Secondary market listings in equity crowdfunding: The missing link?

While the prevalence of equity crowdfunding has increased, investors have had very few opportunities to exit such investments. Thus, several equity crowdfunding platforms have started considering the development of secondary markets for buying and selling shares. Using detailed data from the world's first secondary market for equity crowdfunding, we investigate whether plans to list on the secondary market increase investor participation and thus the amount of money entrepreneurs raise during their equity crowdfunding campaigns. We find that in the early days of the secondary market, communicating a listing plan attracted more investors and larger investment sums. However, these effects largely disappeared after the first two years of secondary market operation. We interpret this to stem from investors' recognition of the insufficient liquidity of the secondary market and thus its probable inability to constitute a viable exit route. We also find that ex post, many entrepreneurs forgo listing, especially if their campaigns are not sufficiently successful, which implies significant costs associated with a listing. Our findings offer valuable insights to platforms aiming at launching secondary markets and regulators responsible for validating relevant initiatives. Specifically, we highlight how participation in equity ownership can be increased through well-functioning secondary markets, which however are difficult to achieve within equity crowdfunding.