1 Introduction

Many studies highlight the existence of a financial gap for start-ups, which undermines their ability to develop and evolve growth (OECD, 2004). Furthermore, the financial crisis of 2008–2009 exacerbated this issue by worsening the financing conditions. However, the technological, social, and cultural changes and the growing phenomenon of disintermediation contributed to the emergence and expansion of alternative sources of financing outside the traditional financial system (Block et al., 2018). Crowdfunding is one of those alternatives that has begun to assert as a popular method of obtaining funding for start-ups and small and medium-sized enterprises (hereafter SMEs). While crowdfunding encompasses various models, such as donation, reward, lending, and equity, this paper specifically concentrates on equity crowdfunding (hereafter ECF), recognized as the most complex and structured crowdfunding model.

Since its emergence, in the past decade, the crowdfunding industry has experienced remarkable growth worldwide.Footnote 1 At the same time, academic interest in this field also increased significantly. Currently, the literature on crowdfunding spans a broad spectrum of topics and continues to expand. For instance, as for July 2023, a search within Scopus database, limited to the areas of Business, Management and Accounting and Economics, Econometrics and Finance, has yielded over 2300 articles that included the term “Crowdfunding” in their title, abstract, or keywords. Even when focusing specifically on “Equity Crowdfunding” or “Equity-based crowdfunding”, there are 287 articles, with 185 (64%) published in the last three and a half years (since 2020). Indeed, maintaining up to date knowledge in this domain poses a challenge for scholars. Consequently, the assembly of comprehensive research, outlining key findings, assumes paramount importance for the advancement of academic knowledge concerning this innovative start-up funding method. Furthermore, it holds substantial value for entrepreneurs who must decide when ECF might offer advantages over conventional start-up funding sources and which platform model aligns best with their specific needs.

Investing in ECF typically involves three distinct phases. The first phase, known as the pre-investment phase, is where entrepreneurs must make crucial decisions regarding the most suitable source of financing and select the appropriate ECF platform model. Additionally, during this phase, platforms curate and select projects for presentation to potential investors. The second phase centres around the campaign itself. At this stage, entrepreneurs and platforms work together to ensure the success of the campaigns and secure project funding. Meanwhile, investors aim to make informed decisions to maximize their investment returns. The third and final phase pertains to post-campaign performance, which includes metrics such as bankruptcy rates, subsequent financing, and overall company growth.

Given the extensive body of literature on equity crowdfunding, compiling all the information into a single article poses a significant challenge. Therefore, in our opinion, it is advisable to segment the literature review. This approach allows us to focus on each phase individually, as they comprise distinct sets of questions. Specifically, in the first phase, the research questions revolve around comparing ECF with VC/BA, understanding why entrepreneurs choose ECF over other sources of funding, and determining how to select the most suitable platform for ECF campaigns. In the second phase, the primary research question pertains to the determinants of success in ECF campaigns. Finally, in the third phase, the main research questions centre on post-ECF campaign outcomes, including firm failure rates, growth trajectories, and follow-on funding. In our paper, we focus on the first phase because that’s where entrepreneurs make the initial decisions. These decisions shape what happens next with the venture during and after the campaign. As the consequences significantly differ from the usual funding sources like venture capital or business angels, these discrepancies must be recognized when the entrepreneur makes those initial decisions.Footnote 2

We adopt a systematic literature review approach because it is defined as appropriate to “synthesize research findings in a systematic, transparent, and reproducible way” (Snyder, 2019, p. 334). It is also considered the most efficient method to identify and review extensive literature (Tranfield et al., 2003). Following the guidelines for a systematic literature review proposed by Tranfield et al. (2003), the first step was the identification of the keywords and search terms. We use the search terms “Equity crowdfunding”, “Equity-based crowdfunding”, “Crowdinvesting”, and “Crowd Investing” because these terms are used interchangeably in the ECF literature. For selecting the studies for the literature review, we used two relevant bibliographic databases: Web of Science and Scopus.Footnote 3 We limited the search to English documents and published articles (or early access) because we wanted to focus on peer-reviewed contributions. We excluded book chapters, conference papers, and trade journals because of the difficulty in assessing if they were peer-reviewed. As we are only interested in economics and finance topics, we restricted the subject areas to Business, Management, Economics, or Finance. According to these criteria, we found 241 documents from the Web of Science and 287 from the Scopus database. After excluding the duplicates of both reference databases, our preliminary list consists of 269 papers. Then, to ensure that equity crowdfunding is the paper’s main topic, we excluded those that do not have the exact phrase or synonym of search terms within their title, keywords, or abstract. We also excluded editorial and literature review papers to restrict the analysis to theoretical and empirical studies about equity crowdfunding. Finally, as our primary interest is in the ECF pre-campaign, we selected only the papers related to this phase. According to the described research protocol, we selected 65 papers for the literature survey on the pre-campaign choices of entrepreneurs interested in ECF.Footnote 4

The remainder of this paper is organized as follows. In Section 2, we compare the ECF with traditional funding sources for start-ups, highlighting the main differences between venture capital and business angels investors (VC/BA investors) and crowdfunding investors. In Section 3, we address why and when entrepreneurs prefer ECF to traditional funding. In Section 4, we analyse the different models of ECF platforms. Before concluding the paper, in Section 5, we provide insights into potential directions for future research.

2 Comparison of ECF with traditional funding sources for start-ups (VC/BA)

2.1 Asymmetric information, adverse selection, and moral hazard

Equity crowdfunded firms have characteristics of both public and private equity firms (Cummings et al., 2020). As public firms, they have many small investors, and as private firms, the entrepreneurs retain a large share of the equity (Cumming et al., 2021a, b). The high dispersion of capital implies that small shareholders have little incentive to monitor the firms (Hart, 1995), and many agency problems may arise from the inherent separation of ownership and control (Shleifer & Vishny, 1997). Crowd investors do not have the same experience and knowledge to evaluate business plans and select projects/start-ups as venture capitalists and business angels (Ahlers et al., 2015). Furthermore, given the small investment amounts, the resources (time and money) needed to perform complete due diligence and monitor projects are much higher for crowd investors (Agrawal et al., 2014).

Thus, while VC/BA focus on their expertise and due diligence procedures to select the ventures to fund, some argue that crowd investors use a different selection mechanism, namely the “wisdom of the crowd” (Cumming et al., 2021a, b; Surowiecki, 2004; Walthoff-Borm et al., 2018a, b).

The principle of the wisdom of the crowd (Surowiecki, 2004) posits that the crowd possess diverse sources of information and expertise, surpassing that of any individual, including experts. This collective knowledge can be effectively used through group decision-making processes (Schwienbacher & Larralde, 2012), contributing to the mitigation of information asymmetries in equity crowdfunding. As highlighted by Vismara (2018), early bids attract later investors, suggesting that undecided investors observe the behaviour of early investors to make their investment decisions. This phenomenon, known as observational learning, suggests that early investors transmit a relevant and positive signal to late investors, which could be a rational decision in the context of ECF. Since investors often contribute small amounts, the costs of thoroughly evaluating each firm can be disproportionally high. Additionally, many investors lack the qualifications to distinguish between good and weak projects. Therefore, it becomes rational for investors to observe and use the information about the behaviour of previous investors to inform their investment decision.

However, problems related to information manipulation can arise when dealing with information cascades. Like other digital finance markets, ECF investors can retract their bids within a specified time limit. In ECF, given the visibility of bids online, this investor’s right can be exploited to manipulate the information accessible to investors and shape their investment decisions. Meoli and Vismara (2021) found that withdrawals of investments in ECF are frequent before the end of offerings, particularly among members of the crowdfunding platform. This trend is accentuated in low-quality offerings, suggesting that early bids are strategically employed to influence campaign dynamics and boost subsequent bids.

Walthoff-Borm et al. (2018a, b), comparing crowdfunded firms with non-crowdfunded firms, find that both groups show similar post-campaign profitability. However, contrary to their expectations, failure rates are higher for crowdfunded firms, suggesting that the “wisdom of the crowd” does not overcome the adverse selection issues. Thus, given the lack of clear empirical evidence that the “wisdom of the crowd” is an effective way to reduce adverse selection and moral hazard costs, Cumming et al. (2021a, b) highlight the need for the use of other governance mechanisms to deal with such problems. For instance, in addition to the regulatory framework of equity crowdfunding (e.g. investor protection laws), the platform model plays a relevant role in this context. On the one hand, platform due diligence can be an effective governance mechanism to mitigate adverse selection problems. Given the reputational concerns, excluding low-quality projects from the listing is in their interest. On the other hand, the nominee structureFootnote 5 used by some platforms (instead of a direct shareholder model) can be more effective in dealing with moral hazard issues because in this model, the shareholder dispersion and the coordination costs are reduced, and the free rider problems among individual crowd investors are avoided. There are also some hybrid crowdfunding platforms (e.g. SyndicateRoom and AngelList) that combine a lead investor with the crowd. The lead investor (professional investors, such as a business angels or a venture capitalist) must invest a minimum percentage of the round (e.g. 40% in SyndicateRoom), negotiate the terms of the campaign (firm valuation, funding target, etc.), and use their expertise to conduct due diligence and monitoring the investment. The crowd investors receive the same financial terms as the lead investors. These hybrid crowdfunding platforms combine the advantages of professional investors (expertise, ability, and resources to conduct due diligence and monitoring) with the “wisdom of the crowd” and could be an efficient way to reduce the information asymmetries problems, such as adverse selection and moral hazard (Agrawal et al., 2016).

2.2 Geographic and entrepreneur’s diversity

Many studies on VC/BA suggest that entrepreneurs and funders tend to be close geographically, as it facilitates the identification of opportunities, the assessment of entrepreneurs’ reputation, and the conduction of due diligence and monitoring in post-investment (e.g. Lerner (1995) and Van Nieuwerburgh and Veldkamp (2009)). While some suggest that ECF platforms tend to cluster in financial centres within regions (Rossi & Vismara, 2018), crowdfunding platforms possess characteristics that can potentially mitigate market frictions associated with geographical distances (Agrawal et al., 2015; Cumming et al., 2021a, b; Guenther et al., 2018). According to Agrawal et al. (2015), there are three reasons for it. First, as projects are published online, it is easier to find new investment opportunities. Second, given the small contributions, the investment risk and the need for monitoring are reduced. Third, the information problems could be reduced by platforms’ (standardized) information about projects and funders. However, even if crowdfunding reduces the geographical constraints of investments in start-ups, it does not eliminate all of them. According to Bade and Walther (2021), the limited capacity of investors to process information, especially in ventures with more significant information asymmetries (such as young ventures) and the need to allocate their scarce attention resources to selected campaigns increase the likelihood that they will invest in local ventures. Thus, empirical literature continues to identify a local bias in equity crowdfunding investments, noting that the sensitivity to distance depends on investor’s profile. For instance, Guenther et al. (2018) find empirical evidence that while overseas investors are not sensitive to distance, that is not so evident for home-country investors. Hornuf et al. (2022) suggest that crowdfunding investments tend to display a local bias, even when accounting for investors with personal connections to the entrepreneur. However, angel-like investors and individuals with personal connections to the entrepreneur exhibit a more pronounced local bias compared to more experienced investors who maintain a more diversified ECF portfolio. They also demonstrate that investors who predominantly allocate their investments to local companies tend to choose start-ups that face insolvency more frequently, suggesting that certain local ECF investments may represent a behavioural irregularity rather than a rational preference. Moreover, local bias is also detected in the pre-investment phase of ECF investments, as the geographic distance between the firm and the platform’s location affects negatively the likelihood of projects being launched in the ECF platform (Zhang et al., 2019).

Prior literature also suggests the existence of gender and race gaps in entrepreneurial finance, showing evidence of higher constraints on access to capital for businesses owned by a woman (Coleman & Robb, 2009; Greene et al., 2001) and by black person (Fairlie & Robb, 2007). However, some argue that ECF can help the democratisation of entrepreneurial finance. For instance, Cumming et al., (2021a, 2021b) compare two samples of equity offerings, one sample of ECF campaigns from Crowdcube and another of IPOs from London’s Alternative Investment Market (AIM) and provide some evidence that underrepresented groups of potential entrepreneurs on traditional stock markets (e.g. IPO) use ECF. They find evidence that companies with younger team members are more likely to launch ECF offerings than IPOs and that ECF alleviates some distance-related economic friction between entrepreneurs and investors. However, while they do not find evidence that female entrepreneurs have higher chances of successfully raising capital in ECF than in an IPO, the research shows a higher sensitivity to ethnicity from small investors relative to professional investors, as minority entrepreneurs are associated with a higher number of investors. Nevertheless, empirical research about the relevance of gender on ECF is not consensual. While some suggest a limited impact of women-owned start-ups in the democratising access to capital access in the ECF (Andrieu et al., 2021; Geiger & Oranburg, 2018; Malaga et al., 2018), others suggest that gender gap may be reversed in the context of crowdfunding, even if women’s advantage could be weaker in later development stages of ventures (Zhao et al., 2021). However, given the relatively recent emergence of research on gender in the context of ECF, some argue that certain factors may not have been considered yet. For instance, Kleinert and Mochkabadi (2022) find evidence that the increased challenges female entrepreneurs encounter in obtaining funding are not solely determined by gender. These challenges also depend on how quality signals related to entrepreneurs are perceived. They observed that established quality signals, such as managerial experience, predominantly benefit male entrepreneurs, whereas media coverage serves as a more influential signal for female entrepreneurs. In a different perspective, Prokop and Wang (2022) examined whether the gender impact remains consistent in both early and later campaigns. He found that the gender of the firm’s managing director does not influence significantly funding outcomes in initial ECF campaigns. However, a gender gap is observed in seasoned ECF offerings, with female manging directors tending to raise less capital from crowdfunding investors compared to their male counterparts (Prokop & Wang, 2022).

2.3 Type of investors and its contributions for start-up growth

Some argue that small investors may benefit from the presence of large institutional investors who can contribute to the selection, monitoring, and management support of investment opportunities (Hornuf & Schwienbacher, 2018b). Although one of the disadvantages highlighted in ECF is the opportunity costs associated to the advantages of professional investors (Agrawal et al., 2014), there is evidence that crowd equity investors can also enhance the performance of start-up firms, providing insights related to product development, defining business growth strategies, assisting with market expansion, sharing market knowledge, and facilitating access to networks and industry players (F. Di Pietro et al., 2018). However, it is important to note that the extent of these benefits may vary among start-ups and it is contingent upon the characteristics of the start-ups and their founders. While most crowdfunding investors demonstrate some level of involvement with the start-ups they invest in, the extent of their involvement varies. Garaus et al. (2020) found evidence that the majority of crowdfunding investors participate in low-involvement activities, such as word of mouth to promote the product or the company, buy the product or service, and provide feedback. However, there are also some investors who take part in high-involvement activities, such as providing strategic advice or feedback concerning the development of the new product. The authors noted that the level of involvement is positively related with the size of the investment. Additionally, high-involvement activities tend to be associated with personal proximity and intrinsic motivation. Nevertheless, geographic proximity and age are only associated with low-involvement activities.

2.4 Exit options

VC/BA also diverge from crowdfunding investors in terms of exit options. VC often opt for IPO for their disinvestments,Footnote 6 but this exit option might not be feasible for crowdfunding-backed firms due to their small size (Hornuf & Schwienbacher, 2016). Further, there is empirical evidence suggesting that post-offering deals, such as M&A or IPO, are rare for crowdfunded firms. For instance, Signori and Vismara (2018), who analysed a sample of firms successfully funded on the Crowdcube platform between 2011 and 2015, found evidence that by the end of April 2017, only 1.4% of these firms were involved in M&A (and any of them had undertaken an IPO). Even so, there is some evidence that firms that explicitly communicate their intention to list on a secondary market after the ECF campaign are more likely to raise more money and get larger individual investments (Lukkarinen & Schwienbacher, 2023). An alternative exit option for ECF investors could involve the implementation of an early exit mechanism, which would enable investors to withdraw their investment and their shares will be repurchased. However, there is evidence in the Chinese market that introducing an early exit mechanism substantially reduces the total funds raised, the number of investors, and the overall funding percentage of a crowdfunding campaign (Bi & Lv, 2023). This evidence could be explained by the fact that although early exit options offer investors the ability to exit projects prematurely and increase the flexibility of their investments, it is important to note that investors might incur higher costs in exchange for this exit privilege.

2.5 Investment process

Finally, another distinction between VC/BA and ECF lies in the investment process. Salomon (2016) identifies that crowdfunding portals and VC investment processes share similarities but differ in two key aspects: the timing of fundraising and the selection/evaluation phase. In VC, where investments are made on behalf of institutional investors, the first step in the investment process involves fundraising for the VC fund, and only then the selection of projects begin. In equity crowdfunding, this sequence is reversed. Projects are selected by the crowdfunding platform before fundraising takes place. Regarding the selection/evaluation phase, VCs typically assume full responsibility for their investment decisions. In ECF, this phase is divided into two stages: first, there’s pre-selection, conducted by the platform team, and second, crowd evaluation and selection come into play. Crowdfunding platforms also tend to conduct lighter and less exhaustive due diligence compared to VC firms. Salomon (2016) also suggests that a combined model, as observed in a case study of an ECF platform in Switzerland, which integrates VC practices with ECF, can be mutually beneficial. In such a model, VC benefit from the “social proof”, which helps to reduce uncertainty associated with start-ups. Simultaneously, ECF gains from the VC’s expertise in conducting deep due diligence, providing monitoring, and participating on the start-ups’ boards.

While distinct differences have traditionally observed between traditional funding sources for start-ups and ECF, a recent study on the evolution of ECF in Finland suggests a progressive maturation of the ECF industry, aligning it with certain practices common in VC and BA funding (Lukkarinen et al., 2022). The study reveals that critical factors contributing to fundraising success in initial ECF campaigns, such as early support from private networks, minimum investment thresholds, and specific business models, have diminished in significance during later campaigns. These factors have been replaced by considerations more typical of experienced investors. This maturation trend is evident in campaigns, investment targets, and investor behaviours. Nevertheless, ECF still retains its unique digital, platform-related, and diversity-focused characteristics, setting it apart from traditional entrepreneurial finance methods.

Appendix 3 summarizes the main findings of ECF literature that compares ECF with traditional entrepreneurial funding sources.

3 Why and when do entrepreneurs prefer ECF?

In this section, we will cover why and when entrepreneurs should opt for ECF over traditional funding.

ECF offers significant advantages over traditional funding sources. Firstly, being listed on an ECF platform can be part of a start-up’s marketing strategy (Estrin et al., 2018), boosting both the project and the firm’s media exposure (Brown et al., 2018). Secondly, the interaction with new shareholders and engagement with end-users provide valuable market insights about product demand and inputs for product development (Agrawal et al., 2014; Blaseg et al., 2021; Francesca Di Pietro, 2021; F. Di Pietro et al., 2018; Estrin et al., 2018; Garaus et al., 2020), and it offers access to network connections within industry players (Brown et al., 2018; F. Di Pietro et al., 2018). Thirdly, ECF allows start-ups to retain strategic control, minimize equity dilution, and maintain a high degree of autonomy (Brown et al., 2018; Francesca Di Pietro, 2021). It also offers the advantage of securing funding at a lower cost (Agrawal et al., 2014) and in a shorter timeframe (Brown et al., 2018; Francesca Di Pietro, 2021). Moreover, a successful ECF campaign can enhance firms’ credibility, reduce information asymmetries, and facilitate future funding rounds with professional investors (Brown et al., 2018; Wald et al., 2019). Notwithstanding, it is worth noting that these benefits may not be uniform across all start-ups and can depend on characteristics of the star-ups and its founders (F. Di Pietro et al., 2018; Troise & Tani, 2021). Empirical evidence suggests that innovative, consumer-focused, early-stage firms tend to exhibit a stronger demand for ECF (Brown et al., 2018).

Indeed, there are also drawbacks associated with ECF that may dissuade entrepreneurs from choosing it as a method to fund their projects. ECF firms can incur potential costs linked to the early disclosure of entrepreneurial activities (Agrawal et al., 2014; Blaseg et al., 2021), opportunity costs arising from professional investors’ advantages (Agrawal et al., 2014), costs related to maintaining communication with a large investor community, and the equity dilution that can dissuade future professional investors (Agrawal et al., 2014; Blaseg et al., 2021). Each of these drawbacks will be detailed below.

Indeed, highly innovative projects often attract a larger number of investors and raise more capital in ECF campaigns (Le Pendeven & Schwienbacher, 2023). However, Hornuf and Schwienbacher (2016) highlight the existence of a double trust dilemma faced by entrepreneurs in relation to innovation. They must disclose their innovations through the crowd to signal the quality of their projects, but this exposes them to the risk of losing market value if the innovation is replicable.

As mentioned earlier, VC/BA investors offer valuable mentoring and strategic guidance (Denis, 2004; Lerner, 1995), facilitate networking with potential clients and suppliers, as well as other specialized services (Hsu, 2006), assist in the recruitment of professional managers (Hellmann & Puri, 2002), and play a crucial role in certifying the quality of start-ups (Hsu, 2004). Therefore, entrepreneurs may not reap the same benefits by choosing ECF over VC/BA. Nonetheless, some argue that crowd investors complement professional investors, rather than replace them, as they often co-invest or bridge funding gaps (Hornuf & Schwienbacher, 2016; Wang et al., 2019). Empirical evidence supports the complement perspective, indicating that angel and crowd investors interact on ECF platforms, and angel investors help reduce information asymmetries by providing valuable information to the crowd. Indeed, high-contribution pledges of VC and angles pledges that are costly and difficult to imitate serve as effective signal of venture quality. While VC/BA investors play a critical role in financing larger ventures, crowd investors complement them in larger campaigns and are particularly relevant in funding smaller ventures that may be less attractive to VC/BA investors. This evidence suggests that ECF facilitates access to capital for both small and large ventures, filling a gap that traditional sources of funding may not cover (Wang et al., 2019).

Thus, considering the advantages and disadvantages associated with ECF, why and when do entrepreneurs prefer to get funding through ECF campaigns rather than VC/BA investors?

Some studies propose that ECF campaigns are part of the company’s funding strategy, arguing that entrepreneurs prefer ECF over other forms of entrepreneurial funding to minimise equity dilution and retain the maximum level of autonomy (Brown et al., 2018). Nevertheless, Troise and Tani (2021) point out that both entrepreneurial characteristics, alertness, and self-efficacy influence the motivations of entrepreneurs to adopt ECF (e.g. acquiring new market/strategy knowledge, co-creating products, promoting their products, or exploiting the crowd network), which in turn have an impact on their behaviour in terms of campaign characteristics (campaign communication strategy and offerings characteristics) that can influence ECF campaign performance. Entrepreneurial alertness allows entrepreneurs to identify new opportunities, leverage the crowd to access more networks, and engage the crowd in promoting their business. However, entrepreneurial self-efficacy reduces the perceived need for external inputs for their products (or markets) and networking capabilities.

However, ECF could be inappropriate to fund start-ups with complex due diligence requirements high information sensitivity (information that cannot be disclosed to the crowd) or long economic life, requiring follow-on funding (Ley & Weaven, 2011).

Stevenson et al. (2021) identify two types of entrepreneurs in ECF: necessity fund-seekers and strategic fund-seekers. Through case studies of 14 firms that completed funding rounds in the USA and interviews with entrepreneurs and funders, they found that strategic fund-seekers opt for ECF over other funding source for various reasons. These include retaining power and strategic control in the company (transactional value), greater efficiency (less time-consuming), capturing value from funders (demand-side complementary value, e.g. mass referrals, prospective customer lists), creating value from the fundraising process (market validation information), and addressing external stakeholder concerns.

Others argue that the decision to opt for ECF may be linked to firm’s capital structure choices, drawing connections to Pecking Order Theory and Market Timing.

On one hand, Walthoff-Borm et al., (2018a, b) propose that firms turn to ECF as a last resort. Consistent with Pecking Order Theory (Myers & Majluf, 1984), they provide empirical evidence indicating that firms with lower internal funds (often unprofitable) and limited debt capacity (due to excessive debt levels and high intangible assets values) are more likely to seek ECF. They also observe a relatively higher failure rate among crowdfunded firms compared to matched samples of non-ECF firms (13% and 6% in each group, respectively). Furthermore, they find that firms with unsuccessful ECF campaigns have significantly higher failure rates (43%) than those with successful campaigns (15%), which reinforce the idea that firms use ECF as a last resort.

On the other hand, Cerpentier et al. (2022) investigate the influence of market timing on the capital structure of ECF firms (Baker & Wurgler, 2002), finding empirical evidence that ECF firms in hot markets set notably higher funding goals, accumulate more overfunding, and consequently secure more equity capital compared to those in cold markets. Despite these trends, ECF firms in hot markets do not consistently exhibit lower leverage ratios than their counterparts in cold markets. In contrast, ECF firms in hot markets simultaneously attract more debt financing, primarily in the form of financial debt.

The hypothesis that riskiest firms, with fewer financing alternatives, are more inclined to seek ECF was also examined by Blaseg et al. (2021). They use a sample of 163 crowdfunded firms from Germany’s largest ECF platforms and compared them with 163 firms that did not use ECF but had the option to do so. Their findings provide evidence that start-ups are indeed more inclined to pursue ECF when they have connections to troubled banks and lack access to other sources of equity financing. In their sample, start-ups that opted for ECF had a higher likelihood of encountering financial difficulties and potential failure.

Other authors have devoted their research to the development of models that address the choice between reward and equity crowdfunding. Within the context of asymmetric information, these models predict that entrepreneurs prefer the reward model when the initial capital requirements are low (Belleflamme et al., 2014) and when the projects demonstrate high-quality (Miglo & Miglo, 2019). However, if entrepreneurs exhibit overconfidence, ECF becomes the preferred option because entrepreneurs can acquire valuable information through the sale of shares before making critical production decisions (Miglo, 2021).

From a different perspective, Van Tassel (2023) has also constructed a theoretical model to investigate the optimal investment decisions of individual investors when operating under imperfect information. These investors are faced with a pivotal choice: whether to entrust their funds to intermediaries or engage in direct investment. This decision is shaped by the trade-offs entailing cost and risks associated with each alternative. When the level of risk is low, investors across all age groups tend to favour crowdfunding. Conversely, as the degree of risk rises, intermediation emerges as the more preferred choice. Interestingly, at moderate risk levels, both crowdfunding and intermediation coexist in equilibrium.

It is important to note, though, that the predictions of these models have not yet been empirically validated.

Appendix 4 summarizes the key findings of ECF literature about why and when entrepreneurs prefer ECF over traditional sources of entrepreneurship funding.

4 ECF platforms models

Platforms play a pivotal role in ECF, acting as intermediaries connecting between projects or firms with potential investors. Typically, their operations are subject to regulation under specific laws in each country.Footnote 7 The literature on the role of platforms in ECF can be categorized into two groups. The first group primarily offers descriptive insight and focuses on the differences among platforms models in terms of business models (fee structures, due diligence procedures, industry focus) (Cumming et al., 2019), mechanism of shares allocation (first come, first serve or auction mechanism) (Hornuf & Schwienbacher, 2018b), funding process itself (Löher, 2017; Salomon, 2016), and crowd designs (Aggarwal et al., 2021; Chen et al., 2016). The second group investigate how these differences across equity crowdfunding platforms influence the success of equity crowdfunding campaigns and the subsequent outcomes of firms in post-campaign (Cumming et al., 2019; Rossi & Vismara, 2018; Rossi et al., 2019).

Platforms are profit-making entities whose revenues come from the fees charged to firms and, in some cases, investors. In many cases, the fees are only charged if the crowdfunding campaign is successful, i.e. if the target amount is reached (Cumming et al., 2019). As their performance and survival depend on the growth of the crowdfunding industry and their ability to attract high-quality projects, platforms benefit from applying due diligence procedures to reduce the likelihood of promoting in their websites fraudulent or lower-quality projects (Cumming et al., 2021a, b). Thus, before launching the campaigns online on their websites, the platforms’ teams pre-select investment proposals (Cumming et al., 2019; Salomon, 2016, 2018).

Beyond the crowdfunding model (donation, reward, equity, and lending), as highlighted by Cumming et al. (2019), the ECF platforms make three critical strategic choices: (i) fee structures (fixed or variable—frequently, the platform only receives a fee from successfully funded projects), (ii) due diligence procedures (even considering that almost all crowdfunding regulations require that platform do due diligence, they can decide to do a more or less extensive one), and (iii) industry focus (while some platforms are generalists, others focus on a specific industry).

4.1 Governance issues

Cumming et al., (2021a, b) suggest that the distinct characteristics of ECF imply that many governance mechanisms traditionally employed in public and private firms may not be as effective in this context. In contrast to public firms, crowdfunded firms are neither actively monitored nor assessed by stock analysts, nor are they subject to the disciple of the capital market (due to the absence of a liquid secondary market, which limits exit options for investors (Signori & Vismara, 2018). Contrary to private firms, crowd investors lack abilities and resources of professional investors (VC/BA) to conduct in-depth due diligence, negotiate and establish comprehensive contracts, or effectively monitor the firms after investment. This way, Cumming et al. (2021a, b) propose a set of specific governance mechanisms tailored for ECF. These mechanisms offer a potentially effective means of mitigating the costs associated with informational asymmetry problems, including adverse selection and moral hazard. These mechanisms apply to all participants in the ECF market, including investors (leveraging the “wisdom of the crowd”), entrepreneurs (signalling the unobservable quality of the firmFootnote 8), platforms (enhancing due diligenceFootnote 9 and managing shareholder structures and secondary markets), and country institutions (encompassing both formal institutions—e.g. investor protection laws—and informal institutions—e.g. higher country-level trust (La Porta et al., 1997)).

Platforms also use different mechanisms of share allocation to investors in ECF, such as (i) the first-come, first-served mechanism (the most usual) or (ii) the auction mechanism. Empirical evidence suggests that the market mechanism choice affects investor behaviour dynamics during the campaign. While an auction mechanism induces late investments (as in this mechanism, prices change during the campaign, and the investors have an incentive to postpone their investment decisions to the last days of the campaign, avoiding a price increase due to higher demand), the first-come, first-served mechanism induces quick investments during the first days (on this mechanism, the prices remain constant during the campaign and investors prefer to bid in early days to guarantee the investments) (Hornuf & Schwienbacher, 2018b).

The ECF platform models can also be classified according to the crowd design: pure crowds or hybrid crowds (Chen et al., 2016). While in pure crowds, the crowd members participate as equal investors; in hybrid models, the crowd members are led by an expert investor. Based on the observation of industry practices, Chen et al. (2016) argue that pure crowds have several shortcomings in terms of providing due diligence, social influence, home bias, and high management costs associated with a lack of a single voice, suggesting that hybrid crowds can overcome those inefficiencies, particularly, in the presence of high-risk projects, with high information asymmetry and a high cost of crowd management. However, within the category of pure crow designs, it is essential to differentiate two shareholder models: the direct shareholder model and the nominee structure, as they exhibit varying abilities to attract investors. For instance, as found by Butticè et al. (2022), firms that choose the direct shareholder model, which can result in increased coordination and agency costs, tend to draw less reputable VCs compared to firms that select the nominee shareholder structure.

Agrawal et al. (2016) argue that the syndicate structure of ECF, which involves a lead investor responsible for conducting due diligence and monitoring progress on behalf of other crowd investors, helps to reduce market failures caused by information asymmetries and allows for a more efficient allocation of capital. However, some agency conflicts can arise between lead and crowd investors. While there is empirical evidence suggesting that corporate anchor investors significantly influence crowd investor’s herd behaviour (Sendra-Pons et al., 2023), it is worth noting that a high capital contribution by the lead investor reduces subsequent crowd investment. This observation, as highlighted by Chen and Ma (2023), implies that concentrated insider ownership by a lead investor, acting as an agent to lead fundraising and manage the syndicate on behalf of principal—crowd investors, weakens the bargaining power of the crowd investors, potentially increasing agency concerns. To mitigate potential agency problems between lead investors and the crowd, some authors propose implementing compensation and reputation mechanisms for lead investors (Agrawal et al., 2016). Additionally, factors such as the trustworthiness of lead investors (Zhang et al., 2023a, b), their specialized human capital (Zhang et al., 2023a, b), are significant considerations for crowd investors and can positively contribute to the fundraising performance of syndicates.

Given the greater efficiency of the hybrid model over the pure crowd, Aggarwal et al. (2021) developed a measure of the quality of lead investors that can be useful for platforms to identify investors who are good candidates to lead financing rounds.

Another topic explored in the literature within this context is related to the allocation of voting rights to crowd investors. Rossi et al. (2023), using a sample of 1769 start-ups that had unsuccessful initial ECF campaigns, found evidence that family-owned business exhibits a higher level in their pursuit of equity capital. Specifically, there are 1.95 times more likely to seek equity funding following an unsuccessful ECF campaign compared to nonfamily-owned start-ups. Furthermore, family business initially tends to be reluctant to offer voting rights in offerings, but they become more willing to provide it when seeking follow-on equity after an unsuccessful campaign. In this context, there is an 18.1% increase in the likelihood of offering voting rights during subsequent equity raising.

Lastly, the characteristics of the founder team also play a role in platform selection, as highlighted by Coakley et al. (2022). Larger, more diverse teams (in terms of tenure, nationality, and age), experienced teams, and highly educated teams tend to favour the co-investment shareholder model, which involves professional investors. In contrast, solo founders and small teams are inclined towards the nominee model.

4.2 Funding process and success rates

Another line of research in the context of platforms is related to the funding process, particularly on the relevance of the pre-selection process of the platforms (Kleinert et al., 2021; Löher, 2017). There is evidence that this pre-selection phase can be even more critical to the campaign’s success than the online campaign phase. For instance, Kleinert et al. (2021) find that 90% of start-ups are rejected in the pre-campaign phase.

Löher (2017) investigated the pre-selection process of German equity crowdfunding platforms, using interviews with platform operators, managers of crowdfunded start-ups, and external experts. The author finds that the pre-selection process in German ECF platforms is similar to the practices of VC/BA. It includes four steps: sourcing deals, assessment of investment deals, deal structuring, and campaign preparation. During the first step, the platforms receive proposals for investment deals. While there is some direct contact from entrepreneurs, they rely mainly on platforms’ networks and their active search. The second step is the assessment of investment deals, including pitch screening and evaluation. The authors state that more than half of the deals are rejected in the screening phase, during which the platforms’ assessment is focused on the business model, product characteristics, and financial considerations. The deals that pass the first screening go to a deeper evaluation phase, including a due diligence/plausibility check, where the characteristics of the entrepreneurs and teams are more relevant. Then, the selected deals go to deal structuring (definition of investment conditions, such as firm valuation, funding amount, and platforms’ commission) and contracting. The last step includes campaign preparation activities, helping entrepreneurs communicate campaigns to reduce the information asymmetries between the venture and potential investors.

However, what signals are used by platforms to assess the proposal quality and select the projects that go to the online platform? This question was investigated by Kleinert et al. (2021) and Zhang et al. (2019).

Kleinert et al. (2021), using a conjoint experiment involving 78 decision-makers from 50 platforms in 22 countries, suggest that the most important signal of start-up quality for ECF platforms is the team experience, followed by sales agreements and, with greater distance, patents, and venture capital backing. However, the relevance of venture quality signals varies according to the business characteristics of ECF platforms (in terms of long-term, performance-oriented fee structures and co-investment requirements), the firm’s industry (research-oriented or retail-oriented industries), and across countries (due to regulatory or cultural differences). On the one hand, in platforms that use the co-investment model, the acceptance rate of the venture is more positively influenced by the existence of patents and sales agreements. On the other hand, when the ECF platform prioritizes long-term performance (based on its platform’s fee structure), the influence of both team experience and venture capital backing is more substantial. Moreover, sales agreements are more relevant to retail-oriented industries, and in countries where human capital and venture capital are more easily accessible, the related signals become less influential.

Zhang et al. (2019) examined 473 investment proposals from the Chinese platform Dahuotou. Out of these, 72 (15%) were launched online by the platforms and the remaining 401 projects were rejected. They find that local bias still exists in the pre-investment stage platforms since the geographic distance between the locations of projects and a platform negatively affects the possibility of being launched. Moreover, engaging in strategic emerging industries, signals of media usage (e.g. videos) and start-ups’ quality (credit) are also positively correlated with launching projects on the platform.

Despite the relevance of platforms for the crowdfunding industry, empirical evidence on how the differences across equity crowdfunding platforms influence the success of equity crowdfunding campaigns and post-campaign firm outcomes is still scarce (Cumming et al., 2019). There are, however, some exceptions, which we discuss below.

Belleflamme et al. (2013) argue that non-profit organisations attract more money for initiatives that interest the general community due to their reduced focus on profits. The authors develop a theoretical model and find empirical evidence that in the context of individual crowdfunding practices (in which entrepreneurs do not make use of a “structured” crowdfunding platform), non-profit organisations raise larger amounts and thereby are more successful in obtaining their targeted funds than other forms of for-profit entrepreneurs.

Cumming et al. (2019), using a sample of Canadian crowdfunding portals (of all crowdfunding models), investigate the relevance of due diligence (which includes background checks, site visits, credit checks, cross-checks, monitoring accounts, and third-party proof) for the success of crowdfunding campaigns. They find a significant positive effect of due diligence on the total amount of capital raised and the percentage of fully funded projects on the platform. They also argue that due diligence helps identify lower quality or fraudulent projects and reduces information asymmetries between entrepreneurs and investors, suggesting that due diligence is relevant for a platform’s reputation and to increase its performance.

Rossi and Vismara (2018) focus their research on services provided by the platform (pre-launch, ongoing campaign, and post-campaign). Using a sample of 127 investment-based crowdfunding portals in four European countries (France, Germany, Italy, and the UK), they suggest that a higher number of post-campaign services offered by the platforms increase the annual number of successful campaigns, even though pre-launch and ongoing campaign services do not have a significant impact.

Hornuf and Schwienbacher (2018a), using hand-collected data on the complete set of 181 successful and unsuccessful crowd-investing campaigns run in Germany between 2011 and 2014, find that platform design and the structure of contracts affect crowd participation. The chances of achieving successful campaigns (raising a larger amount and higher crowd participation) increase when the minimum ticket is small, the crowd is pooled in a financial vehicle, and the investments are offered in the form of profit-participating loans (instead of silent partnership agreements, common equity, and other financial contracts).

In the Italian context, two recent papers investigate the relevance of platforms’ networks to the success of ECF campaigns. Vrontis et al. (2021), using a sample of 315 campaigns (funded or not) launched on 21 ECF platforms, find that the presence of platforms on social networks (number of ECF platforms’ connections, particularly on Twitter) and their intellectual capital (quality of a platform’s employees and other people involved) influence positively the success rate of ECF campaigns. They find that the presence of EC platforms on social media and the quality of the platform’s teams increase their capability to attract investors’ attention and stimulate their investments in the campaigns launched on the platform, enhancing the probability of EC campaign success. Cosma et al. (2021) examine ten Italian ECF platforms to assess the role of (size and diversity) partner networks in a platform ecosystem in the success of the ECF campaign. They found that the choice of platform can be critical for the performance of the crowdfunding campaign in terms of capital raised, relative success, and probability of success. A network of partners (including banks, investment funds, associations, agencies, syndicates, universities, advisors, incubators, firms, and others) offer unique and strategic value propositions and define the competitive positioning of platforms. However, they find no evidence supporting the importance of the platform’s partner network size. Instead, they observe that the campaign success is influenced by the diversity of these networks.

Others investigate the impact of voting rights on the success of crowdfunding platforms. Using a sample of 185 investment-based crowdfunding portals based in Australia, Austria, Canada, France, Germany, Italy, New Zealand, the UK, and the USA, Rossi et al. (2019) identify three types of platforms in terms of voting rights: (i) platforms delivering individual voting rights to single investors, (ii) platforms delivering pooled voting rights to the community of crowdfunding investors (nominee structure), and (iii) platforms with the involvement of a lead accredited investors (syndicate-like platforms). They find evidence that platforms with individual voting rights are associated with less successful crowdfunding campaigns than platforms delivering pooled voting and that syndicate-like platforms register fewer offerings.

A recent strand of research in ECF explores the impact of environmental, social, and governance (ESG) goals on crowdfunding platforms performance. Cumming et al. (2024) find that the adoption of ESG criteria in the selection of businesses positively influences the survival of crowdfunding platforms by attracting a higher number of investors. Furthermore, in countries characterized by lower power distance, this impact is more evident, as the democratisation of access to capital is viewed more favourably. Among the three individual components of ESG, governance emerges as the predominant factor and the relevance of environmental goals has grown over time.

While the empirical studies about the role of platforms in the ECF market are dominant, according to our systematic literature review, only two papers develop a theoretical model on this issue. Gal-Or et al. (2019) analyse the ECF platform competition, and Aggarwal et al. (2021) develop a measure of the quality of lead investors.

The competition model developed by Gal-Or et al. (2019) assumes the heterogeneity of both investors (in terms of experience and risk aversion) and start-ups (in terms of expected return and risk) and find that a segmenting equilibrium with two competing platforms can arise only when compatibility is very relevant for both investors and start-ups and such compatibility is more important than the size of the network externality considered by start-ups. In the segmenting equilibrium, each platform attracts segments of the two user groups that are more compatible with each other in terms of the risk profile, i.e. one platform matches more risky start-ups and experienced investors (usually more risk-tolerant), and the second platform matches the less risky start-ups with more highly risk‐averse investors. However, if such a preference for compatibility is not sufficiently high, the equilibrium occurs when one platform dominates the entire market.

Arguing that hybrid crowds have some advantages over pure crowd models, Aggarwal et al. (2021) develop a Bayesian model to measure the quality of lead investors, which can be useful for platforms to identify investors who are good candidates to lead financing rounds and, this way, to improve the funding operations of ECF platforms.

In sum, these studies identify a set of characteristics of platforms that increase the success of equity crowdfunding campaigns and post-campaign firm outcomes, including the due diligence procedures (Cumming et al., 2019), the number of post-campaign services offered by the platforms (Rossi & Vismara, 2018), and the platform model in terms of voting rights of investors (Rossi et al., 2019).

Appendix 5 presents a summary of the literature on ECF platform models.

5 Avenues for future research

In this section, we outline several avenues for future research. We start by emphasising general considerations concerning the limitations of current investigations. Subsequently, we offer specific recommendations for further research on the topics explored in this paper.

In many cases, research related to ECF lacks consensus and needs additional investigation to reconcile seemingly contradictory empirical finding on various topics. For instance, it is still unclear if ECF contributes to democratising entrepreneurial finance, alleviating some distance-related economic friction between entrepreneurs and investors, and enhancing the presence of underrepresented groups in entrepreneurship, including woman and individuals from Black communities. As proposed by Kleinert (2023), certain factors may have been overlooked in previous research, specifically the nature of signals provided by entrepreneur. Notably, address signals, which can be inconsequential in equity crowdfunding, could potentially carry significant costs in venture capital.

The presence of contradictory empirical results is some cases can be attributed to the use of limited sample sizes and inadequate proxy variables. On one hand, the absence of comprehensive databases for start-ups seeking ECF, encompassing both successful and unsuccessful campaigns, often necessitates hand-collected data. As a result, many studies rely on relatively small samples, often concentrated on just one or two platforms. On the other hand, the challenge of accessing complete information about campaigns and entrepreneurs can introduce bias when inappropriate variables are employed. Consequently, future research may benefit from the inclusion of larger, more diverse samples and the incorporation of more pertinent variables to enhance the robustness of its findings. Furthermore, the use of diverse measures for the same variable complicates cross-study comparisons, as highlighted by Le Pendeven and Schwienbacher (2023) in the context of assessing innovativeness of crowdfunding projects.

While the majority of papers in this field tend to be descriptive or empirical, there are a limited number of theoretical models. These models encompass various dimensions, including the choice between reward and equity crowdfunding (Belleflamme et al., 2014; Miglo & Miglo, 2019), the impact of entrepreneurial bias on crowdfunding campaign outcomes (Miglo, 2021), the influence of platform competition on market segmentation (Gal-Or et al., 2019), and the investment decisions of individual investors who must decide whether to allocate their wealth through an intermediary or invest directly with an entrepreneur (Van Tassel, 2023). However, empirical evidence is imperative to validate these models and their predictions.

Finally, as the ECF industry continues to mature (Lukkarinen et al., 2022), it is necessary to corroborate some of the earlier findings. This maturation may bring about changes and developments in the ECF landscape that warrant a revaluation of previous research findings to ensure their relevance and accuracy.

Now, we propose some specific research directions for some of the topics explored within this paper.

5.1 Geographic and entrepreneur’s diversity

According to the literature review, while ECF possesses characteristics that can mitigate geographical constraints in start-up investments (Agrawal et al., 2015), it does not entirely eliminate them Bade and Walther (2021). This raises a pertinent question: do these geographical constraints affect all types of investors and firms/projects equally? Existing evidence already suggests differences in sensitivity to distance between overseas investors and domestic investors in ECF (Guenther et al., 2018), However, it remains crucial to investigate how other investor characteristics, such as age and qualifications, may influence their sensitivity to distance. Similarly, exploring how the characteristics of firms/projects interact with geographical factors is also a valuable avenue for research. Is the sensitivity to investor proximity different among firms or projects in specific sectors, such as technology, environmental sustainability, or innovative ventures?

The empirical evidence regarding the democratisation of entrepreneurial finance and its potential to reduce the gender and race gaps is inconclusive, with mixed results. While recent investigations have attempted to reconcile these mixed results concerning the gender gap, suggesting that it depends on other factors such as campaign signals (Kleinert & Mochkabadi, 2022) and the funding round (Prokop & Wang, 2022), further research is needed. For instance, exploring these factors for other underrepresented groups could shed more light on this issue.

5.2 Exit options

ECF offers investors a more limited set of exit options compared to other investment alternatives. Therefore, numerous ECF platforms have initiated discussions regarding the creation of secondary markets for buying and selling shares. However, to our knowledge, empirical research on secondary markets for ECF remains limited to one paper (Lukkarinen & Schwienbacher, 2023). This study focuses on whether plans to list on the secondary market increase investor participation and explores the factors that ultimately drive start-ups to list on such markets following their campaigns. Yet, several critical questions remain unanswered. What are the cost and benefits associated with secondary markets in ECF? How do they compare to traditional financial markets in terms of costs and liquidity? Can secondary markets serve as an exclusive exit channel for specific investor types, or do they possess the potential to become a universal mechanism enabling all crowd investors to sell their shares? Additionally, it remains to be explored whether the investors participating in secondary markets are the same as those in the initial campaigns? Other avenue for research on this topic is to explore the implications of other early exit options on funding performance, particularly in the context of different countries with varying degrees of ECF industry maturity. For instance, examine whether the effect of early exit options on funding performance, such as those observed in Bi and Lv (2023) research for the Chinese market, can be adapted and expanded to other countries with distinct ECF industry development stages.

5.3 Platform models and governance issues

In addition to the research conducted by Butticè et al. (2022), future research should investigate how entrepreneurs’ human capital, the innovative nature of business ideas, or other unexplored variables can potentially moderate the negative association between ECF and VC reputation in comparison to BA investments.

Furthermore, as suggested by Rossi et al. (2023), upcoming research could examine the extent to which entrepreneurs learn from their crowdfunding experiences and how this learning influences their subsequent interactions with external investors. Are differences in campaign characteristics between initial and subsequent campaigns reveal distinct learning paths and strategies employed by entrepreneurs?

Regarding the lead-investment shareholder model, there are unexplored questions to consider. For example, how are syndicates formed and influenced at the group level? This involves not only the pairings of individual investors but also the impact of existing syndicate members and the collective fundraising objectives of the syndicate. What group-level factors drive the formation and dynamics of investment syndicates in equity crowdfunding? Additionally, how do hidden psychological factors, such as investor ideology and identity, affect syndicate formation and investment decisions in equity crowdfunding? What methods and data sources can be utilized to gain insights into these concealed psychological drivers?

The nominee structure has been recognized as a shareholder model offering several advantages. It has shown promise in addressing moral hazard issues (Cumming et al., 2021a, b) and has the potential to reduce coordination and agency costs and attract more reputable VC (Butticè et al., 2022). However, similarly to the co-investment shareholder model, which reveals agency conflicts between lead and crowd investors (Chen & Ma, 2023), the nominee shareholder structure may also give rise to agency conflicts between the nominee entity (acting as the agent) and the small investors (the principals, who have no voting rights). Consequently, future research should delve into these agency problems within nominee shareholders structures and explore potential mechanism for their mitigation.

6 Conclusion

This study conducts a systematic literature review encompassing 65 research papers focusing on the pre-campaign phase of equity crowdfunding. Over the past decade, the volume of publications related to ECF has exhibited exponential growth, with 70 papers dedicated to this subject in just the year 2022 alone. This blooming interest has resulted in a substantial body of literature covering diverse aspects of crowdfunding, underscoring the need to construct a comprehensive and up-to-date framework for ECF research. We opted for a systematic approach in our literature review, widely regarded as the most effective methodology for identifying and reviewing an extensive body of literature (Tranfield et al., 2003).

While the body of literature on ECF remains somewhat limited, the existing papers in this domain predominantly focus on exploring the determinants of campaign success. Our comprehensive survey of the literature, on the other hand, explores the decisions made by entrepreneurs prior to embarking on ECF campaign. Specifically, in this paper we provide (i) a comparative analysis of ECF in relation to traditional sources of entrepreneurial funding, such as venture capital and business angels; (ii) a discussion on the motivations behind entrepreneurs’ preference for ECF; and (iii) an in-depth examination of the various models of ECF platforms, providing insights into their distinct characteristics.

This paper makes relevant contributions both in practical applications and academic research. In practical terms, it holds considerable value for entrepreneurs who seek to identify the circumstances in which ECF might offer advantages over traditional start-up funding sources and to determine which platform model aligns best with their specific needs. On the academic research front, this document offers a structured, comprehensive, and update summary of the existing literature regarding this innovative source of funding for start-ups. Additionally, it identifies some inconsistencies and gaps within the current body of research, offering valuable insights and avenues for further investigation in this field.

Investing in ECF typically involves three distinct phases. The first one is the pre-investment phase, where entrepreneurs must decide about the most suitable source of financing and select the appropriate ECF platform model. The second phase centres around the campaign itself. At this stage, entrepreneurs and platforms work together to ensure the success of the campaigns and secure project funding. The third and final phase pertains to post-campaign performance, which includes metrics such as bankruptcy rates, subsequent financing, and overall company growth.

One of the primary limitations of our paper is its exclusive focus on the first phase, despite its critical importance, as it significantly impacts the subsequent investment and post-investment phases. Additionally, the rapidly evolving nature of research in this field means that our literature review may become outdated relatively quickly. Future extensions of the paper endeavours should consider conducting literature reviews for the other two phases. While there are some existing literature reviews on the investment phase, they are often outdated. Moreover, literature reviews on the post-investment phase appear to be scarce or non-existent.