KYC : Know your crowd

What gathers investor participation in equity crowdfunding

The formulaic advice endorsed by veterans and experts alike for success in garnering attention is “Know your hearing”. Be it public speaking or marketing campaigns, the better you know your audience, the more effectively you can create appealing ideas and formats. And thereafter position, place, and promote those ideas. The more sophisticated your knowledge and awareness, better is the campaigns and performance of efforts.

And this is raising capital in an equity crowdfunding campaign, as well. Entrepreneurs have to convince the investors of the viability of their business idea. So you and your presentation need investors and investors. The first step to achieve this is to have an understanding of the generic motivation of investors. So that you can leverage for your advantage.

Crowd’s motives to invest via an equity crowdfunding campaign

The crowd has four main motives for participating in crowdfunding – intrinsic, social, goodwill and financial motivations. The driving force being a combination of these motives. Participants in crowdfunding campaigns typically support the underlying idea or cause. They are willing to pay and benefit the.

Ethics, social belonging, goodwill, charity, and innovation drives participation in donation and reward-based crowdfunding. While financial returns are a motive in equity crowdfunding.

However, it is more than just financial gains motivating investments in equity crowdfunding. These investors also have a desire for social partnership with entrepreneurship and an innate preference for certain products, services or business ideas.

According to research, many investors are not seeking financial gain or seeking the next ground-breaking innovation. Rather, it is the preference to experience entrepreneurship, with limited risk exposure.

The research was carried out in the Department of Business at Lappeenranta University of Technology (Finland) in 2016. It covered 86 responses from participants ranging from 25 to 55 years of age. People younger than 25 years of age to lack resources to invest, whilst older than 55 years of age prefer traditional investment methods. Most respondents (64%) were familiar with equity crowdfunding. And the sample group also had more than average experience in equity crowdfunding.

Game of Gender

Research shows that 93% of equity crowdfunding investors are men, mirroring the commonly observed gender disparity in financial markets. Women and men have different risk attitudes – women invest less in riskier investments, in numbers and amounts per campaign. Women are more sensitive to social communication and are more likely to form personal relationships online than men.

Differences in risk preference better explain investment choices in crowdfunding. Gender, however, doesn’t influence the outcomes of investment choices, i.e. campaign success in relation to the declared funding goal.

The research titled, ‘Investor Motivations in Investment-Based Crowdfunding’, was a collaborative study amongst academia (the University of Burgundy, St. Etienne, and Lille) and the industry (WiSEED). It covered 107 campaigns (81 equity campaigns and 26 real estate campaigns) done by 64 different start-ups and 26 real estate projects on WiSEED. The data was complemented with other sources of information, such as the French National Statistical Agency (INSEE).

There is no doubt that investors have just financial motivations. There are a number of factors that influence the decision-making process.