Final answer:
Equity crowdfunding involves the co-investment and nominee models for raising funds. Co-investment includes experienced investors investing with the crowd, adding validation. The nominee model centralizes share management to streamline processes and represent investor interests, helping mitigate agency problems but potentially limiting individual control.
Step-by-step explanation:
Co-Investment and Nominee Models in Equity Crowdfunding
Equity crowdfunding is a way for companies to raise capital by selling small stakes to many investors, typically via online platforms. In the co-investment model, more experienced investors or institutions may invest alongside the crowd, often providing a sense of validation for the investment opportunity. The nominee model involves a nominee or trustee holding the shares on behalf of the crowd of investors to manage shareholder affairs more efficiently.
Examples of platforms using the co-investment model include Seedrs and Crowdcube, where they often have lead investors who co-invest. The nominee model is also used by platforms like Seedrs, where the platform itself acts as the nominee. By consolidating the investment, they reduce the administrative burden on the company and help manage investor relations.
These models aim to mitigate agency problems by ensuring professional oversight and centralized management. In the co-investment model, the presence of a lead investor can reduce information asymmetry because it signals vetting and confidence in the investment. The nominee model mitigates potential conflicts of interest and coordination problems among a large number of small investors by having a single point of contact that represents their interests. However, these models can exacerbate risks associated with limited direct control for individual investors and possible over-reliance on the lead investors' due diligence.