Abstract

The exponentially increasing demand for alternative methods of finance has fueled global growth of crowdfunding. This paper explores how equity crowdfunding platforms can determine the value of shares for equity funding projects. Following the systematic review framework of Tranfield et al. (2003), we collate literature on valuation methods among venture capitalists (VCs) and angel investors (BAs) to provide a structured analysis of valuation techniques that can be used by equity-based crowdfunding platforms (ECFs). We consider research articles from top peer-reviewed journals published in five electronic databases, namely Science Direct, Emerald Insights, Taylor & Francis, SpringerLink and Wiley. By consolidating these valuation methodologies, the review seeks to enhance clarity in valuation practices and contributes to a more standardized approach for investors, entrepreneurs, and policymakers. Our review demonstrates that professional investors employ a variety of valuation techniques depending on the industry, growth stage, and associated risk. Although venture capitalists prioritize financial metrics, both BAs and VCs include qualitative aspects in their evaluation of ventures, start-ups and the like. We find that although quantitative approaches provide an objective foundation for investment decisions, they are often constrained by information asymmetry, especially in the case of young ventures, and similar investment opportunities relating to start-ups. Consequently, qualitative approaches, including the entrepreneur’s credibility, business model scalability, and institutional policy environments, are found to play to weigh in shaping investment decisions. Our review also underscores the complexities faced by non-professional investors in the context of ECFs. Investors that lack the expertise and resources (available to VCs and BAs) are unable to conduct extensive due diligence, which may mean that ordinary investors must rely on entrepreneur-volunteered financial disclosures, ECF platform-provided information or other social cues identified in the literature. In crowdfunding environments, therefore, traditional valuation methods raise concerns. We believe that a more structured and standardized approach to valuation in ECF is needed. Policymakers and platform operators should consider mechanisms that enhance transparency, investor education, and due diligence support to bridge the gap between professional and non-professional investors.

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