article  Google Scholar 

  • MacMillan, I. C., Kulow, D. M., & Khoylian, R. (1989). Venture capitalists’ involvement in their investments: extent and performance. Journal of Business Venturing, 4, 27–47.

    Article  Google Scholar 

  • Marvel, M. R. (2013). Human capital and search-based discovery: a study of high-tech entrepreneurship. Entrepreneurship Theory and Practice, 37(2), 403–419.

    Article  Google Scholar 

  • McGrath, R. G. (1999). Falling forward: real options reasoning and entrepreneurial failure. Academy of Management Review, 24(1), 13–30.

    Article  Google Scholar 

  • Mohammadi, A., & Shafi, K. (2017). Gender differences in the contribution patterns of equity-crowdfunding investors. Small Business Economics, forthcoming. https://doi.org/10.1007/s11187-016-9825-7.

  • Mollick, E. (2014). The dynamics of crowdfunding: determinants of success and failure. Journal of Business Venturing, 29(1), 1–16.

    Article  Google Scholar 

  • Muzyka, D., Birley, S., & Leleux, B. (1996). Trade-offs in the investment decisions of European venture capitalists. Journal of Business Venturing, 11, 273–287.

    Article  Google Scholar 

  • Ordanini, A., Miceli, L., Pizzetti, M., & Parasuraman, A. (2011). Crowd-funding: transforming customers into investors through innovative service platforms. Journal of Service Management, 22(4), 443–470.

    Article  Google Scholar 

  • Parhankangas, A., & Renko, M. (2017). Linguistic style and crowdfunding success among social and commercial entrepreneurs. Journal of Business Venturing, 32(2), 215–236.

    Article  Google Scholar 

  • Park, H. D., & Patel, P. C. (2015). How does ambiguity influence IPO underpricing? The role of the signalling environment. Journal of Management Studies, 52(6), 796–818.

    Article  Google Scholar 

  • Peterson, M.A. (2004). Information: hard and soft. Kellogg School of Management, Northwestern University Working Paper.

  • Plummer, L. A., Allison, T. H., & Connelly, B. L. (2016). Better together? Signaling interactions in new venture pursuit of initial external capital. Academy of Management Journal, 59(5), 1585–1604.

    Article  Google Scholar 

  • Prowse, S. (1998). Angel investors and the market for angel investments. Journal of Banking & Finance, 22(6), 785–792.

    Article  Google Scholar 

  • Ralcheva, A., & Roosenboom, P. (2016). On the road to success in equity crowdfunding. SSRN.

  • Robb, A., & Robinson, D. (2014). The capital structure decisions of new firms. Review of Financial Studies, 27, 153–179.

    Article  Google Scholar 

  • Robinson, P. B., & Sexton, E. A. (1994). The effect of education and experience on self-employment success. Journal of Business Venturing, 9(2), 141–156.

    Article  Google Scholar 

  • Roure, J. B., & Maidique, M. A. (1986). Linking prefunding factors and high-technology venture success: an exploratory study. Journal of Business Venturing, 1(3), 295–306.

    Article  Google Scholar 

  • Sapienza, H. J. (1992). When do venture capitalists add value? Journal of Business Venturing, 7, 9–27.

    Article  Google Scholar 

  • Sapienza, H. J., Manigart, S., & Vermeir, W. (1996). Venture capital governance and value added in four countries. Journal of Business Venturing, 11, 439–469.

    Article  Google Scholar 

  • Shane, S., & Stuart, T. (2002). Organizational endowments and the performance of university start-ups. Management Science, 48(1), 154–170.

    Article  Google Scholar 

  • Shepherd, D. A. (1999). Venture capitalists’ assessment of new venture survival. Management Science, 45(5), 621–632.

    Article  Google Scholar 

  • Sitkin, S. B. (1992). Learning through failure: the strategy of small losses. Research in Organizational Behavior, 14, 231–266.

    Google Scholar 

  • Skirnevskiy, V., Bendig, D., & Brettel, M. (2017). The influence of internal social capital on serial creators’ success in crowdfunding. Entrepreneurship Theory and Practice, 41, 209–236.

    Article  Google Scholar 

  • Skoglund, E., & Stiernblad, M. (2013). The future of equity crowdfunding—is “the crowd” capable of good investment? Working paper.

  • Spence, M. (1973). Job market signaling. Quarterly Journal of Economics, 87(3), 355–374.

    Article  Google Scholar 

  • Spence, M. (2002). Signaling in retrospect and the informational structure of markets. American Economic Review, 92(3), 434–459.

    Article  Google Scholar 

  • Spivack, A. J., McKelvie, A., & Haynie, J. M. (2014). Habitual entrepreneurs: possible cases of entrepreneurship addiction? Journal of Business Venturing, 29(5), 651–667.

    Article  Google Scholar 

  • Sudek, R. (2006). Angel investment criteria. Journal of Small Business Strategy, 17(2), 89–103.

    Google Scholar 

  • Tyebjee, T. T., & Bruno, A. V. (1984). A model of venture capitalist investment activity. Management Science, 30(9), 1051–1066.

    Article  Google Scholar 

  • Vismara, S. (2016a). Information cascades among investors in equity crowdfunding. Entrepreneurship Theory and Practice. https://doi.org/10.1111/etap.12261.

  • Vismara, S. (2016b). Equity retention and social network theory in equity crowdfunding. Small Business Economics, 46(4), 579–590.

    Article  Google Scholar 

  • Vulkan, N., Åstebro, T., & Sierra, M. F. (2016). Equity crowdfunding: a new phenomenon. Journal of Business Venturing Insights, 5, 37–49.

    Article  Google Scholar 

  • Wang, M. T., & Degol, J. (2013). Motivational pathways to STEM career choices: using expectancy–value perspective to understand individual and gender differences in STEM fields. Developmental Review, 33(4), 304–340.

    Article  Google Scholar 

  • Zimmerman, M. A., & Zeitz, G. J. (2002). Beyond survival: achieving new venture growth by building legitimacy. Academy of Management Review, 27(3), 414–431.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Management, Economics and Industrial Engineering, Politecnico di Milano, via Lambruschini 4/b, 20156, Milan, Italy

    Evila Piva & Cristina Rossi-Lamastra

Authors
  1. Evila Piva
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Cristina Rossi-Lamastra
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Evila Piva.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Piva, E., Rossi-Lamastra, C. Human capital signals and entrepreneurs’ success in equity crowdfunding. Small Bus Econ 51, 667–686 (2018). https://doi.org/10.1007/s11187-017-9950-y

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11187-017-9950-y

Keywords

JEL classification

Search

Navigation