Equity Allocation in Equity-based Crowdfunding of Startups Based on Lobbying and Reputation Considerations

Abstract

Starting with the problem of information asymmetry in equity-based crowdfunding of startups, this paper analyzes the process of equity-based crowdfunding based on startups, considers the lobbying behavior of startups among lead investors and lead investors’ reputation influence among the following investors, constructs the moral risk model for the participation of startups and lead investors and following investors in equity-based crowdfunding, and demonstrate the optimal equity allocation proportion of startups for their investors. The research shows that when the lobbying degree of the startups or the reputation of the lead investors increase, the minimum capacity standard to satisfy the increase of the optimal equity distribution ratio with the increase of the project income is lower.