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EDITORIAL
New methods of entrepreneurial firm financing: Fintech,
crowdfunding and corporate governance implications
1|INTRODUCTION
Starting in May of 2016, small businesses and startups were permit-
ted to sell shares to the general public in the United States on
crowdfunding portals. The U.S. Securities and Exchange Commission
has defined rules that make equity crowdfunding a legal means by
which firms are able to raise seed capital online. The crowdfunding
phenomenon is now slowly spreading to other countries (Barbi &
Bigelli, 2017). These developments have given rise to a veritable
explosion of new research on crowdfunding, financial technology
(fintech), and other alternative methods of startup financing
(Cumming & Hornuf, 2018; Short, Ketchen, McKenny, Allison, &
Ireland, 2017). This work has emerged in a variety of fields that include
but are not limited to entrepreneurship, finance, marketing, informa-
tion systems, law, and strategy (Ahlers, Cumming, Günther, &
Schweizer, 2015; Mollick, 2014; Newman, Schwarz, & Ahlstrom,
2017; Steinhart, Gao, & Fan, 2017).
The emergence of fintech and crowdfunding has also given rise to
unique and pronounced concerns with information asymmetries
between insiders and outsiders, along with related agency and other
governance concerns (Vismara, 2016). As with IPOs, for instance, the
ownership base of entrepreneurial ventures raising capital in
crowdfunding has been opened up for the first time to external share-
holders. Moreover, crowdfunding platforms that allow fundraising from
a pool of online backers will also need to cope with collective action
problems (Olson, 1965) as crowdinvestors have neither the ability
nor the incentive, because of their relatively small investments, to
devote adequate resources to due diligence. While collective action
problems limit investors' monitoring incentives, entrepreneurs can be
tempted to shirk and engage in selfdealing and opportunistic behavior.
Against that background, this special issue of Corporate Gover-
nance: An International Review (CGIR) sought to attract scholarly sub-
missions from a wide variety of disciplinary and methodological
approaches to examine the governance causes and consequences of
the emerging fintech and crowdfunding arenas. Altogether, we
received over 50 manuscripts that dealt with questions around five
key themes introduced in the call for papers. First, what are the gover-
nance problems arising from agency issues such as the separation
between ownership and control (principalagent) and between control-
ling and minority shareholders (principalprincipal; Jensen & Meckling,
1976; Young, Peng, Ahlstrom, Bruton, & Jiang, 2008) in crowdfunding
markets? Second, while most of recent IPOs are offered exclusively to
institutional investors, crowdfunding investors are likely to be more
diverse than shareholders of newly listed companies (Barbi & Bigelli,
2017). As such, how does this impact corporate governance mecha-
nisms? Third, while there has been some research in crowdfunding that
focuses on the success factors of the campaigns (Frydrych, Bock,
Kinder, & Koeck, 2014), there is comparatively less work on the
ultimate goal of crowdfunding, namely, to build enduring businesses.
That is, what happens after the crowdfunding campaigns? Fourth,
globalization and technological innovation interact in their effect on
crowdfunding, since the reduction in communications costs owing to
technological innovation have made crossborder investments easier,
thereby reducing the costs of monitoring investments over long dis-
tances. Therefore, it may be asked, given financial and communications
innovations and eases in regulation on new venture creation (Ahlstrom,
2010), what are the implications for the governance of entrepreneurial
ventures associated with fintech and crowdfunding around the
world? And how do national institutions interact with fintech and
crowdfunding (Globerman, Peng, & Shapiro, 2011)? Fifth, corporate
governance practices in crowdfunding differ across countries (Barbi &
Bigelli, 2017). Will recent trends and innovation in financing
approaches and sources reduce such differences? Or will these differ-
ences persist or even be amplified by local financing and traditional
institutional controls (Globerman et al., 2011)? How can we differenti-
ate the role of more formal, legal institutions from less formal ones
embodied in culture and social capital (Cumming & Schwienbacher,
2018; Scott, 2013) in addressing and explaining such differences?
After the call for papers and subsequent submissions, a careful
external review process ensued. It was managed in conjunction with
the main regular editors of CGIR who oversaw the process and partic-
ipated in decisions on all rounds for all papers. Finally, four papers
were selected to appear in this special issue of CGIR. These papers
are summarized in the next section.
2|SYNOPSES OF THE ARTICLES IN THE
SPECIAL ISSUE
This special issue contains four papers in addition to this introductory
editorial. The papers accepted for this special issue were selected to
provide new evidence on the corporate governance implications of
DOI: 10.1111/corg.12258
310 © 2018 John Wiley & Sons Ltd Corp Govern Int Rev. 2018;26:310313.wileyonlinelibrary.com/journal/corg
the new methods of entrepreneurial firm formation. The articles
engage in a fruitful conversation with frontier debates at the intersec-
tion of governance and entrepreneurial finance research. They draw
from different theoretical lenses (e.g., agency theory and human capi-
tal theory) and are set in different institutional contexts (e.g., the
United Kingdom and Germany). Table 1 summarizes the sample, data
sources, and contributions of these studies.
First, the Collawert, Vanacker, and WalthoffBorm (2018) paper is
one of the first studies on the outcome of equity crowdfunding. With
the exception of Signori and Vismara (2018), extant research has
mainly focused on identifying success factors in raising capital through
crowdfunding and on funding dynamics on crowdfunding platforms
(e.g., Frydrych et al., 2014). The authors build on and extend this
stream of research by providing a dynamic picture of firm financial
and innovative performance and by comparing the performance of
equity crowdfunded firms to similar firms that have raised capital from
other sources. Second, since equity crowdfunding platforms adopt dif-
ferent shareholder structures, they investigate whether such structural
differences are associated with different performance. The two main
research questions addressed in this study are, therefore, how do
equity crowdfunded firms perform relative to matched nonequity
crowdfunded firms that raised other forms of capital? And how do
firms financed through a direct shareholder structure perform relative
to firms financed through a nominee structure?
To answer those questions, the research site is the equity
crowdfunding market in the United Kingdom, which is the largest
and most developed equity crowdfunding market in Europe. The
United Kingdom accounted for nearly 40% of the global equity
crowdfunding market in 2016. Both the two largest equity
crowdfunding platforms, namely, Crowdcube and Seedrs, are used in
this study. A crucial difference between the two is indeed their deal
structuring, whereby Crowdcube uses a direct ownership structure,
whereas Seedrs uses a nominee structure. Results show that equity
crowdfunded firms exhibit significantly higher failure rates than
matched firms. Further, nominee shareholder structures in equity
crowdfunding are positively associated with firm financial perfor-
mance, which may be a consequence of the increased power and
incentives of nominees to monitor management and the lower coordi-
nation costs.
In a similar vein, Hornuf, Schmitt, and Stenzhorn (2018) investi-
gate the determinants of followup funding and firm failure after an
equity crowdfunding campaign has taken place. They use data from
13 different equity crowdfunding portals and 413 firms that ran at
least one successful equity crowdfunding campaign in Germany or
the United Kingdom between 2011 and 2016. The findings show that
German firms that received equity crowdfunding not only stood a
higher chance of obtaining followup funding through business angels
or venture capitalists (VCs) but also had a higher likelihood of failure.
The number of senior managers and the number of venture
capital investors both were positively related to the obtaining of
postcampaign financing, while the average age of the senior manager
team had a negative impact. The number of venture capital investors
and the valuation of the firm were significant predictors that increased
the hazard of firm failure, while the number of senior managers and
the amount raised during previous campaigns had a negative impact
on the hazard of firm failure.
GutierrezUrtiaga and SaezLacave's (2018) theoretical paper
models rewardbased crowdfunding as a twostage game. In the first
stage (campaign), a creator is discovered to be talented when early
adopters support his crowdfunding campaign. If the creator was suc-
cessful in the first stage, he can capitalize on this in the second stage
(production). This idea is somewhat counterintuitive, however. In a
oneshot game, the creator would be expected to behave in an oppor-
tunistic manner and not deliver the goods. Anticipating the potential
for this type of behavior, backers may be deterred from giving funds
in this setting, leading to market failure. This poses a puzzle for under-
standing and regulating the reward crowdfunding market. The model
proposed in this paper (counterintuitively) shows that the nopenalty
TABLE 1 Summary of articles in this special issue
Authors Sample and data Summary of findings
Collawert, Vanacker,
and WalthoffBorm
205 U.K. firms that received equity crowdfunding
on Crowdcube or Seedrs in the period of 20122015,
matched with 305 firms from the Orbis dataset
This paper studies the postcampaign performance of
equitycrowdfunded and matched nonequity crowdfunded
firms. Equitycrowdfunded have 8.5 times higher failure
rates than matched firms. However, 3.4 times more
equitycrowdfunded firms have patent applications than
matched firms.
Hornuf, Schmitt,
and Stenzhorn
413 firms that ran at least one successful equity
crowdfunding campaign in Germany or the United
Kingdom in the period 20112016
This paper investigates the determinants of followup funding
and firm failure after equity crowdfunding campaigns. The
number of senior managers and the number of VCs have a
positive impact on obtaining postcampaign financing, while
the average age of the senior manager team had a negative
impact.
GutierrezUrtiaga and
SaezLacave
Theoretical model (twostage game, where the first
stage is the campaign and the second is the
production stage)
In rewardbased crowdfunding, the nopenalty contract is
found to be the optimal contract between a creator of
unknown talent, who wants to be discovered by the wider
market as highly talented, and early adopters of the product.
Cumming and
Schwienbacher
2,678 investment rounds in 747 distinct fintech
ventures in the period 19902015, matched
with 277,994 in nonfintech investments
from VentureXpert database
This paper shows fintech VC is relatively more common in
countries with weaker regulatory enforcement and without a
major financial center after the financial crisis. Also, the fintech
VC boom is more pronounced for smaller private limited
partnership venture capitalists. These fintech VC deals are
substantially more likely to be liquidated, especially when
located in countries without a major financial center.
EDITORIAL 311
contract is the optimal contract between creators of unknown talent
and early adopters of their products. If, indeed, creators can benefit
from being discovered as talented, they can capitalize by selling to late
adopters and benefit from the goodwill generated in the delivery to
the early adopters. This study, therefore, contributes to the literature
by showing the importance of the innovative contractual arrange-
ments offered by the crowdfunding platforms in the context of a
market for talent discovery.
Finally, Cumming and Schwienbacher (2018) represent one of the
first papers on fintech venture capital. They build on the institutions
and corporate governance literatures by showing the importance of
enforcement in driving relative differences in investment patterns and
investor participation. The two main research questions addressed in
this study are, therefore, where are fintech venture capital investments
taking place around the world? And what are the role of institutional
factors on the international allocation of fintech venture capital? They
document a notable change in the pattern of fintech VC investments
around the world relative to other types of investments after the global
financial crisis. Specifically, they find that fintech VC investments are
more common in countries with weaker regulatory enforcement and
lacking a major financial center after the financial crisis. Also, they show
the spike in fintech investments is more pronounced for smaller private
limited partnership venture capitalists that likely have less experience
with prior venture capital booms and busts. These fintech VC deals
are substantially more likely to be liquidated, especially when located
in countries without a major financial center.
3|CONCLUDING REMARKS
The four papers in this special issue of CGIR offer new insights into the
governance implications of the new and crucial fintech and
crowdfunding markets. The popularity of crowdfunding and other
forms of fintech has grown drastically, particularly after the
20082009 financial crisis, and at different rates around the world.
Countrylevel governance through legal and institutional conditions
have played a pronounced role in shaping the international develop-
ment of crowdfunding and fintech. These developments have offered
entrepreneurial firms new opportunities to access fresh capital from
different sources, improving their chances of success. The papers in
this special issue not only address this promise but also show that
there are pronounced governance issues associated with these devel-
opments, as evidenced, for example, by the high failure rate of firms
after crowdfunding. However, the papers in this special issue further
show that corporate governance mechanisms may be able to mitigate
the risks associated with these new forms of finance. Moreover, the
work herein highlights the tremendous promise and importance of
these startups in view of their pronounced innovation.
3.1 |Future research
Further research on the corporate governance implications of new
methods of entrepreneurial firm formation could examine other
longterm firm outcomes associated with these new forms of finance,
including new venture survival, financial positions and subsequent
capital raising, job growth, patents, innovation, and productivity. The
research herein offers insights into important things that can be stud-
ied with additional data that will likely become available in subsequent
years. Future research can likewise examine how different governance
mechanisms function in conjunction with these new financial innova-
tions and the effect they have on firm (and investment) performance.
Finally, further work can also seek to better understand the inter-
national and institutional differences in governance mechanisms and
how they intersect with new methods of firm formation and finance.
There is much to understand about key factors such as national cul-
ture, social capital, governance, institutional and legal systems, and
their intersection with entrepreneurship and entrepreneurial finance
(Globerman et al., 2011; Li & Nair, 2009; Vismara, 2018; Young, Tsai,
Wang, Liu, & Ahlstrom, 2014). We look forward to further studies on
these topics, particularly on the corporate and contractual governance
implications associated with the rapidly changing and evolving interna-
tional landscape of fintech and crowdfunding, and hope the papers in
this special issue inspire further work for many years to come.
David Ahlstrom
1
Douglas J. Cumming
2,3
Silvio Vismara
4,5
1
CUHK Business School, The Chinese University of
Hong Kong, Hong Kong
2
DeSantis Distinguished Professor of Finance and Entrepreneurship,
College of Business, Florida Atlantic University
Boca Raton, Florida, United States
3
Visiting Professor, Birmingham Business School, University of
Birmingham, United Kingdom
4
University of Bergamo, Bergamo, Italy
5
University of Ghent, Ghent, Belgium
Correspondence
David Ahlstrom, CUHK Business School, The Chinese University of
Hong Kong, Hong Kong.
Email: ahlstrom@baf.cuhk.edu.hk
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EDITORIAL 313
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