Venture capital vs. equity crowdfunding in Finnish entrepreneurial ventures - the strategic reasons behind the choice of funding and the impact on company growth and international expansion
Entrepreneurial ventures are the key drivers of innovation, job creation and economic growth worldwide. These entrepreneurial ventures however require external assistance to be able to compete against bigger players in the global market. It has been recognized that the main issue in hindering growth of these entrepreneurial ventures relates to the lack of financial resources and also partly the lack of knowledge and expertise of global markets. Due to the shortages in available capital, alternative forms of financing have emerged in addition to the more traditional venture capital. One of these emerging forms of financing is called equity crowdfunding, which is essentially collecting monetary investments from a large pool of people through an online platform.
With relation to the often highlighted resource shortages hindering the growth of entrepreneurial ventures, the objective of this study was to investigate the differences between venture capital and equity crowdfunding in the context of Finnish entrepreneurial ventures. In more detail, this research examines the strategic reasons that companies have on choosing their funding instruments and how this choice affects the company’s growth and internationalization in the subsequent years.
The empirical part of this study has been conducted as a multiple case study with six entrepreneurial ventures all operating in the technology sector. In addition the empirical part of this study also utilizes three industry expert opinions in order to provide a more in-depth data collection process. Research data was collected through nine semi-structured thematic interviews, with six interviews with the entrepreneurs of the chosen case companies and three external industry experts, who represented the views and opinions of the venture capital and equity crowdfunding industries.
The findings of this study demonstrate that Finnish entrepreneurial ventures primarily prefer venture capital as their financing instrument. The entrepreneurs perceive that venture capital aids them in their growth and international expansion through the connections and experience of the venture capitalist, while also future funding and exit opportunities were seen as major strategic reasons to choose venture capital. Equity crowdfunding on the other hand was primarily seen as a complicated financing instrument, which is still suffering from the previous legal restrictions, which prevented companies from utilizing online crowdfunding to the fullest potential. Strategic factors related to equity crowdfunding were focused on the additional visibility and market traction it creates, while also on the flexibility in terms of governance. Finally this study finds that both of these funding instruments can be seen to aid companies in growth and international expansion through the non-monetary assets they provide, however venture capital was found to provide even better foundations for this growth
