Investor Risks in Crowdfunding: A Risk Study of the Danish Crowdfunding Market

Jakob Aaes Granlund & Michael Hansen

Student thesis: Master thesis


In recent years, crowdfunding with its promise of a new and innovative way of investing, has gained ample traction within the Danish investing community. This paper explores the main risk areas which Danish crowdfunding investors must be attentive of, to avoid incurring unforeseen costs. As crowdfunding is new and largely unknown territory for many investors, associated risks of the intermediary platforms, may not be transparent. The paper is based on the classical economics and governance theories of transaction costs and principal-agent problems. In order to explore the most impactful risk areas, four Danish platforms, namely Lendino, Flex Funding, Kameo and Brickshare, are used as empirical basis. Six crowdfunding related risk areas are identified and analyzed, these being regulation, governance, credit assessment, taxation, concentration, and liquidity. Through our analysis it is determined that the risk area with the highest impact is the degree to which a platform is regulated. Ensuring proper regulation of a platform, will provide investors protection from losing funds and avoiding opportunistic platform-management behavior. However, the importance of other areas such as concentration of investments, liquidity and credit assessment practices should not be neglected. We find that as crowdfunding markets are still maturing, risks found in more mature financial markets such as liquidity and concentration may be more prominent here. This is visible from changes in the economic cycle having a severe impact on market liquidity, as well as concentration risk leading to high idiosyncratic risk. Lastly, based on theory of bond risk premia, we examine the loan book of Flex Funding, with an expectation of being able to observe a default risk-, term- and small firm premium. From our observations however, we only find indications of a default risk premium being present. Due to the current limited data availability, further quantitative analysis will be needed to conclusively provide answers on the presence of risk premia. Ultimately, the paper serves as a practical guidance for investors to navigate the complex risk composition associated with crowdfunding platforms.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final ThesisMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2020
Number of pages140