1 Introduction

Equity crowdfunding is a recent phenomenon, described by Ahlers et al. (2015) as: “a form of financing in which entrepreneurs make an open call to sell a specified amount of equity or bond-like shares in a company on the Internet, hoping to attract a large group of investors”. Those who decide to pledge funds will therefore become shareholders of the start-up, until an opportunity for exit is realized.

Intriguingly, while the literature on other forms of crowdfunding is extensive and accounts for both the entrepreneur and the crowd, research on equity crowdfunding focuses mainly on the entrepreneur (Schwienbacher, 2019) so that there are various studies that explore the variables leading to campaign success i.e. how entrepreneurs can convince equity crowdfunders to invest during the campaign (Ahlers et al., 2015; Lukkarinen et al., 2016; Moritz et al., 2015; Piva & Rossi-Lamastra, 2018; Ralcheva & Roosenboom, 2020; Vismara, 2016). However, equity crowdfunding research cannot be limited to “campaign” success in terms of funds raised (Vanacker et al., 2019). It is essential to explore investors’ perspective, meaning what motivates investors and whether their motives are eventually satisfied. Interestingly enough, this is an area so far largely neglected (Katzenmeier et al., 2019; Mochkabadi & Volkmann, 2020; Schwienbacher, 2019), which deserves exploration also because of the unbalanced relationship between the entrepreneur and the equity crowdfunders.

In fact, in equity crowdfunding, entrepreneurs seem to have the upper hand: they decide the valuation of the start-up, how much to raise, and at which price (Collins & Pierrakis, 2012; Hornuf et al., 2020). Even if during the campaign the entrepreneur shares information with investors (Johan & Zhang, 2020) about the most likely exit channel (Ahlers et al., 2015), there is no real contractual obligation to realize it, also because the start-up’s future is unpredictable (Cassar, 2004). Moreover, equity crowdfunders have very little power to influence the exit strategies e.g. the sale to Venture Capital or to other firms, buyback, IPOs, etc. (Lin, 2017). Finally, equity crowdfunding investors are not contractually protected from damaging entrepreneurial behaviour, given that it is not uncommon for platforms to use sub-optimal contracts that disadvantage the crowd (Schwienbacher, 2019) in terms of voting rights, dividends, and dilution when bigger players enter the shareholding structure (Rossi et al., 2019).

Despite these not-very-promising premises, people have kept pledging funds. According to Fundly (2020), crowdfunded firms have generated a revenue of $6.48 billion in Europe, $17.2 billion in North America, $85.74 million in South America. In the UK, it grew from £0.31 billion invested in 2011 to a record of £9.41 billion in 2019 (Skingle, 2019; Zhang et al., 2017). Moreover, countries previously not allowing equity crowdfunding, opened the opportunities for it by implementing new regulations (e.g. the Title III of the Jobs Act in the U.S.). So, the question arises: what attracts equity crowdfunders and lead them to invest despite so many “negative certainties” and limited “positive uncertainties”?

The literature assumes (Block et al., 2018; Hornuf & Schwienbacher, 2018) and explores (Cholakova & Clarysse, 2015; Estrin et al., 2018; Zhang et al., 2017) the utilitarian investment motivation of equity crowdfunders. In other words, it argues that crowdfunders invest to obtain high financial returns and to diversify their portfolio of investments. However, such motivation seems “irrational” when considering the performance investors have enjoyed so far: a very minor fraction of firms that raised funds via equity crowdfunding went public or paid investors back via buybacks or sale to BA/VC, e.g. only 3% of all UK equity crowdfunded firms (Beauhurst, 2020). However, this does not imply that the largest majority of firms fail, since only 15–20% of them eventually entered the liquidation stage, causing crowdfunders to lose their investment. In fact, insufficient information exists regarding the vast majority of firms that finance their activities via equity crowdfunding, as it remains uncertain how many of them continue to successfully operate without financially compensating their investors, versus how many are “living dead/empty shells” (Beauhurst, 2020; Cumming et al., 2021a, 2021b; Eldridge et al., 2021; Hornuf et al., 2018; Signori & Vismara, 2018; Walthoff-Borm et al., 2018). All in all, evidence suggests that there might be additional nuances to the crowd’s investment decision (Katzenmeier et al., 2019; Lukkarinen, 2019) aside a pure financial motivation. Thus, past research proposed alternatives: Goethner et al. (2021) classifies investors according to their approach and investment strategies (Casual Investors, Crowd Enthusiasts, and Sophisticated Investors) and Feola et al. (2019) claim that investors are more heterogeneous than we think and assign diverse levels of importance to investment drivers. However, little is known about investment motivations of equity crowdfunders (Mochkabadi & Volkmann, 2020), and no framework has been proposed to describe investors’ decision process. The aim of this paper is therefore to develop a framework which explains the dynamics between equity crowdfunding motives, behaviours during and after the campaign, and challenges investors face to materialize motives.

We build our analysis on behavioural finance: “finance with normal people in it, people like you and me” (Statman, 2014), which assumes that investors are not pure rational actors, but are influenced by cognitive errors (i.e. hindsight, overconfidence) and misleading emotions (i.e. thrill, fear). In fact, behavioural finance places fundamental importance on emotions and their role in determining investments made in the context of imperfect information, by investors who are not considered completely rational (Statman, 2014; Wallmeroth, 2019).

We propose a framework where equity crowdfunders are driven by the search for utilitarian benefits (what does the investment do for me and my wallet?), but also emotional benefits (how does the investment make me feel?) and expressive benefits (what does the investment say about me to others and myself?). Moreover, we suggest that expressive benefits have an additional effect on both utilitarian and emotional investment motives by allowing for their “externalization”. The framework encompasses the entire equity crowdfunder experience, comprising both the campaign and post-campaign stages leading up to the exit, if any. We appraise which types of investment motives can be fulfilled at different stages of the investment experience, and the challenges that investors may encounter.

Our framework suggests that the long term success of equity crowdfunding as an alternative source of funds for entrepreneurial firms is going to depend on their capability of satisfying equity crowdfunders’ investment motives in the different stages: lack of investors’ satisfaction due to scarce economic returns can frustrate utilitarian motives; lack of interaction with the entrepreneurs and the platforms, coupled with the difficulty of presenting oneself as expert, supporter of valued projects, or successful crowdfunder can frustrate expressive and emotional motives. The resulting dissatisfaction may compromise investors’ future interest in equity crowdfunding to the point that entrepreneurial firms will not be able to rely on it to raise funds anymore.

2 Equity Crowdfunding Environment

Small firms and start-ups have been recognized as major factors influencing economic growth, job creation, and innovation (European Commission, 2020; Kane, 2010). However, they often encounter problems in accessing early-stage financing (Berger & Udell, 1998; Cassar, 2004; Denis, 2004; Moro et al., 2020). Berger and Udell (1998) identify the opacity of new firms and their limited track record as a deterrent in accessing financing from banks. The 2008 financial crisis (Arrieta-Paredes et al., 2019; Ghulam, 2019) and the recent Covid-19 crisis worsened the situation (Belghitar et al., 2021), as banks decreased their lending activity (Block et al., 2018; Casey & O’Toole, 2014; Pelizzon et al., 2016). Entrepreneurs face difficulties in convincing traditional equity investors, such as business angels or venture capital funds, to pledge capital (Belleflamme et al., 2014), due to their highly selective criteria. Moreover, BA/VC involvement implies reduced independence and the risk of losing control of the firm (Feola et al., 2019), a major concern for entrepreneurs. All in all, the difficulty in obtaining finance and the desire to retain control are considered some of the causes that support the development of novel financing segment, which includes crowdfunding, often referred to as a “democratic” source of finance (Bruton et al., 2015; Harrison & Baldock, 2015).

The literature generally classifies the majority of crowdinvestors as composed by unsophisticated investors, with no accountability and weak rights (Blaseg et al., 2021; Block et al., 2018), pledging relatively small amounts, which make them distinctively different from business angels (Kleinert & Volkmann, 2019). When comparing equity crowdfunders to business angels, the former might be more similar to “lotto investors” or “traders”, as Sørheim and Landström (2001) define those informal investors who have limited knowledge and skills with which to add value to the start-up. Moreover, crowdfunding is open to everyone, whereas angel groups and VC funds are composed by accredited investors with previous relevant experience, who conduct thorough due diligence and monitoring, and use extensive contracts when investing (Cumming et al., 2021a, 2021b; Schwartz, 2015). Also, VCs and angel investors participate actively in their portfolio companies and monitor the management and their investment activity, while that of equity crowdfunders is limited to lower amounts and time spent (Estrin et al., 2018). Moreover, the crowd is very heterogeneous in terms of experiences and backgrounds: both individual and professional investors can participate in the process (Cumming et al., 2019; Rossi et al., 2019), meaning that equity crowdfunding attracts individuals, friends, unknown unsophisticated investors, professional and institutional investors such as business angels and venture capital funds, incubators, etc. (Baeck et al., 2014; Brown et al., 2018, 2019). Thus, it is not a surprise that equity crowdfunders vary greatly in terms of age (< 30 to over 60 years old), academic and professional background, even if the majority are male (Feola et al., 2019; Moritz et al., 2015; Zhang et al., 2017). Investors are also heterogeneous in terms of the size of investments made and the effort put into the investment selection (Cumming et al., 2019; Zhang et al., 2017). Moreover, different countries seem to be associated with different types of investors, some seem to be dominated by unprofessional investors (Estrin et al., 2018; Zhang et al., 2017) while others see the prevalence of wealthier investors (Wallmeroth, 2019).

As far as the platforms are concerned, some of them encourage co-investments between professional investors, notably business angels, and small investors, while other platforms, require accredited investors to open the offering to smaller crowdfunders (Rossi et al., 2019). Moreover, equity crowdfunding platforms are different in terms of investors’ involvement/legal structure, as well as investors’ rights and their status (Hornuf et al., 2020), to say that some of them allow the entrepreneur to issue different shares that carry voting and pre-emption rights for those investors investing amounts larger than a pre-set threshold (Cumming et al., 2019). Some platforms also grant the shareholders cash-flow, control, and exit rights even if it is unlikely crowdfunders exercise their rights because of the transaction costs (Hornuf et al., 2020). There is also heterogeneity in terms of deal structure (Butticè et al., 2020), in particular the choice between nominee and direct shareholding (Cumming et al., 2021a, 2021b; Rossi et al., 2019). Finally, investors are also subject to their country’s regulations in terms of taxation (Cicchiello et al., 2019) since country’s environment and policies can be more or less conducive to investments (Moro et al., 2020) and affect equity crowdfunding investors’ decisions (Gleason et al., 2000).

The heterogeneity of crowdfunders and the crowdfunding environment suggests a varied set of motivations for engaging in equity crowdfunding (Mollick, 2014). Hence, the assumption that the crowd is mainly driven by economic advantage (Block et al., 2018; Cholakova & Clarysse, 2015; Hornuf & Schwienbacher, 2018) is overly simplistic.

Behavioural finance provides a more appropriate framework for understanding the dynamics of equity crowdfunding investors than traditional frameworks that look at investors as rational players (Fama, 1970; Modigliani & Miller, 1958). Grounded in Adam Smith's “Theory of Moral Sentiments” (Smith, 2002), behavioural finance posits that financial decisions are influenced by psychological factors and biases that distort logical reasoning (Kahneman, 1984; Tversky & Kahneman, 1974). Thus, investor are not purely rational actors focused solely on utilitarian maximisation (Fama, 1970; Modigliani & Miller, 1958). In line with a more open approach to investors motivation, Statman's (2017) proposes grouping investment motives/benefits into utilitarian, emotional, and expressive categories. Utilitarian benefits pertain to financial gains, expressive benefits relate to the investment’s reflection of one’s values and identities, and emotional benefits pertain to the investment ability to elicit emotions such as pride, excitement, and hope. All in all, Statman's (2017) framework allows for the expansion of the pure financial approach to incorporate non-rational investor behaviour.

3 Methodology

Our research relies on netnographic approach. We perform the analysis of comments from an online forum. Netnography is a qualitative research approach to social media data developed in the 1990s by Kozinets (2015). Such an approach presents the advantage of conducting research in an unobtrusive way, and so, without a possible detrimental presence by the researcher, who can observe ‘naturally occurring talk and interactions’ without interfering (Bertilsson, 2014). The choice of carrying a netnography analysis and using forum data respects the nature of equity crowdfunding, which does not usually involve direct contacts between investors and/or entrepreneurs, but online interactions only: equity crowdfunders can partially reduce the problem of information asymmetry by developing a community and exchanging opinions (Vismara, 2016). Hence, online data and communities present a fruitful avenue for researchers.

The first step of netnographic analysis involves the identification of a suitable and appropriate online platforms to be used. We started our research by selecting a specific online community: the UK forum community.freetrade (https://community.freetrade.io) and collecting posts. We selected a UK forum as the United Kingdom provides the two most successful equity crowdfunding platforms and is recognized as reference point for equity crowdfunding in Europe: 68% of European equity crowdfunding transactions take place there (Ziegler et al., 2019).

It is important to consider the nature of the data collected, in this case the forum is a free, open, public site, anyone can read the comments posted without the needing to register, as the registration is only needed to post comments, ensuring the access to anyone interested in the theme being discussed. Furthermore, users publish their comments under a chosen pseudonymous and no personal data is accessible to other users, ensuring anonymity. We substituted the pseudonyms used with a user number during both data collection and analysis, and anonymized the names of the companies and platforms the users discuss (the words Company and Platform are used instead). The comments quoted have not been corrected for mistakes, and emoticons are also included in a written format to maintain the tone the users intended (i.e. “:smile:”).

3.1 Data Collection and Data Analysis

To obtain rich and meaningful data we looked at the two biggest threads of the forum. The first thread accounted for 2111 comments from 288 users as of January 2023, while the second showed 661 comments from 157 users. We decided to collect the comments from 20 randomly selected users who posted at least 20 comments across so that we ended up with a total of 1130 comments across the two threads. The sample was considered sufficiently big as it represented 41% of the total comments in the two threads and having at least 20 comments from each investor allowed to have rich data, avoiding the risk of misinterpretation and incompleteness. The comments were analysed to find relevant data to answer our research question: “How can we better understand equity crowdfunders’ investment motives and the challenges to their realization by studying how they talk about their investment experiences online?”.

The research was guided by Statman’s (2017) framework, as a macro-categorization of investment motives, while first order categories and second order themes of motivations naturally emerged from the comments. The analysis follows the established thematic analysis process developed by Braun and Clarke (2006), which is commonly used in netnographic studies (Heinonen & Medberg, 2018), thanks to its flexibility and theoretical freedom. The initial analysis performed with the support of NVivo (1.7.1) resulted in 412 relevant quotes organized across 48 initial codes. During the subsequent rounds of coding, the 48 first codes formed 27 sub-themes, which were grouped into 8 main themes. The themes are here presented in Table 1. The analysis outlined the presence of four themes related to investment motives. The next two themes introduce the behaviours of the crowd before and after the investment, interpreted in line of the investment benefits sought, as well as the two themes referred to the challenges of satisfaction of the investment motives (Table 2).

Table 1 Data Overview
Full size table

4 Equity Crowdfunding: a Framework

Traditional financial theory suggests that investments have an economic motivation: people invest with the hope of ending up richer than they were before the investment. However, more recent research, namely the behavioral finance stream (Kahneman, 2003; Statman, 2017) contends that additional non-economic justifications contribute in investment decision. We argue that this is also relevant to equity crowdfunding investments (Johan & Zhang, 2020). We build our framework by applying Statman's (2017) behavioural finance framework to the realm of equity crowdfunding. Various investment motives and behaviours implemented by the crowd before and after the campaign, as well as the challenges faced to the satisfaction of their investment motives, identified through the netnographic analysis, are presented through representative quotes in the text. A table with additional quotes can be found in the Appendix. Thanks to our findings, we generate propositions to inform future research and practitioners. Finally, we introduce the conceptual framework derived.

4.1 Investors’ Motives

4.1.1 Utilitarian Motives

Cholakova and Clarysse (2015) argue that the motivation to invest in equity crowdfunding is utility-driven and positively predicted by the expectation of financial returns. The reports by Collins and Pierrakis (2012) and Zhang et al. (2017) are in line with their results: 87% of the UK crowd invests to obtain financial returns and 80% for diversification purposes (Zhang et al., 2017). Thus, it is not a surprise that the study by Cholakova and Clarysse (2015) sets the tone for the following research focused on financial motivation, to the point that Block et al. (2018) assume that equity crowdfunding is driven by financial motivations only and implies a passive investment approach. Similarly, Hornuf and Schwienbacher (2018) define equity crowdfunding as “a category of crowdfunding, in which backers expect financial compensation for their investment” – dividends, capital gain, but also the post-investment tax deductions that many countries offer. We find evidence of the role of the utilitarian motives in the forum we analyse, for instance: “as much as I like the mission, return criteria have to fit too” (I14_FR1Footnote 1) or “We are here to make money” (I17_FR1) suggest a clear focus on the financial return. Moreover, it is also important to consider the role of tax benefits and loss reliefs, as a country’s environment and policies can be more or less conducive to investments (Moro et al., 2020) and tax relief schemes to seed investors can be quite substantial (Estrin et al., 2018; Hornuf et al., 2018). For instance, Enterprise Investment Scheme EIS and Seed Enterprise Investment Scheme SEIS are UK government schemes which grant 30 to 50% tax relief and no capital gain tax on profits from the sale of shares after a three years holding period, as well as loss relief which varies according to the individual tax bracket (Cicchiello et al., 2019). The schemes are hence a way to recover part of the investment while waiting for an exit (tax relief) or a part of the losses encountered (loss relief). Investors seem to consider them: “EIS relief is a must unless they are in an existing investment” (I11_TLR1) or “[…] I claimed a tax relief on this dog three years ago” (I18_TLR1). All in all, the forum discussion supports the search for financial return, tax benefits and loss reliefs as important motives for the investors.

Further explanations linked to utilitarian drivers are found when considering the risk profile of those who engage in entrepreneurial activities. Moskowitz and Vissing-Jørgensen (2002) justify the unattractive risk-return of entrepreneurial investments with entrepreneurs’ high-risk tolerance, large additional pecuniary benefits, over-optimism, misperception of risks and a preference towards skewness. In equity crowdfunding, the latter is represented by the enticement towards very small probabilities of extraordinarily high returns, while being aware that the majority of the start-ups they invest in will fail (Estrin et al., 2018), as suggested by I1_HR1: “You need to accept that most of your investment will fail […]” or by I3_HR1: “This is high risk high reward”. This approach is documented in our data as investors both show “High Risk Appetite and Tolerance for Losses”, coupled with the search for the “Unicorn” as pointed out by I2_HR1: “yes they will easily be a unicorn when that happens!” or I12_HR1: “I’m looking for outsize returns […]”.

In addition, behavioural finance explains that how people consider gain and losses is often coded in unexpected ways: “a person who has not made peace with his losses is likely to accept gambles that would be unacceptable to him otherwise” (Kahneman & Tversky, 1979). Thus, serial equity crowdfunders might sustain the loss on most of their investments due to the chance/hope that the next investment might be a unicorn, regardless of the small chance of that happening. The overweighting of small probabilities determines the lottery phenomenon (Tversky & Kahneman, 1992), so that equity crowdfunders might be overoptimistic about the start-ups’ future (e.g. I3_HR1: “Very nice progress and incredibly detailed business plan / path to reach unicorn status by 2026”) and overestimate their skills and abilities in selecting successful start-ups while they misperceive the total risk (“self-efficacy”) (Stevenson et al., 2019). We find various evidence of such bias in our data such as in the case of I2_SE1: “I am also very confident that I will comfortably succeed at this game […]” or I12_SE1: “I’ll invite you to my yacht when this one takes off”. All those considerations lead us to develop our first proposition:

P1: Equity crowdfunders’ investment decisions may be driven by the search for financial benefits or reliefs, or may display high risk appetite, search for Unicorns, or self-efficacy bias.

4.1.2 Emotional motives

Estrin et al. (2018) argue that the willingness to help the entrepreneurs and being part of a project can influence equity crowdfunding investment decisions and Katzenmeier et al. (2019) point at the importance of personal enjoyment and identification. Thus, the crowd might also consider non-utilitarian motives when investing as emotional ones (Statman, 2017).

Emotional benefits relate to “how does the investment makes me feel”. Positive feelings can derive from the investment matching the investor’s values and resulting in emotions as pride, excitement, and hope (Statman, 2019). In an investment setting, the role of emotional benefits should not be underestimated, since non-economic optimal beliefs and intuition are known to drive specific financial choices (Kahneman, 2003): regret avoidance and “hope for great winnings drive people to buy lottery tickets and engage in stock trading” (Pan & Statman, 2012; Statman, 2019). The crowd could also be influenced by the “Fear of Missing Out” (FOMO): “a pervasive apprehension that others might be having rewarding experiences from which one is absent” (Przybylski et al., 2013), for example the fear of missing a potential financially rewarding opportunity in the investment context (Güler, 2021). This aspect is evidenced by I4_FO2: “Any news on the term? I liked the Company but didn’t pull the trigger […] want to know if/how much I should kick myself” or I12_FO2: “I’ve passed the opportunity to invest several times […] making me realise I missed this one”.

According to behavioural finance, non-economic optimal sentiments behind financial choices include fun and excitement: “the thrill of investing” (Statman, 2014). Such feelings seem to be relevant among investors in the forum such as in the case of I2_SFT2: “[…] if they are successful then it’s “Too the Moon”” or I7_SFT2: “It is a mix bag for me but it is fun”.

Past research on business angels also suggests that non-utilitarian, emotional drivers can play an important role as they make the collaboration between entrepreneurs and angels more personal (Sudek, 2006): business angels want to “have fun while making money” and be involved with entrepreneurial ventures (Mason & Harrison, 2002). The search for “fun” affects the investment selection process: Benjamin and Margulis (2000) outline the role of the passionate commitment of entrepreneurs as a powerful tool to motivate investors (Stenholm & Renko, 2016), for example I3_SLE2 states: “I like the pose of Entrepreneur’s-Name the founder – he carries a humility that I love to see in founders […] Entrepreneur’s-Name is absolutely outstanding”. Additionally, leadership capacities, commitment, competence, and capability to take decisions are also highly praised entrepreneurial qualities that drive investment decisions in both equity crowdfunding and angel financing (Landström, 1998; Shafi, 2021), I4_SLE2 argues: “I’ve been thinking more and more about founders and less about the business recently”. Some forum users manifest the importance of supporting entrepreneurs they like when deciding to invest.

A similar emotional driver that may influence equity crowdfunders' decisions is the desire to financially contribute to the development of specific business ideas which investors like, which can generate the feeling of being part of the entrepreneurial community, co-participating in “inventing new products or services” (Cardon et al., 2013), as suggested by I1_SVP2: “[…] the desalination bit was originally the bit that caught my eye […]”. As business angels research states, equity crowdfunders might also search for the personal satisfaction of assisting in building successful ventures (Wetzel, 1983), whose values they share (Statman, 2019), and the feeling of being entrepreneurial and part of a community (Wallmeroth, 2019): “Not going to lie Company ticks alot of boxes: Team […] Eco-friendly, Socially conscious narrative” (I13_SVP2). We hence derive the following proposition:

P2: Equity crowdfunders’ investment decisions may be driven by FOMO, the search for fun/thrill, or the need to support valued projects and/or entrepreneurs/teams they like.

4.1.3 Expressive motives and their reinforcing role

Expressive benefits relate to “what does the investment say about me to others and to myself”, they enable us to signal information about the way we are (our tastes, status) or act, to ourselves and others (Statman, 2017). Academic literature has mostly suggested that crowdfunders are a community of unsophisticated, passive providers of financial resources, with no accountability and weak rights (Blaseg et al., 2021; Block et al., 2018). If we compare them to professional investors like business angels, the former might be more similar to “lotto investors” or “traders”, as Sørheim and Landström (2001) define those informal investors who have limited knowledge and skills. Hence, it might be difficult to believe that the crowd might be driven by expressive benefits when investing. However, the image that equity crowdfunders have or want to project of themselves can be very different from the one described. They can see themselves as benefactors, supporters of entrepreneurship and innovation, socially responsible investors, or “business creators” and “co-creators” (Landström, 1998) and expect to be recognised as such by others. For instance, I11_ID3 discloses: “I’ve invested in Platform £317,502.80 in 224 companies and Platform £57,517.30 in 18 businesses […] I calculate that I’ve lost around £30k”. Particularly, crowdfunders can choose to signal their investors’ status by sharing the investments they have made with other investors, and predictably, a forum is one of the best places where to disclose them: “Yeah, I invested, I was just reading the update. It’s cool that they now have commercial products on the market” (I8_ID3). More generally, 15 out of the 20 users selected choose to do so, both in terms of projected successful investments, as well as failures, and few users share their entire investment portfolio.

Therefore, irrespective of their different investment experience and amount invested, business angels and equity crowdfunders may share the idea that, as first supporters of start-ups, they play a key role in the economy by selecting those firms that deserve support, as mentioned by I2_SC3: “I think it is ingenious and could potentially save the WHO billions […]”. Business angels’ choices are found to be highly impacted by the opportunity of creating employment (Wetzel, 1983) and they are considered investors who can be driven by a feeling of social responsibility (Wright, 2017) and acquire the status of “angels”. It would make sense for equity crowdfunding investors to think of themselves in a similar way: enablers of the development of businesses and society, thanks to their financial contribution:“[…] We’re moving to a cashless society. It delivers good ROI for charities” (I19_SC3).

Furthermore, since equity crowdfunders represent the shareholders of the start-up, they can see their investments as an indication of their social status and wealth (Statman, 2019). Past research on other crowdfunding types such as donation crowdfunding has also identified the importance of altruistic motives driven by egoistical feelings: donors might have a deep need to help others, but the donation act itself can be self-beneficial as it provides public recognition, social identity or status and positive psychological feelings (Moysidou, 2017), such as being included and respected by the community (Statman, 2019). The importance of recognition and image creation was outlined in research on Innovestment, the German crowdfunding platform for sustainable investments (Bretschneider & Leimeister, 2017). Evidence of this is found in two main forms in the forum. On one hand, a few members become a reference point to the community and take initiatives as the creation of a new community for investors and provide information on future campaigns. I13_ER3 argues: “If anyone has found my posts in this thread helpful and would fancy more like it in a dedicated site, please do let me know […] I think it’d be awesome if we were in a position where as a community we could effectively encourage companies to crowdfund!:astonished” and “Just wanted to say I’m grateful for all the support, and I mean each and every DM, reply or like, it’s definitely the encouragement/reassurance I needed, now in ‘let’s do this’ mode”. On the other hand, many members also construct an image of themselves as “equity crowdfunding experts” through their engagement in the forum: “Property is a massive no no for me along with ALL drinks companies in the crowdfunding sphere! Although I do predict success for Company1 with failure for Company2!”( I2_ER3). Thus, we argue:

P3: Equity crowdfunders’ investment decisions may be driven by investors´ desire to disclose the investments made, be perceived as contributors to the society, or recognised as “experts”.

4.1.4 The Reinforcing role of expressive motives

The quotes presented outline the importance of expressive motives, however they also suggest that expressive motives play a relevant supporting role to utilitarian and emotional motives. In fact, it is not always possible to label a decision as only utilitarian, emotional, or expressive, but the benefits are related to each other and part of single investment decisions (Statman, 2019). Emotional motives such as supporting entrepreneurial teams that investors particularly care for, or projects they value, can also have an expressive dimension: seeing and presenting oneself as the “start-up backer” for successful projects they identify with, and therefore obtaining both personal and public recognition (e.g. I13_REM4: “I think some great businesses have crowdfunded this year, e.g. my personal 2019 favourites: Companies”). Some quotes embed both expressive and emotional benefits, hence, while the two concepts of emotional and expressive benefits can be differentiated at a theoretical level, they often have overlapping manifestations (Statman, 2019). Additionally, utilitarian motives can have an important expressive component when satisfied: to flaunt among friends, colleagues etc. about the successful investment or the expectations of high future gains (e.g. I12_RUM4: “that’s a 5X return in 18 months in theory and their trajectory is exciting”). Thus, we argue that in addition to their direct role, expressive motives play a supporting role to utilitarian and emotional motives:

P4: Expressive motives reinforce the role of utilitarian and emotional motives, allowing for their “externalisation”.

4.1.5 Satisfying the Motives

Equity crowdfunding investments may find satisfaction at different moments in time. Since past literature has mostly focused on the campaign stage in order to identify the variables leading to the campaign success (Ahlers et al., 2015; Lukkarinen et al., 2016; Moritz et al., 2015; Piva & Rossi-Lamastra, 2018; Ralcheva & Roosenboom, 2020; Vismara, 2016), the period after the campaign has been so far largely neglected. However, it is important for the investors: utilitarian benefits are only realised in case of successful investment after the campaign, while emotional and expressive benefits may find satisfaction both during and after the campaign.

4.1.6 Campaign stage

During the campaign stage, potential investors scan the investment opportunities presented by the platforms, evaluating the firms that have launched an equity crowdfunding campaign. Initially, there is no immediate utilitarian benefit investors can enjoy: they will mostly wait to see whether the firm will be able to raise the requested amount of money and the project will go ahead (Dushnitsky & Zunino, 2019). In this stage there is only an “utilitarian commitment”: the investor pledged to provide the funds if the start-up is successful in reaching the targeted amount.

At the same time, emotional and expressive benefits have a chance to be realised. There can be emotional benefits linked to the thrill of the investment: enjoyment in looking at entrepreneurial firms, becoming aware that it is possible to contribute to their development, or the satisfaction of going through the documentation submitted by the firm and the opportunity to analyse it, even to cross check whether the figures/expected performance are realistic (Zhang et al., 2017). Expressive motives can be satisfied because a potential investor may see oneself as an “expert” in evaluating and assessing the firm (e.g. I9_EO5: “I suggest you guys check the EY Audit in Platform section, page 25: of the £100m of revenues, £35m come from penalties to customers. Personally, I would not like to invest in a company with low ethical standards”), or by discussing the start-up prospects among each other (e.g. I3_DEO5: “Anyone here invest in Company?” or I2DEO_5 “Company on Platform looks interesting. Any thought? I like it.”). Investors are able to discuss topics such as: “valuation, financial snapshot, likely returns, shareholder rights, and market risk” (Kleinert & Volkmann, 2019). They can contact the entrepreneurial team directly: “After a direct connect from the CEO, I’m currently having a serious look […]” (I3_CET5), or through the platform discussion board: “I’ve posted a bunch of questions so let’s see…” (I1_DB5). Hervé et al. (2019) also found that crowdfunders with high social interactions tend to invest more. Furthermore, these behaviours generate word of mouth and information cascades which may convince undecided investors and attract new ones (Vismara, 2018), increasing the probability that the campaign will reach the target amount. This can both provide emotional and expressive satisfaction, particularly if the investors’ interaction is responsible for herding behaviour (Estrin et al., 2018): other crowdfunders are influenced to invest making the campaign successful. While the opposite is also important, crowdfunders capable of distinguishing the “lemons” (Akerlof, 1970) from the good companies through due diligence, can become reference points to the community.

We find four main behaviours expressed by the crowd during the campaign phase: contact entrepreneurial team and use of discussion boards to obtain more information about current raises, discussion among each other (most frequent behaviour) and presentation of “expert” opinions (see Appendix for additional quotes). The behaviours are in line with the satisfaction of emotional and expressive motives, and the reinforcing role of the last.

P5: During the campaign stage, equity crowdfunders may find satisfaction of their emotional and expressive motives.

4.1.7 Post-campaign stage

Once the investment is done, the crowd and the start-up enter a new phase, characterized by waiting, expectation, and in some cases, contact and involvement. They can assume a proactive role towards the start-up, for instance by promoting it (e.g. I2_BA6: “I’ve invested twice in Company great team and great product […]”), or remain passive throughout the investment, waiting to see how it will turn out (Hornuf et al., 2020). If crowd investors tried to establish a contact with the management after the investment (e.g. I3_CE6: “[…] I met Entrepreneur in San Francisco early this year and everything they are doing is so polished and profesh […]”), choosing to be active and participative, they would have the chance to add potential value to the start-up and satisfy their investment motives. Their participation and involvement could help achieving utilitarian motives and increase the chances of obtaining a financial profit, when the investors are in a position to favour the start-up success by offering their professional experience, introducing personal network contacts, or by acting as a brand ambassador on social media and introduce new investors to the start-up (Di Pietro et al., 2018). However, as shown by previous quotes, such behaviour could also fulfil non pecuniary returns due to the emotional and expressive benefits resulting from participating to the entrepreneurial process, exchanging ideas and receiving public recognition (Reis et al., 2000). Hence, it may be very important for equity crowdfunders to be able to interact with the firm’s management or other investors (Brown et al., 2018; Moritz et al., 2015; Wald et al., 2019). In our data, we find that the crowd assumes four main kinds of post-campaign behaviours, ranging from a simple monitoring of the companies they invested in and sharing the news found (e.g. I3_MNS6: “I received the details of the VC / Series A raise […]” and “Happy to share any info I get […]”), to an active promotion, and there is some evidence of brand ambassador activity (e.g. I3_BA6: “Company launching second round of funding on Platform 1. […] Very impressed w leadership team who could take this to a very exciting place and exactly what gets me excited about crowdfunding…”.

Furthermore, the forum is used as a place where to enquire for information about the situation of the investments and ask for guidance (e.g. I12_AG6: “Is anyone else here an investor in Company? They’re currently 15X and offering us to sell 50% stake. Just wondering what anyone else is doing?), while part of the crowd searches for a direct contact with the entrepreneur, or the crowdfunding platform in case of investment issues, as I1_CE6: “I have emailed both Platform and the Company CMO (I had his email) to ask […]”.

Given the data, we hence propose that the crowd has the opportunity of satisfying emotional and expressive motives by interacting with each other, the entrepreneur, and the platform:

P6: During the post-campaign stage, equity crowdfunders may find satisfaction of their emotional and expressive motives via interaction.

However, the post-campaign stage can be very eventful for crowdfunders. In fact, it is in this phase that they realise if they made the right choice to trust the entrepreneurs financed. The challenges faced by the crowd are not only to the satisfaction of their utilitarian motives (will the investment succeed?), but also to their emotional and expressive motivations, and so, how the investment experience makes them feel and how that can influence the perception that they have of themselves as equity crowdfunders.

For example, Moritz et al. (2015) find that entrepreneurs rarely use direct personal communication channels with crowdfunders, since engaging with them can be very time-consuming, and lead to “information congestion”, which concerns the entrepreneurs (Brown et al., 2019; Cumming et al., 2021a, 2021b). Bessière et al. (2019) show that in the event of co-investment between equity crowdfunders (with no voting rights, through a nominee platform) and business angels (both through a dedicated platform and single investments), the latter are the sole party having an active role after the financing round is concluded. Hence, a lack of involvement and control over their own investment could be detrimental to the satisfaction of emotional and expressive motives. (e.g. I2_LEC7a: “They are still trading, but do not reply to messages nor give updates […]”) and generate some frustration (e.g. I20_LC7a: “Shareholder investors sold down the river. You have to be so careful with start-ups”).

In fact, another main distinction between the satisfaction of utilitarian and expressive or emotional motives is that the first will be satisfied in case of a financially successful investment, whereas the latter can find realization even in case of failure of the companies financed, given that the crowd considers the experience worthy. For this reason, we argue that the investment in equity crowdfunding presents specific challenges linked to a lack of communication and control (e.g. I2_LPC7a: “And nor a single word from Platform to let investors know about their investments”) and control (e.g. I2_LC7a: “[…] if Entrepreneurs let us know what wages they are taking […]” or I4_LC7a: “far too many companies raising Millions from crowdfunding on to go into administration months later having used the funds to pay back director loans”), which are the main determinants of unsatisfaction of emotional and expressive motives.

The lack of control perceived by the crowd has important implications also regarding the unsatisfaction of utilitarian motives, as it is linked to the three main challenges found to the satisfaction of utilitarian motives: lack of monetization, early exit and finally, investment failure. Lack of monetization relates to the impossibility for the crowd to sell their shares (e.g. I1_LM7b: “Paper money is nice. Real money will be nicer” or I10_LM7b: “Missed an opportunity with Company in 2020 to sell the shares back to the founder; have had no updates from the Company since”). Very few platforms offer a secondary market for pricing or exit, which makes the equity crowdfunding market very illiquid (Rossi et al., 2019) and difficult for investors to realize any financial return, regardless of whether the start-ups have thrived (Lin, 2017). Secondly, equity crowdfunders often have poor contractual power (Rossi et al., 2019; Schwienbacher, 2019), hence they constantly face dilution and have no possibility of opposing an exit, even if they think it is not in their best interests. Finally, past research suggests that, the majority of exits are bankruptcies (Eldridge et al., 2021), even if the percentage is relatively low (around 18%). Nevertheless, the returns obtained are not necessarily in line with investor expectations (e.g. I8_EE7b: “I was particularly disappointed by Company, seemed like they were on to a winner and they sold for ~ 1.7X It felt like the initial risk wasn’t worth it for that”), and investors complain about the failures they face that they perceive as higher than the official ones (e.g. I12_IF7b: “9 out of 22 companies I’ve invested in have stopped trading” or I18_IF7b: “Up to 7 now. 7 failure in three weeks! And only a few have bothered to tell investors directly”). Moreover, in the UK market, only 3% of equity crowdfunded firms have reached an IPO or a successful acquisition (Beauhurst, 2020), hence the satisfaction of eventual utilitarian motivations seems low. Thus, we derive the following propositions.

P7a: The lack of platform/entrepreneurial communication or control may compromise equity crowdfunders’ satisfaction of emotional and expressive motives.

P7b: The lack of monetization, the presence of early exits and high rate of investment failures may compromise equity crowdfunders’ satisfaction of utilitarian motives.

Finally, we summarise the framework that explains the dynamics of equity crowdfunding in Fig. 1, which shows how the three types of motives might influence the crowd’s behaviours during and after the campaign. We also include the challenges that equity crowdfunders might face during their investment experience, which could determine the lack of satisfaction of the investment motives.

Fig. 1
figure 1

Timeline and Framework with Propositions about Equity Crowdfunders’ Investment Decisions

Full size image

5 Conclusion

Equity crowdfunding provides entrepreneurs with financial resources and control, as well as the freedom to decide repayment terms. Past literature mostly focuses on the benefits for entrepreneurs, stating the positive effect of helping to solve the financial gap start-ups face (Lehner et al., 2015; Wang et al., 2019), but fails to explore the psychology of the crowd including potential challenges during the post-campaign phase and how their experiences may shape future investment decisions (Cumming et al., 2021a, 2021b).

Based on behavioural finance and the analysis of forum data, we propose a framework that explains the dynamics between equity crowdfunding motives, behaviour during and after the campaign and challenges investors face to see their motives fulfilled. We explain that investors motivated by utilitarian goals may find the post-campaign and exit stages very challenging due to the lack of control over recovering their investment and receiving remuneration. On the other hand, equity crowdfunders may find satisfaction to their expressive motives thanks to the possibility of 1) disclosing they invested in a great idea, which positively impacts society, 2) giving advice to other investors, and 3) interacting with the start-up community. Furthermore, emotional motives might be satisfied thanks to the thrill/fun that the investment process generates, the possibility of dialoguing with the entrepreneur or supporting a project that they think is valuable, even if there is no exit or financial remuneration.

Expressive and emotional motives may still be partially satisfied independently from the entrepreneur and even in the case of venture failure, as long as investors supported the project based on its moral or ethical values, or on its social and economic impact. In this case, satisfaction would arise from the moment of the investment decision and will last during the campaign. Nevertheless, the satisfaction of emotional and expressive motives could be challenging if tied to a direct interaction between investors and the start-up community and the entrepreneur or the crowdfunding platform do not allow or care for it. As seen, a perceived lack of control can also negatively impact future investment decisions.

These reflections take us to the major implications of our work and their relevance to practitioners in the field. If investors are primarily driven by utilitarian motives, and platforms do not properly support the exchange of shares or entrepreneurs do not remunerate them, they may not invest in equity crowdfunding again in the future because of lack of financial satisfaction: “Equity crowdfunding is dead. Long live to equity crowdfunding” (Silchenko, 2015). On the contrary, if investments are mostly driven by emotional and expressive motives, the success of equity crowdfunding may depend on the ability of entrepreneurs and platforms to satisfy these motives through effective communication and community-building tools (Mochkabadi & Volkmann, 2020). The presence of online forums where equity crowdfunders meet each other and discuss their investments suggests the importance of emotional and expressive motives.

Our framework also outlines the major issues that equity crowdfunding is facing, suggesting the importance of appreciating the diversity of motives driving investment decisions (utilitarian, emotional, expressive) and their relative weight (Statman, 2017), as well as understanding equity crowdfunders opportunities to see motives satisfied. The analysis done leads us to the question: are entrepreneurs and equity crowdfunding platforms acting to provide satisfaction to investors? Failure to do so may result in the demise of equity crowdfunding or its marginalisation as a source of finance for firms. Secondly, can we develop metrics that can measure investors’ expectations and their satisfaction? Further research, by exploiting past inventories, can try to develop an inventory that catch investors’ expectations as well as their satisfaction. By having a clearer idea about investors opinions, both entrepreneurs and platforms can better adjust their behaviour. Thirdly, how can entrepreneurs and equity crowdfunding platforms develop tools that address the satisfaction of investors’ motives? Further exploration of communication/involvement tools that allow for the satisfaction of the desire for interaction (Brown et al., 2019; Di Pietro et al., 2018; Moritz et al., 2015) and address expressive and emotional motives is needed.

Existing research on equity crowdfunding has reached an intermediate stage: a period of transition from nascent to mature research, where experimentation is well underway, but there is no stable model as a sole reference point (Bessière et al., 2019). Further research is necessary to deepen our understanding of the drivers of equity crowdfunding. Only a greater knowledge of the phenomenon can allow us to make a better use of this tool and avoid the risk of its disappearance.