A Critical View on Equity Crowdfunding

In recent discussions on entrepreneurial finance there has been enthusiasm around new forms and players, especially crowdfunding. While crowdfunding has generally been praised as posi-tively impacting early stage funding options the potential negative aspects have been ignored or downplayed amongst policy makers and researchers alike.

Aim and link to conference theme.

This paper takes a different perspective. Based upon literature studies and interviews with key actors in the entrepreneurial financing eco-system it provides a more explicit normative as-sessment of crowdfunding with a view to clarify potential problems in crowdfunding. Solv-ing, or at least being aware of and alleviating these problems is necessary.
A regional dimension seems to have little relevance in crowdfunding, but some research indi-cates that even when investment takes place via on-line platforms investors have preferences for close proximity.
Therefore, the research questions in this paper are twofold. First, it is discussed what existing literature point to regarding
Whether there are geographical effects, even in direct financing mechanisms like crowdfund-ing?
Secondly, contrasting the widespread enthusiasm around crowdfunding,
which problems are associated with the further development of crowdfunding, and building on the analysis of these two questions, what is a policy assessment of crowdfunding?
The policy assessment will include insights from a review of the geographies of crowdfunding in order to establish whether there is a rationale for policies at a regional level of aggregation.

Contributions.

The paper offers three contributions to the existing knowledge in the field. Firstly, it discusses potential geographical aspects of crowdfunding hence tries to establish the existing knowledge on crowdfunding geographies. Secondly, and most importantly, six potential prob-lem areas of crowdfunding are pointed out, contributing to a more nuanced perspective on crowdfunding. Finally, the paper concludes by contributing to a normative perspective on crowdfunding in a policy context, including assessing the relevance of regional policies.

Context, Methodology and Data.

After a short introduction to the context and approach of the research, the paper is structured around these three contributions. Even if crowdfunding encompasses four distinct types, equi-ty crowdfunding is the main focus, although many of the arguments also apply to crowdfund-ing of rewards, donations, lending.
The research focuses on crowdfunding in Denmark, where crowdfunding is a relatively new phenomenon and where policies and regulation is not yet very developed. Interviews with key actors in the financial system and analysis of policy notes constitute the information base.

Implications for policy and practice.

It is questioned if equity crowdfunding is an expedient way to alleviate (regional) funding gaps. Policy-wise crowdfunding has a primary interest on a nation state level of aggregation, however, potentially could be relevant at a regional level. Currently, there are discussions on common EU-regulations that balance investor protection and better framework conditions for crowdfunding platforms. However, there are disagreements on how this regulation should be pursued, and there are worries that some (small) countries cannot maintain national control over this instrument in the early stage of the funding escalator.