Unique Challenges of Decision-Making Process on Crowdfunding Platforms - An Exploratory Study

Crowdfunding gives opportunities to novice entrepreneurs to raise funding for their novel ideas. However, lack of monitoring of projects and funds coupled with the lack of experience of project initiators create high levels of uncertainty for potential funders. In this study, we aim to examine how funders’ decision making process is affected by different types of uncertainty related to the project initiators. Unlike traditional e-commerce where consumers buy a finished product, in patronage based crowdfunding platforms, funders invest in and buy a product that is yet to be finished. This creates a unique uncertainty based on project initiators’ competence. Our results show that uncertainty based on project initiators’ competence and opportunism increase product performance uncertainty. Moreover, the dynamics of project initiator and product uncertainty are affected by the complexity of the product

Equity crowdfunding, shareholder structures, and firm performance

This is the author accepted manuscript. The final version is available from Wiley via the DOI in this record.Research question/issue: This paper provides a first-time glimpse into the postcampaign financial and innovative performance of equity-crowdfunded (ECF) and matched nonequity-crowdfunded (NECF) firms. We further investigate how direct and nominee shareholder structures in ECF firms are associated with firm performance. Research findings/insights: We find that ECF firms have 8.5 times higher failure rates than matched NECF firms. However, 3.4 times more ECF firms have patent applications than matched NECF firms. Within the group of ECF firms, we find that ECF firms financed through a nominee structure make smaller losses, whereas ECF firms financed through a direct shareholder structure have more new patent applications, including foreign patent applications. Theoretical/academic implications: Our findings suggest that there are important adverse selection issues on equity crowdfunding platforms, although these platforms also serve as a catalyst for innovative activities. Moreover, our findings suggest that there is a more complex relationship between dispersed versus concentrated crowd shareholders and firm performance than currently assumed in the literature. Practitioner/policy implications: For policy makers and crowdfunding platforms, investor protection against adverse selection will be important to ensure the sustainability of equity crowdfunding markets. For entrepreneurs and crowd investors, our study highlights how equity crowdfunding and the adopted shareholder structure relate to short-term firm performance.Research Foundation—Flander

Determinants of Startup Funding: The Interaction between Web Attention and Culture

Technology empowers entrepreneurs to pursue alternative funding through platforms like crowdfunding. This research explores significant startup funding factors using Crunchbase. Controlling for common factors (acquisition/funding-rounds/IPO), the research uniquely focuses on web attention - the visibility on social media - and its impact on funding. It also examines the moderating influence of startup’s home country culture (individualism/collectivism). Findings show stronger positive impact of web attention on startup funding for collectivist countries. While individualistic investors value personal goals, collectivists value collaborative goals - inclinations that align with crowdfunding behavior. Therefore while increasing web attention, crowdfunding efforts can be targeted towards collectivist countries

Crowdfunding's potential in the South African entrepreneurial ecosystem: Is there a role to play in catalysing venture capital?

The purpose of this research is to examine the potential influence crowdfunding could have on the early-stage financing ecosystem in South Africa. Particularly, how it could affect entrepreneurial deal flow as well as inform the venture capital decision-making process. The primary aim of this research is to explore the due diligence practices and perceptions of venture capital fund managers, angel investors and entrepreneurs to ascertain the extent to which crowdfunding can be incorporated into the South African entrepreneurial ecosystem and inform the investment process. The researcher, therefore, intends that this research enhance venture capital investment decision-making capabilities while adding to the existing body of knowledge on early-stage investing. Ultimately, it is hoped that the results of this in-depth study will accelerate the development of the venture capital industry in South Africa and unlock early-stage seed capital whilst promoting entrepreneurial activity and possibly providing insight and guidance to entrepreneurs faced with the challenging task of accessing financing. The researcher anticipates that the finding of this research will likely be of interest to players in the VC and early-stage new venture financing industry, including fund managers, investors, entrepreneurs and crowdfunding providers. The findings might impact the investment process, which has direct implications for capital providers, fund managers and fund seekers. Furthermore, this research might be of interest to researchers and those in academia concerned with this field, who might then conduct similar studies or decide to expand the research in new directions. By investigating crowdfunding's potential within the VC investment decision-making process, it is anticipated that the findings might be fed back into the marketplace and inform future VC investments in South Africa

Gender Differences in Equity Crowdfunding

Online peer-to-peer investment platforms are increasingly popular venues for entrepreneurs and investors to engage in financial transactions without the involvement of banks and loan managers. Despite their purported transparency and lack of bias, it is unclear whether social inequalities present in traditional capital markets transfer to these platforms as well, impeding their hoped revolutionary potential. In this paper we analyze nearly four years' worth of data from one of the leading UK-based equity crowdfunding platforms. Specifically, we investigate gender-related differences in patterns of entrepreneurship, investment, and success. In agreement with offline trends, men have more activity on the platform. Yet, women entrepreneurs benefit of higher success rates in fund-raising, a finding that mimics trends seen on some rewards-based crowdfunding platforms. Surprisingly, we also find that female investors tend to choose campaigns that have lower success rates. Our findings contribute to a better understanding of gender-related discrepancies in success on the online capital market and point to differences in activity that are key factors in the apparent patterns of gender inequality

Potencial do crowdfunding cívico para a inteligência das cidades e a inovação social: um estudo exploratório

The concepts of smart city and social innovation in combination with the increasing use of ICT by citizens and public authorities could enhance the involvement of people on the decisions that directly affect their daily life. A case study approach was adopted to illustrate the potential of civic crowdfunding for increasing the participation and collaboration between citizens, firms and government. The analysis of two exemplary cases shows that civic crowdfunding platforms could be used by public administration to engage communities in the search of solutions to local problems. Likewise, it could be used to reinforce the community ties and to leverage the bonds among the stakeholders and the partners of the community ecosystem

The role of venture capital in the emerging entrepreneurial finance ecosystem: future threats and opportunities

The last decade has seen the emergence of alternative sources of early-stage finance, which are radically changing and reshaping the start-up eco-system. These include incubators, accelerators, science and technology parks, university-affiliated seed funds, corporate seed funds, business angels \u2013 including \u201csuper-angels\u201d, angel groups, business angel networks and angel investment funds \u2013 and both equity- and debt-based crowdfunding platforms. In parallel with this development, large financial institutions that have traditionally invested in late-stage and mature companies, have increasingly diversified their investment portfolios to \u201cget into the venture game\u201d, in some cases, through the traditional closed-end funds model and, in other cases through direct investments and coinvestments alongside the closed-end funds. This paper reviews the main features, investment policies and risk-return profiles of the institutional and informal investors operating in the very early stage of the life cycle of entrepreneurial firms. It concludes that traditional closed-end venture capital funds continue to play an important role in early stage finance because of their unique competences (e.g. screening, negotiating and monitoring) in what has become a wider and more complex financing ecosystem

Crowdfunding In Norway: Empirical Study Examining Entrepreneurs' Intentions to Use Crowdfunding

This master's thesis investigates the drivers and inhibitors influencing the intention of entrepreneurs to use crowdfunding as a financing method, with a focus on the potential distinctions between native and immigrant entrepreneurs in Norway. Crowdfunding has emerged as an inclusive alternative source of finance, enabling individuals and businesses to overcome traditional funding limitations. Immigrant entrepreneurs, in particular, face unique challenges when seeking financial capital from conventional sources. However, research exploring the intention to adopt crowdfunding by entrepreneurs is limited. Using an empirical analysis based on online survey data from 231 entrepreneurs in Norway, this study aims to bridge the research gap by identifying the factors shaping entrepreneurs' intentions to use crowdfunding. The study reveals that there are three key drivers positively impacting the intention to use crowdfunding by entrepreneurs in Norway: (1) being an immigrant, (2) perceived trust in the crowdfunding platform, and (3) the perceived usefulness of crowdfunding for their business venture. On the other hand, immigrant entrepreneurs demonstrated a higher intention to use crowdfunding, while native Norwegian entrepreneurs exhibited greater trust in the platform, stronger social capital within Norway, and increased access to financing through public grants and private investors. The thesis begins with a literature review of existing research on crowdfunding, focusing on entrepreneurs' motivations. Subsequently, 13 hypotheses were presented and tested using the quantitative research method. The thesis concludes by summarizing key contributions, acknowledging limitations, and providing insights for further research and implications for crowdfunding platforms and entrepreneurs in Norway

Guiding the Herd: The Effect of Reference Groups in Crowdfunding Decision Making

Despite their popularity, crowdfunding platforms are experiencing negative headlines as fully funded projects continue to fail delivering the products on time. Current literature postulates that funders make decisions by following the decisions of the crowd, and this herd behavior leads to less than optimal decisions. One explanation of the negative externalities of such behavior is the misfit between the information provided by the crowd and the information needed by funders. Especially in patronage crowdfunding, funders are investors and buyers at the same time. This duality coupled with the lack of supervision of projects creates unique challenges. In addition to opportunism uncertainty, funders face competence uncertainty. This study provides evidence that social information gathered from reference groups decrease these uncertainties. Further investigation showed that different reference groups provide different types of social information and product complexity plays a role in the uncertainties experienced and the importance given to different reference groups