Brandenburg U. of Technology Cottbus-Senftenberg, Germany
Equity crowdfunding offers a crucial funding source for small businesses, enabling access to capital from a broad base of retail investors. However, retail investors often lack sufficient information, leading to uncertainty that can undermine campaign success. This study investigates how lead investors influence retail investor behavior on crowdfunding platforms, drawing on signaling and social capital theories. We analyze data from Companisto, a German equity crowdfunding platform, to explore how lead investors' social capital through cognitive, structural, and relational dimensions affects retail decisions. For example, large investments by lead investors serve as "costly signals" of quality, fostering trust and reducing uncertainty. Additionally, public profiles as structural social capital enhance transparency and encourage retail investor engagement. Interestingly, relational social capital may sometimes negatively affect retail decisions by suggesting exclusivity. These findings offer actionable insights for small businesses and platforms to optimize lead investor signals and improve campaign outcomes.
