Firms’ venture capital affiliation, platforms’ “skin in the game” and the success of equity crowdfunding campaigns

Abstract In equity crowdfunding, it is still unclear whether unsophisticated inexperienced crowd investors use firms’ quality signals, even strong ones like firms’ affiliation with professional investors (VCs), in their investment decisions. Signals revealing the platform’s private information on issuers’ quality may be more informative to boundedly rational crowd investors than firms’ signals. Our findings based on 550 equity crowdfunding offerings in the U.S. show that the positive effect of affiliation with VCs on the success of equity crowdfunding campaigns is mediated by platforms’ choice of equity compensation (i.e., their “skin in the game”) but only very partially. We interpret these findings as an (admittedly indirect) indication that crowd investors’ cognitive restrictions may be less severe than one might expect based on their limited financial literacy and investment experience.