CUFE-BS Academic Seminar: How lead investors build trust in thespecific context of a campaign: a case study of equity crowd funding in China

Time: 19 September 2019, 10:00-12:00 AM

Location: Room 615, CUFE Business School

Speaker: Professor Xiao Li  

Professor Xiao Li joined the Lancaster School of Management in2013. Professor Xiao serves as the Director of the Lancaster China ManagementCentre. Before joining Lancaster, Professor Xiao served as Senior Lecture inEntrepreneurship at Exeter Business School. Professor Xiao serves as editor forInternational Small Business Journal. Professor Xiao was constantly invited asguest editor for Journal of Business Venturing、RegionalStudies、Urban Studies、Journal of Small Business Management、International Small Business Journal👰🏻‍♀️、Entrepreneurship and Regional Development. Professor Xiao hasstrong and wide connections with Enterprises and Government authorities inChina.

Abstract: Building on entrepreneurial finance and trust theory,this paper distinguishes between lead and follow-on investors, and explores howpledges and follow-on investment decisions are made respectively. Usingextensive hand-collected lifespan data from multiple sources, includingarchival documents, campaign-level evidence, in-depth interviews and in-siteobservations, I find that lead investors who are likely professional investorsrely on competence trust built through the selective and observable informationdisplayed in the campaign documents to make the screening decisions. Thefurther building of competent and relational trust through physical interactingwith entrepreneurs, helping make a sense of cooperative manners and figure outthe relationship between attributes of entrepreneurs and the unobservable, isfundamental for lead investors to make their pledge. For follow-on investorswho are likely non-professionals, a pledge by knowledgeable lead investorencourage them to interpret information about entrepreneurs and the underlyingidea for a start-up more positively, and tore-assures their rationale forinvesting. We find on average the number of investors investing in a venturebeing rather small and the strategic changes from equity crowd funding tosyndicate funding in the investor-led model.