A Mixed-Methods Approach to Understanding Funder Trust and Due Diligence Processes in Online Crowdfunding Investment

We report on two studies undertaken to establish the factors that affect funders’ trust and likelihood to invest in crowdfunding campaigns online. Findings from an initial small-scale qualitative study are reported and subsequently triangulated in a larger quantitative survey. Across these studies, we demonstrate the importance of social information within the peer economy, with a strong reliance on other users across the course of the investment decision-making process. Decision making on whether to invest is informed not only by the content of the crowdfunding campaign page but also by social influence factors that are present (e.g., liking of the campaigner, reciprocity). It is further shaped by due diligence checks focused on the progression of the prototype for which funding is sought, and by assurances from outside the campaign page—namely on social media. Such assurances center around the importance of social proof, garnered through opinions of previous customers or other funders. The risk here is that much of this information is content that can be faked, and as such a reliance on this may leave potential funders vulnerable. Meanwhile, a genuine lack of prior experience and customer base means that some legitimate campaigners struggle to gain trust from potential investors who are reliant on such social information. Our findings present an empirical grounding to develop future security solutions that (1) protect existing funders and (2) increase potential funders’ level of trust, to encourage their engagement with legitimate crowdfunding campaigns

A Resource dependence perspective on crowdfunded social enterprises

Succeeding as a social enterprise is challenging because its performance, legitimacy, and autonomy emerge from the social-economic tensions inherent in its operation. Social enterprises tend to shield themselves from external demands and pressures if they fail to fulfil their dual mission, creating challenges in resource acquisitions. Accordingly, such challenges fundamentally change the relationship between social enterprises and resource providers. Therefore, social enterprises often struggle to acquire resources; thus, they need innovative forms of resource acquisition. By adapting resource dependence theory and data collected from social enterprises, this study investigates the role of reward-based crowdfunding in social enterprises’ performance and how the legitimacy and autonomy of social enterprises mediate such a relationship. The findings show that reward-based crowdfunding does not directly or indirectly shape the performance of social enterprises. Nevertheless, the findings indicate that crowdfunding increases the legitimacy of social enterprises. Moreover, although crowdfunding does not appear to be related to the autonomy of social enterprises, autonomy itself supports the social and innovation performance of social enterprises. Thus, this study challenges the expected positive role of crowdfunding in social enterprises’ performance but shows that crowdfunding continues to benefit social enterprises as it increases their legitimacy. Theoretically, this study suggests legitimacy can be an end in itself for social enterprises. These results support a characterisation of resource dependence theory as a sociological theory in which establishing social acceptability is important in its own right. However, the findings contradict the view of resource dependence theory as a theory of organisational performance. The missing link between resource acquisition, legitimacy, and performance suggests that resource dependence theory can explain organisational actions with societal acceptance rather than financial performance. Moreover, the findings indicate that autonomy is an essential characteristic of social enterprises allowing organisations to pursue different goals, which can protect against potential mission drift. Correspondingly, the study contributes to practices by showing that reward-based crowdfunding is a practical utility that can solve managerial problems related to attaining legitimacy. This study shows that crowdfunding is still a fledgling field for enabling social entrepreneurship; therefore, this study contributes to the current societal and governmental discussions on the financial inclusion of social enterprises within social economy policies.Resurssiriippuvuusteoreettinen näkökulma joukkorahoitettuihin yhteiskunnallisiin yrityksiin Yhteiskunnallisen yrityksen menestyminen on haastavaa, koska sen tuloksellisuus, legitimiteetti ja autonomia rakentuvat sen toimintaan sisältyvistä sosioekonomisista jännitteistä. Yhteiskunnalliset yritykset pyrkivät suojautumaan ulkoisilta vaatimuksista ja paineilta, jos ne eivät täytä taloudellista ja yhteiskunnallista kaksoisrooliaan, mikä luo haasteita resurssien hankintaan. Tällaiset haasteet muuttavat perusteellisesti yhteiskunnallisten yritysten ja resurssien tarjoajien välisiä suhteita. Yhteiskunnallisilla yrityksillä on usein vaikeuksia hankkia resursseja ja ne siksi tarvitsevat innovatiivisia keinoja resurssien hankkimiseksi. Resurssiriippuvuusteoriaa ja yhteiskunnallisilta yrityksiltä kerättyä tutkimusaineistoa yhdistämällä tässä tutkimuksessa tutkitaan palkkioperusteisen joukkorahoituksen roolia yhteiskunnallisten yritysten menestyksessä ja miten yritysten legitimiteetti ja autonomia välittävät tätä roolia. Tutkimuksen tulokset osoittavat, että palkkioperusteinen joukkorahoitus ei suoraan tai välillisesti muokkaa yhteiskunnallisten yritysten menestystä. Tulokset kuitenkin osoittavat, että palkkioperusteinen joukkorahoitus lisää yhteiskunnallisten yritysten legitimiteettiä. Lisäksi vaikka joukkorahoitus ei näytä vaikuttavan yhteiskunnallisten yritysten autonomiaan, autonomia itsessään tukee yritysten sosiaalista ja innovaatiokyvykkyyttä. Tulostensa myötä tämä tutkimus haastaa joukkorahoituksen oletettua myönteistä roolia yhteiskunnallisten yritysten menestymisessä, mutta osoittaa, että palkkioperusteinen joukkorahoitus hyödyttää yhteiskunnallisia yrityksiä vahvistamalla niiden legitimiteettiä. Teoreettisesti tutkimus osoittaakin, että legitimiteetin saavuttaminen voi olla päämäärä yhteiskunnallisille yrityksille. Siten tulokset tukevat resurssiriippuvuusteorian luonnehdintaa sosiologiseksi teoriaksi, joka korostaa sosiaalisen hyväksyttävyyden vahvistamista. Tutkimuksen havainnot ovat kuitenkin myös ristiriidassa resurssiriippuvuusteorian näkemyksen kanssa organisaation menestymisen teoriana. Puuttuva linkki resurssien hankinnan, legitimiteetin ja organisaation menestyksen välillä viittaa siihen, että resurssiriippuvuusteoria voi selittää organisaation toimintaa, jolla on yhteiskunnallinen hyväksyntä taloudellisen menestymisen sijaan. Lisäksi tutkimuksen havainnot viittaavat siihen, että autonomia on yhteiskunnallisten yritysten olennainen ominaisuus, jonka ansiosta ne voivat saavuttaa erilaisia tavoitteita, jotka puolestaan voivat suojata yrityksiä mahdolliselta toiminnan tavoitteiden muutoksilta. Näin ollen tämä tutkimus osoittaa käytännön suosituksena, että palkkioperusteinen joukkorahoitus voi ratkaista organisaation legitimiteetin saavuttamiseen liittyviä johtamishaasteita. Lisäksi tutkimus osoittaa, että joukkorahoitus on vielä kehittyvä ala yhteiskunnallisen yrittäjyyden mahdollistajana, ja siksi tutkimuksen tulokset edistävät nykyistä yhteiskunnallista ja poliittista keskustelua yhteiskunnallisten yritysten taloudellisesta osallisuudesta talous- ja sosiaalipolitiikassa

Crowdfunding Signals

Entrepreneurs can now “crowdfund,” or sell securities to unaccredited investors over the Internet, to raise capital. But will these companies be able to attract the follow-on investors (angels and venture capitalists) that are necessary for long-term success? Angels and VCs face extreme levels of information asymmetry when deciding whether to fund a company. Signals can reduce this asymmetry. Early commentary argues a company only crowdfunds as a last resort for fear of sending a negative signal about the company’s quality to follow-on investors. This Article argues the inverse. This Article argues a successful crowdfunding campaign can send a positive signal of a company’s quality to angels and VCs.As this Article explains, crowdfunding can be a savvy move for entrepreneurs for both social and financial reasons. Crowdfunding, perhaps more than any other strategy, shows real-world demand for a company’s product or service. For this and other reasons explored in the Article, crowdfunding sends a positive signal of firm quality, and thus should not disadvantage entrepreneurs without wealth or connections who depend on crowdfunding to raise funds. The Article also posits that crowdfunding signals may reduce the need for crowdfunding disclosures, thus making the process more affordable to entrepreneurs

The Risk of Money Laundering Through Crowdfunding: A Funding Portal\u27s Guide to Compliance and Crime Fighting

With the recent passage of the Jumpstart Our Business Startups Act (“JOBS Act”) and proposed regulations, equity crowdfunding is poised to play an important role in fundraising for many types of emerging growth companies. A fundamental purpose of crowdfunding is to reduce economic barriers to capital markets for emerging growth companies, in part by relaxing rigorous information disclosure requirements currently mandated by the Securities and Exchange Commission (“SEC”). Relaxed regulation should help reduce the cost of fundraising, but it will also present certain risks. Investor fraud is a common concern, which is addressed at length in the JOBS Act and related regulation. Perhaps less obvious, but nonetheless present, is the risk of money laundering, which is the subject of this Note

Why do people patronize donation-based crowdfunding platforms? An activity perspective of critical success factors

As a special type of social information systems, crowdfunding platforms draw researchers’ attention in recent years for their increasing popularity. In supplement to big-data analyses on user-generated content, behavioral research using survey and interview observations provide insights on why people like or hesitate to use such platforms. Nevertheless, extant studies focus on user intention and equity/reward-based projects, leaving the knowledge body on why people actually engage in donation-based crowdfunding underdeveloped. Based on Activity Theory, this study explores the critical success factors of crowdfunding in terms of website acceptance, crowd familiarity, and donation reciprocity. It then develops a research model that adapts relevant constructs from e-commerce and charitable behavior literature to predict user trust and readiness leading to actual donation. To test the hypothesized relationships, a structural equation modeling analysis was conducted on 744 survey responses collected from crowdfunding platform users in multiple countries. Results provide supporting evidence to most hypotheses and reveal the influential factors of technological utilization and social collaboration in the crowdfunding activity

Code for all: a case study in entrepreneurial finance - evaluation of a social impact start-up from a venture capital firm-s perspective

While the many examples of start-up funding journeys offer a large basis for analysis, the scarcity of social impact ventures leaves many pending questions about funding these types of ventures. We review the history of a Portuguese start-up named “Code For All” by creating a case study. We draw conclusions on which typology of financing fits best with the social impact start-up, analyze how a venture capital firm would assess and value Code For All, and lastly determine a rationale of how such a venture could quantify their impact on society