Responses to COVID-19: the role of digital equity and government loan schemes

The advent of COVID-19 portended a dire liquidity crunch for small firms as traditional funding sources were curtailed. Defying expectations, initial equity crowdfunding (ECF) campaigns not only withstood the pandemic's onslaught but also saw unprecedented growth in funding volume, investor participation and overfunding (amount/target). This anomaly suggests a paradigm shift. External equity, the traditional funding of last resort, became the first choice. This paper documents that government-backed loan guarantees served as a liquidity certification effect for ECF campaigns, especially for seed ventures, thus substantiating ECF's potential as a digital lifeline. The paper highlights the unanticipated positive interplay between public support mechanisms and private equity dynamics bolstering the thesis of a reverse pecking order where equity is funding of first choice. These developments underscore ECF's instrumental role in channelling equity capital to small firms during a period of heightened economic uncertainty.