Do early birds catch the worms? The role of early-bird terms in startup crowdfunding
Yi Wu, Zhimei Wen, Xiaopan Wang, Yangsheng Zhang, Ben ChoiPurpose
Equity crowdfunding is an increasingly vital source of financing for startup companies. To attract early investors and take advantage of an observed herding effect in online crowdfunding, platforms have introduced the promotional strategy of “early bird” terms (EBT). Based on signaling theory, we investigate the influence EBT has on crowdfunding performance and post-investment engagement, and the moderating role of valuation.
Design/methodology/approach
We empirically tested a set of hypotheses by analyzing archival data from a leading equity crowdfunding platform that had implemented EBT.
Findings
We find EBT has significant negative impacts on fundraising performance and investors' post-investment engagement, which is detrimental to sustaining long-term investor interest in the campaign. In addition, enterprise valuation amplifies the negative relationship between EBT and fundraising performance, but does not significantly affect post-investment engagement.
Practical implications
To enhance equity crowdfunding outcomes, platforms should regulate EBT use, improve campaign vetting, and monitor incentive impacts. Entrepreneurs must balance EBT's appeal with valuation consistency. Investors, especially novices, should evaluate EBT critically, focusing on campaign fundamentals and long-term value to avoid being misled by short-term, superficial cues.
Originality/value
This study enriches existing literature on online crowdfunding and signaling theory by providing new insights into signaling effectiveness. It highlights the overlooked impact of negative signals, reveals how incentive and financial signals interact, and introduces post-investment engagement as a novel measure of investor behavior, offering a dynamic view of crowdfunding performance.