Electronic Supplementary Appendix

Research setting

FundedByMe launched in 2011 and is the first and largest crowdfunding

platform established in Sweden, followed in market share by CrowdCube,

CrowdCulture, Toborrow, and Invesdor. FundedByMe offers three types of

crowdfunding: reward-based, loan-based, and equity-based1. This platform started

initially by offering reward-based crowdfunding. In the end of 2012 and early 2015,

they also added equity and loan-based crowdfunding, respectively, to their operations.

By September 2014, campaigns on FundedByMe had received over € 6.3 million

from over 40,000 investors2.

The equity crowdfunding platform of Fundedbyme works as follows. Firms

interested in equity crowdfunding pay € 500 to list their campaign and pay 8% of the

total money raised if the campaign becomes successful. Platform managers screen

each business plan and perform due diligence before allowing the campaign to go live

on the platform. According to FundedbyMe, internal documents indicate that only

approximately 10% of companies passed the due diligence stage and received

permission to go live on the platform. The offerings are usually between €50,000 and

€ 150,000. All campaigns are based on the “all-or-nothing” model (Cumming et al.

2014), meaning that firms only receive the pledged capital if they reach a predefined

goal. Fundedbyme communicates information about campaigns through a company

blog and newsletter emails to registered users.

It is notable that although firms registered in Europe are able to use the

platform, over 90% of campaigns so far are from Sweden and other Nordic countries.

1 https://www.fundedbyme.com/en/what-is-fundedbyme/2 http://www.crowdfundinsider.com/2014/09/49991-fundedbyme-welcomes-kickstarter-sweden-special-gift/

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All registered users from across the world (except USA) can invest in equity

campaigns. The registered users can view information on the firm such as a brief

description of the reason why firms are offering equity, entrepreneurial teams, social

network links, and supporting documents provided by companies such as the business

description and financial statements. Investors can sort projects on this platform based

on popularity, ending date, or start date. For each campaign, registered users are also

able to observe who has invested and exactly when that investment happened,

although they cannot see how much equity investment that investor made.

In Sweden, there are no specific acts for crowdfunding. However, recently

Sweden passed the "Investeringsavdrag", allowing investments into small companies

by individuals. Furthermore, while Swedish platforms do not have any license or

permit from the Swedish Financial Supervisory Authority to conduct financial

services, the crowd equity platforms are subject to financial supervision and must

follow the Swedish Securities Market Act. The most recent statistics ranked Sweden

in 6th place right after Japan but before China based on the amounts raised through

crowdfunding.

A detail description of FundedByMe Platform

Figure 1 shows an example of the first page that investors observe upon entering

the FundedByMe platform. It lists live campaigns. Investors can search for different

types of crowdfunding campaigns (i.e., equity, loan, and reward). They are also able

to browse among live, successfully closed, or unsuccessful campaigns. Investors can

search for business category and country and can also sort campaigns based on

popularity, start date, and ending date.

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Figure 1. FundedByMe first page

As Figure 1 shows, investors are able to see the name and a short description of

project, campaign type, business category, and country. For live campaigns (closed),

they can also observe the number of investors, how many days left until the end of the

campaign, and the progress of funding (the amount raised).

The webpage layout of each live equity campaign is shown in Figure 2. Most of

the campaigns post a short video along with a detailed business description. Investors

can see additional documents, such as the business plan, financial statements, and

cash flow forecasts.

Additional information on the right hand side of the page includes the progress

of the campaign, and the number of followers in social networks (i.e., Facebook,

Tweeter, Linkedin, and Google+). Various information about each team member is

also presented in the front page such as his or her picture, position in the company,

background and link to his or her social network profiles (e.g., LinkedIn).

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There are several tabs in addition to “Description”. Under the “Questions”

section, investors can ask entrepreneurs about the firm. They are also able to see prior

questions and answers to those questions. Furthermore, in the “Activity” section,

investors can see a timeline of activities that include who has invested in the firm

(name, and picture) and the timestamp.

Figure 2. Live campaign of FundedByMe

A comparison of FundedByMe with other equity platforms

In this section, we highlight several dimensions of equity crowdfunding

platforms in comparison to FundedByMe. Due to brevity, we focus explicitly on

platforms that have been the subject of prior academic investigation as of now. These

platforms are Crowdcube (Vismara, 2015), ASSOB (Ahlers et al., 2015), Seedrs

(Vulkan et al., 2015), Seedmatch, Innovestment, and Companisto (Hornuf and

Schwienbacher 2015). Table 1 provides details of different platform characteristics.

As shown, all platforms started their operations in 2011 and 2012, with the exception

of ASSOB, which has been active since 2006.

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(Crowdfunding) platforms have adopted two types of a funding model: "All-or-

Nothing" (AON) and “Keep-it-All” (KIA) (Cumming et al. 2014). These models

determine the success of crowdfunding campaigns. In the KIA model, entrepreneurs

can keep all money raised, regardless of whether the stated capital goal is reached. In

the AON model, by contrast, entrepreneurs should reach a pre-set goal to be able to

keep any of the capital raised. All equity crowdfundings that were studied adopted

the AON model.

The majority of platforms allow direct investment by acquiring shares in

entrepreneurial ventures. This effect holds true for all platforms except Companisto.

In Companisto, investments occur through a special purpose vehicle (SPV) (Hornuf

and Schwienbacher 2015). SPV pools together the capital from investors and invests

in the firm.

FundedByMe and ASSOB charge start-ups, respectively, € 500 and $ 4950,

regardless of whether they achieve the pre-set goal. The other platforms only charge a

success fee, which varies from 3.75% to 10% of the total capital raised during the

campaign.

In all platforms except Innovestment, the share price is determined by

entrepreneurs prior to the start of the campaign. In this case, investors only decide to

invest or not and how many shares to buy. Hornuf and Schwienbacher (2015) explain

that Innovestment has designed a three-stage auction. In this model, the number of

investors and the price is determined by investors participating in the auction. The

entrepreneurs only set a minimum accepted price and maximum funding limit.

There is a large heterogeneity among the location of investors who are allowed

to participate in campaigns. FundedByMe has the least restrictive criteria and allows

all investors across the globe to invest in campaigns. Seedrs, Crowdcube and

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Companisto allow European residents to invest in campaigns. ASSOB, Seedmatch,

and Innovestment3 have the most restrictive criteria, allowing only national investors

to acquire shares in posted campaigns.

Finally, ASSOB, Seedmatch, Innovestment, Companisto, and FundedByMe

have no selection criteria and allow anyone over the age of 18 to invest in campaigns.

In Seedrs, investors must “show that they have the professional judgment and

understanding to appreciate the risks of investing in private companies” by answering

an investment authorization questionnaire, or being a “high net worth individual” or a

“sophisticated investor”4. Crowdcube has similar procedure in which investors must

“complete a short questionnaire, which ensures they fully understand the high risk

nature of investing in start-ups and early stage businesses”5.

Reference

Ahlers, G. K. C., Cumming, D., Günther, C., & Schweizer, D. (2015). Signaling in Equity Crowdfunding. Entrepreneurship Theory and Practice.

Hornuf, L., & Schwienbacher, A. (2015). Funding Dynamics in Crowdinvesting. Available at SSRN: http://ssrn.com/abstract=2612998.

Vismara, S. (2015). Information Cascades Among Investors in Equity Crowdfunding. Available at SSRN: http://ssrn.com/abstract=2589619.

Vulkan, N., Åstebro, T., & Sierra, M. F. (2015). Equity Crowdfunding: A New Phenomena. Saïd Business School RP 2015-21 .

3 The websites of Seedmatch and Innovestment are unclear if investors from other countries can invest, as the language of these two platforms is only in German, making it hard for non-German speaking investors to participate.

4 https://learn.seedrs.com/guides/becoming-an-investor/

5 https://www.crowdcube.com/faqs/investing-in-equity/who-can-invest

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Table A1- A comparison of different equity platforms

Platform Country Founding year Model Investment Pitch fee

Success fee Pricing Investor location

Investors

Seedrs UK 2012 AON Direct - 3.75% of raised Posted Europe AuthorizedCrowdcube UK 2011 AON Direct - 6.5% of raised Posted Europe AuthorizedASSOB Australia 2006 AON Direct $ 4950 8.8% of raised Posted Australia EveryoneSeedmatch Germany 2011 AON Direct - 5%-10% of raised Posted Germany EveryoneInnovestment Germany 2011 AON Direct - 5%-8% of raised Auction Germany EveryoneCompanisto Germany 2012 AON SPV - 10% of raised Posted Europe EveryoneFundedByMe

Sweden 2011 AON Direct €500 8% of raised posted Global Everyone

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