Job Talk: Equity Crowdfunding

Trading room
Wed, 05/01/202214:15-15:45
Ella Segev
Abstract: Equity crowdfunding is a method of financing an initiative whereby an entrepreneur sells shares of her firm to the crowd. Equity crowdfunding is becoming increasingly popular and its potential economic impact is significant. We develop a common value sequential crowdfunding game theoretic model, where the entrepreneur sells a percentage of the firm and then shares the future value of it with the crowd. Potential investors' arrival process is stochastic. In each period, a potential investor is born with some probability, receives a signal on the future value of the firm, observes the current state of investment and then decides whether to invest in the firm or not. By offering a different share in the firm the entrepreneur leads the crowd to different equilibria. We characterize these equilibria, analyze when the investors' behavior exhibits herd behavior (i.e., investors ignore their own signal and follow the behavior of previous investors) and find the entrepreneur's optimal decision given the firm's probability of success and other characteristics.