An Empirical Study on How Lead-investor System Affects Start-up’s Financing on Equity Crowdfunding Platforms

Currently, a majority of the domestic equity crowdfunding platforms adopt so-called leader-follower investor paradigm. The article holds that this kind of phenomena does not happen by accident. We argue that this institution is created for the purpose of mitigating adverse selection and moral hazard problems stemmed from information asymmetricity between investors and start-up entrepreneurs. Based on the data from eight major domestic equity-based crowdfunding platforms, we find there exists a significant positive relationship between the presence of the lead-investor and the possibility of a successful funding campaign, and the raising amount justifies that the lead investor indeed plays an important role in the equity crowdfunding process. The policy implication of this paper is that the start-up or the platform should attach much importance to the role of leaders to improve the possibility to successfully launch a capital raising campaign.