Entrepreneurial Team Size and Fundraising Success: Evidence from Equity Crowdfunding

Abstract

How does entrepreneurial team size affect fundraising success? Theory and prior evidence are contradictory or inconclusive at least. Indeed, a resource dependency theory perspective suggests that larger teams have access to more resources, which should positively affect fundraising success. In contrast, a team effectiveness perspective suggests that larger teams incur higher coordination costs, which should negatively affect fundraising success. We address this theoretical paradox by arguing for a curvilinear effect between team size and fundraising success. By drawing on the liabilities of newness and smallness perspectives, we further argue that firm age and size will serve as important moderators. For this study, we exploit data from equity crowdfunding (ECF) markets. In Study 1, we examine the population of 2,942 initial ECF offerings from three ECF platforms in the UK. We provide first-time evidence of the inverted U-shaped relationship between entrepreneurial team size and the fundraising success of the ECF offering. Specifically, an entrepreneurial team of four members exhibits the highest probability in terms of ECF offering success. Moreover, we show that the inverted U-shape is stronger for younger and smaller firms relative to older and larger firms, respectively. In Study 2, we examine 256 initial ECF offerings from an Italian ECF platform and find broadly consistent results on the inverted U-shaped relationship between entrepreneurial team size and fundraising success.