| dc.description.abstract | Equity crowdfunding is a relatively new phenomenon that allows non-professional investors to invest in potentially high-value startups. Although some view this as an opportunity to decrease societal inequalities, others are concerned that bloated valuations will leave investors with insufficient risk-adjusted returns. In our thesis, we sought to determine whether equity crowdfunded companies are overvalued. We compared company valuations on two Norwegian equity crowdfunding platforms to valuations in comparable Norwegian venture capital transactions using a Welch’s t-test across the two groups in their entirety as well as several t-tests on defined subsets of these groups.
Our results suggest that valuations on crowdfunding platforms are, on average, 44% to 52% higher than those professional investors face. We discuss these results in light of theory on startup valuation and agency theory and find a lack of arguments that could reasonably justify the difference in valuations. Hence, we conclude that crowdfunded companies appear to be overvalued. We suggest these overvaluations might be attributed to potential venture capital discounts and to the fact that startups listing on crowdfunding platforms can choose their own valuation, while the platforms lack incentives to negotiate this valuation on behalf of investors. Although overvalued companies imply that crowdfunding investors will achieve inferior risk-adjusted returns compared to professional investors, further research on performance over time is needed to determine if this holds true.
Keywords: equity crowdfunding, startup valuation, venture capital, agency theory | en_US |
