Lars Hornuf

Crowdinvesting – Angel Investing for the Masses?

The chapter reviews knowledge of crowdinvesting (or equity crowdfunding). Crowdfunding has emerged over the past decade as a new and promising means of financing new ventures. Crowdfunding includes a broad range of activities, such as donations, pre-purchase and other reward-based forms of funding by the crowd as well as debt and equity financing. The authors focus on a sub-category of crowdfunding that can be defined as ‘crowdinvesting’ – Internet-based investment in new ventures by the crowd with the intention to obtain some residual claim on future cash flow of a venture. As a new development in the market it raises questions regarding the boundaries between crowdinvestors and business angels. The aims of the chapter are to describe the function of crowdinvesting and to analyze the similarities and differences between crowdinvesting and angel investing. The authors argue that in many cases, crowdinvestors are likely to complement rather than substitute business angels and venture capital funds.

Incorporating under European Law: The Societas Europaea as a Vehicle for Legal Arbitrage

After a slow start, the European Company (Societas Europaea — SE) has become increasingly popular. Besides documenting the growth of this new company type, we examine whether firms choose to incorporate in the SE corporate form because they engage in ‘legal arbitrage’ by exploiting differences in legal rules between jurisdictions. We specify a number of hypotheses on particular legal arbitrage motives. To validate our hypotheses, we use a broad telephone survey among SE users in Germany as well as a simple country-level regression model based on a unique, hand-collected dataset on SE incorporations. We find strong evidence that firms use the SE to mitigate the effect of mandatory co-determination rules. Establishing a one-tier board structure (in jurisdictions that impose a two-tier structure on their national public companies) and taking advantage of the SE’s mobility for tax purposes also seem to be driving SE formations. By contrast, our analysis fails to support the suggestion that firms use the SE to shop for the most favourable national company law to fill the gaps in the SE Regulation.

Should Securities Regulation Promote Equity Crowdfunding

In this paper, we show that too strong investor protection may harm small firms and entrepreneurial initiatives, which contrasts with the traditional “law and finance” view that stronger investor protection is better. This situation is particularly relevant in equity crowdfunding, which refers to a recent financial innovation originating on the Internet that targets small and innovative firms. In many jurisdictions, securities regulation offers exemptions to prospectus and registration requirements. We provide an into-depth discussion of recent regulatory reforms in different countries and discuss how they may impact equity crowdfunding. Building on a theoretical framework, we show that optimal regulation depends on the availability of an alternative early-stage financing such as venture capital and angel finance. Finally, we offer exploratory evidence from Germany on the impact of securities regulation on small business finance.

Does Charter Competition Foster Entrepreneurship? A Difference-in-Difference Approach to European Company Law Reforms

We study how company law reforms, particularly the reduction or abolition of minimum capital requirements, in various European jurisdictions affect the decision of entrepreneurs to incorporate by means of a private limited liability company (LLC). Since the landmark rulings of the European Court of Justice (ECJ) in the years 1999, 2002 and 2003, entrepreneurs in the European Union (EU) have been able to choose the country of incorporation independently of their real seat. As a result, the proliferation of the UK private company limited by shares has posed a competitive threat to many European legislators. We analyze whether the reforms adopted in Spain, France, Hungary, Germany and Poland have promoted the popularity of domestic legal forms and encouraged entrepreneurship more generally. Using a difference-in-difference approach, we record a strong impact in both respects, especially if the minimum capital requirement was reduced or abolished.

The (True) Legacy of Two Really Existing Economic Systems

By running an experiment among Germans collecting their passports or ID cards in the citizen centers of Berlin, we find that individuals with an East German family background cheat significantly more on an abstract task than those with a West German family background. The longer individuals were exposed to socialism, the more likely they were to cheat on our task. While it was recently argued that markets decay morals (Falk and Szech, 2013), we provide evidence that other political and economic regimes such as socialism might have an even more detrimental effect on individuals’ behavior.

How Does the Market React to the Societas Europaea

When Council Regulation (EC) No 2157/2001 on the Statute for a European Company (Societas Europaea — SE) became effective on 8 October 2004, it offered existing publicly traded companies, for the first time, a choice between competing company laws, namely the national law of the company’s home state and the law of the supranational SE. Using an event study methodology, we analyse a unique dataset of publicly traded firms that have announced to re-incorporate under the SE Regulation.

Cut From the Same Cloth Similarly Dishonest Individuals Across Countries

Norms for dishonest behaviors vary across societies, but whether this variation is related to differences in individuals’ core tendencies toward dishonesty is unknown. We compare individual dishonesty on a novel task across 10 participant samples from five countries varying in corruption and cultural values. In each country, a die-rolling task was administered to students at major public universities and the general public in coffee shops. A separate group of participants in each country predicted that dishonesty would vary across countries and demonstrated a home country dishonesty bias. In contrast to predictions from independent samples, observed dishonesty was limited in magnitude and similar across countries. We found no meaningful relationships between dishonesty on our task and macro-level indicators, including corruption ratings and cultural values. These findings suggest that individuals around the world are similarly dishonest at their core.

Internet-Based Entrepreneurial Finance: Lessons from Germany

The Internet-based crowdinvesting market in Europe has developed significantly since its start in 2007 and has become an alternative source of finance for entrepreneurs to sell securities through the Internet to small investors. This market evidences a great variety in platform design and contract forms used by crowdinvesting platforms. By analyzing more detailed, hand-collected data on the complete set of successful and unsuccessful crowdinvesting campaigns run in Germany, this article tests whether different platform and contractual mechanisms affect crowd participation. The results show that crowd participation is largest when the minimum ticket size is small, the crowd is pooled in a financial vehicle, and the crowd is offered investments in the form of profit-participating loans. Moreover, the very same mechanisms increase the chances of achieving successful campaigns and raising a larger amount.

Contracting Employee Involvement: An Analysis of Bargaining Over Employee Involvement Rules for a Societas Europaea

Following a slow start, the European Company (Societas Europaea – SE) has become a popular legal form amongst European firms. It is rendered attractive by corporate governance features such as the contractual freedom of capital and labor to design a firm-specific employee involvement regime. By analyzing what has been settled for in such agreements, we investigate whether national mandatory employee involvement rules are efficient and which factors impede firm-specific bargained-for solutions.

Equity Crowdfunding in Germany and the UK: Follow-Up Funding and Firm Failure

Today, start-ups often obtain financing via the Internet through many small contributions of non-sophisticated investors. Yet little is known about whether these start-ups can ultimately build enduring businesses. In this paper, we hand-collected data from 38 different equity crowdfunding (ECF) portals and 656 firms that ran at least one successful ECF campaign in Germany or the United Kingdom. The evidence shows that German firms that receive ECF stand a higher chance of obtaining follow-up funding through business angels or venture capitalists and have a relatively lower likelihood to survive. We find firm age, the average age of the management team, and excessive funding during the ECF campaign all have a negative effect on firms’ likelihood to obtain post-campaign financing. By contrast, the number of senior managers, registered trademarks, subsequent successful ECF campaigns, crowd exits, and the amount of the funding target all have a positive impact. Subsequent successful ECF campaigns, crowd exits, and the number of venture capital investors are significant predictors reducing firm failure. Finally, we find that some of these factors have a differential impact for Germany and the United Kingdom.