The Interaction of Equity Crowdfunding Platforms and Ventures : An Analysis of the Preselection Process

A growing number of young and emerging businesses obtain financial resources through open calls over the Internet. Such campaigns are often hosted on specialised platforms that serve as intermediaries between founders and potential funders. In recent years, equity crowdfunding platforms in particular have had extraordinarily high success rates in these published campaigns. Although they play a central role in the overall investment process, their behaviour is a black box in many ways. Based on semi-structured interviews with platform operators, funded start-ups and external experts, this study reveals how German portals preselect businesses for their audiences and thereby shows how capital-seeking ventures can successfully engage in this new form of financing. Thus, platforms' preselection follows a structured process that is based on strong network relationships and active search. In addition to the conventional criteria used by established equity providers, these platforms' decisions are driven by specific criteria related to the facilitation of later funding success. Once platforms make their decision, they support the venture in effectively reducing information asymmetries with investors. Hence, they possess rich knowledge about the information needs of their audiences, which they share with entrepreneurs