Spell it out! Limited attention and equity crowdfunding success

The popularity of crowdfunding is increasing exponentially. The most novel form, equity crowdfunding, opens the high-risk start-up market for everyone. It is more loosely regulated than, e.g., a public listing, yet it attracts unsophisticated investors. This raises an important question of what are the investment criteria used in equity crowdfunding. In this thesis, I study the effect of limited investor attention on equity crowdfunding success by applying the framework of Hirshleifer and Teoh (2003). The framework models how merely the form of information – in addition to the content – can affect investors’ perceptions, due to limited human attention. The data sample covers 147 equity crowdfunding campaigns listed on Invesdor, a leading platform in the Nordics, since its foundation in 2012 until May 2017. Invesdor operates on an “all or nothing” model, in which companies set a minimum funding target for their campaign. If a company is unable to reach the target, the campaign is canceled, and investments are refunded. The main measure of campaign success is a dummy variable, which takes the value of one, if the target is reached, and zero otherwise. My findings support the framework of Hirshleifer and Teoh (2003) and are in line with studies of limited investor attention in other fields, such as the public stock market. Information saliency and understandability increase the probability of success. More specifically, the logit regression results show that including salient attention-grabbing elements, namely, a video and a graphic representation of growth, improve the probability of campaign success. In addition, the findings suggest that salient, readily available information on the founding team, in the form of members’ pictures and LinkedIn profile links, is associated with an increased likelihood of success. Finally, writing the campaign text in a more understandable format is shown to increase the probability of success. The findings are robust to the inclusion of control variables and hold with alternative measures of success: the percentage of the target amount raised, the absolute amount raised, and the number of investments. The results have important implications for academics and practitioners alike. To the growing literature on equity crowdfunding, this thesis presents novel evidence on the importance of limited investor attention. In addition, my findings suggest that crowdfunding can be used as a new platform to study limited investor attention. Fundraisers can optimize campaign success by including elements that grab investors’ attention, and by providing information in an understandable format. On the flip side, also policymakers should consider investors’ limited attention in the regulation of equity crowdfunding