Unraveling Success in Equity Crowdfunding: Exploring Herding Effects Induced by the Influence of Professional Investors

The rise of crowdfunding has transformed the funding landscape for startups, offering an alternative to conventional financing avenues. This study focuses on equity crowdfunding and investigates the dynamics of herding behavior among investors and its influence on campaign success. We analyze 680 equity crowdfunding campaigns from Wadiz, the largest platform in South Korea (2016–2021). In contrast to traditional funding, equity crowdfunding creates a two-sided market through its platform-based service, fostering interactions between entrepreneurs seeking funds and investors seeking opportunities. The time-limited nature of campaigns further encourages sequential decision-making and potential herding behavior. Unlike prior studies that have predominantly emphasized entrepreneurial and campaign-related factors, this study highlights the pivotal role of investor behavior, recognizing fellow investors as valuable signaling entities within the platform. Using OLS regression, logistic regression, interaction analysis, and Propensity Score Matching (PSM), we find that early participation by professional investors increases the odds of campaign success by approximately 14%. Furthermore, the effect is more pronounced in the IT industry, where information asymmetry is especially severe. Our findings demonstrate the signaling role of professional investors in mitigating information asymmetry and improving campaign outcomes, providing actionable insights for entrepreneurs, investors, and platforms in the evolving landscape of equity crowdfunding.