The role of funding portals as signaling offering quality in investment crowdfunding

We examine the effect of the issuer fee paid to portals on the success of investment crowdfunding using 1,694 offerings launched in the US during May 2016 – September 2019. We show that a mixed issuer fee (i.e. fixed gross fee and a share of securities) influences the probability of success, suggesting a positive signaling-effect that mitigates adverse selection problems between retail investors and issuers. Specifically, the use of a mixed issuer fee increases the probability of success by 33.5%. This effect remains after controlling for other information-risk-reducing mechanisms and it is contingent on firm-level characteristics.