An Entrepreneurs’ Choice:
The Equity Crowdfunding Model.
The$effect$of$value-creation,$control$preferences,$risk$and$legal$issues$
Master’s Thesis
Business Administration: Entrepreneurship & Innovation
Name
Floor Albertus de Joode
Student number
10896953
Date
28th of August 2015
Study
Msc. Business Administration
Specialization
Entrepreneurship & Innovation
Supervisor
Dr. G.T. Vinig
2
Table of Contents
Statement of Originality .............................................................................................. 5!
Abstract......................................................................................................................... 6!
Introduction .................................................................................................................. 7!
Theoretic Framework ................................................................................................ 11!
Literature!on!Crowdfunding:!definition!and!models!.......................................................................!11!
Donation'..............................................................................................................................................................'12!
Reward'.................................................................................................................................................................'13!
Debt'........................................................................................................................................................................'13!
Equity'....................................................................................................................................................................'14!
Motivations!for!Crowdfunding!..................................................................................................................!15!
Hypotheses!.........................................................................................................................................................!20!
Conceptual!model!...........................................................................................................................................!22!
Research Design ......................................................................................................... 26!
Sample!..................................................................................................................................................................!26!
Survey!Design!...................................................................................................................................................!27!
Economic'and'social'value'...........................................................................................................................'28!
Control'preference'and'Risk'........................................................................................................................'28!
Legal'issues'.........................................................................................................................................................'30!
Statistical!tests!..................................................................................................................................................!32!
Results ......................................................................................................................... 34!
Sample!description!.........................................................................................................................................!34!
Correlation!matrices!......................................................................................................................................!36!
3
Economic'and'social'value'...........................................................................................................................'36!
Control'preference'and'risk'.........................................................................................................................'36!
Legal'variables'..................................................................................................................................................'37!
Regression!analysis!........................................................................................................................................!39!
Conclusion .................................................................................................................. 41!
Hypothesis!1:!The!effect!of!perceived!economic!and!social!value!.............................................!43!
Hypothesis!2:!The!effect!of!control!preference!and!risk!................................................................!43!
Hypothesis!3:!The!effect!of!legal!environment!and!legal!expertise!...........................................!43!
Discussion ................................................................................................................... 45!
References ................................................................................................................... 48!
Appendix I: Survey .................................................................................................... 53!
Appendix II: Survey solicitation e-mail ................................................................... 62!
4
Statement of Originality
This document is written by Student Floor Albertus de Joode who declares to take full
responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no
sources other than those mentioned in the text and its references have been used in
creating it.
The Faculty of Economics and Business is responsible solely for the supervision of
completion of the work, not for the contents.
5
Abstract
This study identifies several important factors and motivations that may influence
entrepreneurs’ to choose for specifically equity-based crowdfunding as a means to
raise capital for their company or project in the literature. These factors and
motivations are then used to make a theoretical framework, aimed to explore what
factors and motivations influence entrepreneurs to choose the equity-based
crowdfunding model. The three main categories of these factors and motivations are:
value-creation, control preferences vs. risk and legal issues. By sending out a survey
to entrepreneurs, data are collected to measure to what extent and how these factors
have influenced entrepreneurs in their search for capital raising. The data shows that
entrepreneurs that believe their venture has low social value are more likely to choose
equity crowdfunding. The legal environment plays a very important role, in that it
enables entrepreneurs to choose equity-based crowdfunding, by allowing equity
crowdfunding platforms to arise. Control preference and risk did not have significant
effect on the choice for equity-based crowdfunding.
6
Introduction
Over the last years, crowdfunding has emerged as a new method of raising capital for
entrepreneurial ventures. As a relatively young method of raising capital, the amount
of academic literature on the topic is still forming and further developing its academic
foundation. It is therefore interesting to find existing gaps in literature on
crowdfunding in order to help the development of academic knowledge, and
ultimately completely understanding the concept of crowdfunding.
Crowdfunding is defined in literature as the solicitation of external capital from the
‘crowd’ (Cosh et al., 2009; Giudici et al., 2012; Lamert & Schwienbacher, 2010).
Contrary to traditional funding methods the investors, often called ‘backers’, ‘crowd
investors’ or simply ‘participants’ are a high number of individuals of the general
public, and often each individual backer only contributes a small amount of capital
(Belleflamme et al., 2014). At its infancy, crowdfunding was mostly used to finance
creative and arts projects (Agrawal et al., 2013) and creative crowdfunding platforms
were among the first to be conceived (Moritz & Block, 2014). Since 2010,
crowdfunding has caught interest not only of the scientific community but also
practitioners as a means of filling the ‘funding gap’. A funding gap occurs when a
venture does not acquire sufficient funds between investment rounds, inhibiting the
company’s progress and sometimes causing it to go bankrupt (Lam, 2010). Young
companies often encounter a funding gap after the initial seed funding by the founder
himself, friends and family and sometimes an angel investor (Collins & Pierrakis,
7
2012). Figure 1 displays a typical life cycle of a venture and typical funding options.
Note that crowdfunding ‘closes’ the initial funding gap previously mentioned.
Figure 1: Typical company life cycle and investor types (Source: Lasrado, 2013)
Several types of crowdfunding exist, differing in the return investors receive for their
financial support. Four main types of crowdfunding currently exist: donation-based
where the investor does not get a return; reward-based where the investor receives a
specific reward, sometimes pre-ordering the product; lending-based, where the
investor gets its money back later plus interest, basically debt issuance; and equitybased, where the investor buys an equity share in the company (de Buysere et al.,
2012). These different models of crowdfunding will be discussed more thoroughly in
a later section. Equity-based crowdfunding, also called just equity crowdfunding or
8
crowdinvesting, is the most complex type of crowdfunding as it involves issuance of
equity in privately held firms, bringing legal issues with it (Hemer, 2011).
Regulations regarding equity crowdfunding differ between countries and are very
heterogeneous (Moritz & Block, 2014). Equity crowdfunding received attention
mostly from a legal perspective.
This research paper will focus on equity-based crowdfunding from but the perspective
will not lie on the legal aspects involved. Therefore, this research will focus on
equity-based crowdfunding from an entrepreneurial perspective. There is some
research on the motivations of entrepreneurs and the factors that influence their
decision on what funding to employ. However, no research has yet been done
specifically on the factors and motivations behind the decision to seek funding via
equity-based crowdfunding. Therefore, the research question this thesis will aim to
answer is:
What relevant factors and/or motivations influence the decision of entrepreneurs to
choose specifically for equity-based crowdfunding as a means to financing their
venture or project?
To answer this question, relevant factors and motivations that influence the funding
decision of the entrepreneur have to be identified. This study then aims to find out
what factors and motivations, and in which configuration they make entrepreneurs
more likely to choose specifically for the equity-based crowdfunding model to raise
capital, effectively answering the research question.
9
The next section will discuss relevant theories on crowdfunding, mainly focusing on
equity-based crowdfunding. Previous relevant literature will be discussed and a
relevant framework will be developed defining relevant factors and motivations for
entrepreneurs. The relevant factors and motivations are then translated into testable
hypotheses. This section will also develop a conceptual model based on the relevant
theory that will help to shape the research in answering the research question. In the
section thereafter, the research method and methodology are discussed. This section
will cover how and what data will be gathered and analyzed to test the hypotheses.
The data are then discussed in the results section. In order to test the hypotheses and
ultimately answer the research question, the data analysis section will test the
hypotheses by using statistical tests on the acquired data. Finally, a conclusion and
discussion section will go over the implications of the results and discuss the
relevancy and reliability of this research as well as implications of further research.
10
Theoretic Framework
This section will explore the literature on crowdfunding and the identified factors that
control entrepreneurs’ choice for crowdfunding. First, crowdfunding in general will
be discussed. Then motivations and factors that influence the choice of entrepreneurs
on crowdfunding are identified. These findings are then applied specifically to equity
crowdfunding, resulting in hypotheses that aim to support in answering the research
question. Finally, the conceptual model is discussed that shows the expected relations
of the variables on the choice for funding. This model will help guide the research to
find adequate data for the hypotheses, ultimately answering the research question.
Literature on Crowdfunding: definition and models
The term crowdfunding is derived from the concept of crowdsourcing and stands in
relation to entrepreneurial finance (Hemer, 2012) as can be seen in Figure 2.
Crowdfunding can be seen as a form of crowdsourcing where specifically capital is
raised from the ‘crowd’. The terms investor, backer, donator and participant are used
to describe the individuals in the crowd.
Figure 2: Relation between crowdsourcing, crowdfunding and different types/models of crowdfunding.
Source: Brodersson et al. 2014 [Edited]
11
Overall, there is consensus on the definition of crowdfunding among scholars as the
phenomenon at its core isn’t very complex. Giudici and his colleagues define
crowdfunding as “getting [a] large group of people to finance a project by using a
website or other online tool to solicit funds” (2012) this definition is in accordance to
the previously mentioned definition of Mollick (2014), and scholars normally refer to
the online tool as the ‘platform’. While the Internet is explicitly mentioned in
Giudici’s definition, some scholars argue that crowdfunding as an extension or rather
a form of crowdsourcing isn’t reliant on the Internet: offline crowdfunding is indeed
possible (Macht & Weatherston, 2014: Mollick, 2014). Still, since crowdfunding and
its various types have emerged with Web 2.0 and most research is done on online
crowdfunding, this research will do the same.
In literature there is a distinction made between various types, or sometimes coined
models, of crowdfunding as shortly discussed in the previous section. Meyskens &
Bird (2015) explore these different types of crowdfunding and as stated before
scholars have identified four distinct types of crowdfunding based on the incentives
for participants to donate. These four models will be discussed in the following subsections.
Donation
The first type that occurred at the beginning of crowdfunding is the donation model
(Meyskens & Bird, 2015; Mollick, 2014). Participants receive no tangible return on
their investment, but rather donate to support a cause with high social value. Indeed,
Lehner (2013) argues that donation-based crowdfunding is most popular among social
12
entrepreneurial ventures. The reason donation crowdfunding is so well-suited for
social ventures is because contrary to professional investors, crowd investors typically
look at the core values and ideas of the venture (Ekedahl and Wengström 2010).
Therefore, companies with high social value such as charitable causes often employ
the donation model of crowdfunding. Contrary to the other models of crowdfunding,
crowd investors do not receive a tangible return on their investment.
Reward
The second and most common type of crowdfunding is reward-based crowdfunding
(Massolution, 2013). Popularized by two major crowdfunding platforms Kickstarter
and Indiegogo, this type of crowdfunding offers a certain reward to participants. The
scope of rewards can be vey broad and is often dependent on the amount participants
donate. For example, a video game developer may name a character in the game after
a backer that has donated above a certain amount, or make the backers names appear
in the end-credits. Some reward-based projects may offer an early-release of their
product to their backers; in these cases the model is sometimes called pre-purchase
crowdfunding (Frydrych et al., 2014).
Debt
Donation and reward-based crowdfunding do not return actual money, but rather
intangible social value and a product/service respectively. Contrary to this, debt-based
crowdfunding or lending crowdfunding raises money from crowd investors that is
later paid back with a certain interest rate depending on the platform and project
(Outlaw, 2013). This model allows entrepreneurs to raise capital that may not qualify
13
or be eligible for a traditional bank loan due to e.g. not having sufficient collateral or
having a financial track record. The debt crowdfunding model can therefore serve as a
bridge over the finance gap, which often occurs in the early stages of new ventures
(Brodersson et al., 2014).
Equity
The last type to be discussed is equity-based crowdfunding or equity crowdfunding.
Equity crowdfunding is the least common model (Mollick, 2014; Meyskens & Bird,
2015; Massolution, 2013). Participants in equity-based crowdfunding projects become
shareholders in the company in the hopes of receiving dividends or selling their share
later for a higher price as the company grows (Futko, 2014). Mollick (2014) states
that equity crowdfunding is the most complex and cumbersome model of
crowdfunding, since it is subject to high levels of regulations. Hemingway &
Hoffman (2010) illustrate this in their legal paper for the United States, but this is also
true for European countries, especially since regulation can differ greatly from
country to country. Equity crowdfunding has been subject mostly to legal academic
research, especially in the United States, along with the JOBS act, that allowed some
companies to legally sell their shares to investors. For more information on the JOBS
act and a United States legal perspective, please refer to Hemingway & Hofman
(2010). This study will not discuss the legal issues in depth, not only because this is
not a legal study but also since the scope of this study encompasses different countries
and regions with different rules and regulations. However, legal issues are recognized
14
as an important factor influencing whether entrepreneurs employ equity-based
crowdfunding.
We have seen that scholars see crowdfunding as a novel and innovative way to bridge
a funding gap for entrepreneurial ventures and that there are four distinct types or
models of crowdfunding identified. But why do entrepreneurs choose for
crowdfunding?
Motivations for Crowdfunding
Research on motivations for crowdfunding can be separated into two categories:
motivations of entrepreneurs to choose crowdfunding as a means to raise capital and
motivations of the ‘crowd’ to invest in crowdfunded projects or companies. Since this
research is aimed at the factors and motivations of entrepreneurs’, this section will
only focus on the entrepreneurs’ perspective. Additionally, research on the
motivations of crowdfunding up until now often does not distinguished between the
types or models of crowdfunding. Meyskens & Bird (2015) do in some extent
differentiate the four models in their framework to ‘…help social ventures and social
investors best choose which type of crowdfunding (reward, donation, equity, debt)
might make most sense to them given their economic and social value creation goals’
(pp. 155). In their model they describe the crowdfunding process as follows: First a
venture starts up and develops a crowdfunding campaign. They then choose which
platform to use and solicit participation from the crowd on social media. The money
they raise is then applied towards their project or product. The final step of the
process is to distribute the rewards (or other form of return, depending on the
15
crowdfunding model) to their backers. They argue that in order to find the right fit the
entrepreneur needs to establish the relative social and economic value of their venture,
and adapt their crowdfunding model accordingly. Figure 3 displays which model of
crowdfunding is recommended as a best fit for the relative economic and social value
of the project or venture.
Figure 3: Crowdfunding model fit to value creation Source: Meyskens & Bird (2015) pp. 163
The donation model is best suited for ventures with high social value and relatively
low economic value. Backers of these ventures act as philanthropists that want to
support a social cause and do not expect to receive compensation for themselves
(Lehner, 2013). If the social and economic value are both relatively low, Meyskens &
Bird (2015) argue that a reward model is best suited. This model provides capital as
well as a track record for the venture but it may cost valuable time to distribute the
rewards once their campaign is completed. The debt or loan model fits well with
ventures that have both high social and high economic value. Here, backers do not
only support a social cause, but also one that may have substantial economic returns.
By lending money, they support the cause and also gain an often pre-determined
16
return on investment. Equity-based crowdfunding lastly, is best suited for ventures
that have relatively low social value but high economic value. Equity investors are
most concerned in economic return than in social value. For social ventures, this is
least favorable since the venture needs to be able to legally sell equity to investors,
and this is often a cumbersome process (Mollick, 2014; Meyskens & Bird, 2015).
Other scholars also support this claim such as Valanciene & Jegeleviciute (2013) who
state that one of the drawbacks of entrepreneurship in general are administrative
challenges. This is especially the case with equity crowdfunding.
There has been an empirical study on factors that influence successful acquisition of
equity capital by Hustedde & Pulver (1992). They categorize these factors into four
categories: “(1) characteristics of the entrepreneurs including education, experience,
and age; (2) characteristics of the enterprise including stage, industry type, and
location (e.g., rural or urban); (3) characteristics of the request including amount,
business plan, and prospective capital source; and (4) sources of advice including
technology”. While these factors have shown to influence success, the question
remains whether they influence the actual choice of an entrepreneur for the type of
funding. However, Schwienbacher & Larralde (2010) distinguish seven factors that
influence an entrepreneur’s choice for funding, that are somewhat related to Hustedde
& Pulvers (1992). (1) Lack of pre-existing resources: Not only the need for capital,
but also other resources such as the entrepreneur’s skills and network are taken into
account. Entrepreneurs may lack in some managerial functions or experience, this
resource may be provided by venture capitalists or other traditional equity funds. (2)
Risk, moral hazard and information asymmetry: This factor is especially applicable to
17
crowdfunding. As Short (1994) states, all shareholders, in this case crowdfunders
share the risks of the project. This is in sharp contrast to reward- or lending-based
crowdfunding where the entrepreneur him- or herself bears all the risk. Moral hazard
is another issue defined in the literature and is strongly tied to risk. Entrepreneurs may
be inclined to take more risk, as they are no longer carrying the risk alone. Lastly,
information asymmetry between the crowdfunders and entrepreneur can be seen as
the root to these problems. Crowdfunders may not have complete information on the
entrepreneur and its project, which may result in both more risk for them and moral
hazard as a result. Valanciene & Jegeleviciute’s (2013) work sheds another light on
the moral hazard issue: the danger that the idea of the entrepreneur may be stolen. (3)
Organizational form: Specifically, this factor distinguishes between for-profit and
non-profit organizations. Lambert & Schwienbacher (2010) claim that non-profit
organizations are more successful in finding funding since they are prone to produce
higher quality products, while for-profit organizations seek to maximize profits with a
middle-ground between cost and quality. As seen before, Meyskens & Bird (2015)
make a similar statement that the social and economic aim of a venture influences
what model of funding they should employ (4) Control preferences Czarnitzki &
Kraft (2002) found that managers or entrepreneurs might not always want to
maximize profits, while shareholders do. Entrepreneurs are often inclined to deliver
high quality, innovative products rather than just earning a lot of money. This is an
important factor regarding equity-based crowdfunding since entrepreneurs may share
the risk with the backers; they are still in full control over their project. (5) Amounts
required by entrepreneurs: The amount required is of course of influence on the
18
choice of funding. The range can vary for crowdfunding projects (Brodersson et al.,
2014; Figure 2). (6) Legal issues: Legal issues are an inherent problem with equitybased crowdfunding. Recently however legislation is less strict for private equity
trade in a crowdfunding context (e.g. the JOBS-act). In the Netherlands specifically,
crowdfunding platform Symbid has a unique legal construction enabling
entrepreneurs to easily make use of equity-based crowdfunding. (7) Wisdom of the
Crowd: As stated previously, crowdfunders may not provide skills or advice the
entrepreneur needs in order to be successful, still, the wisdom of the crowd argument
states that the big crowd might know more than a few traditional investors. This factor
however only comes into play when the crowdfunders form a community and have
adequate communication channels with the entrepreneur (Schwienbacher & Larralde,
2010).
Not every factor identified in the literature will be integrated in the theoretical
framework of this research. Literature is not always clear on how the factor may
influence the entrepreneur’s choice for funding, e.g. it does not always define clearly
how a factor exactly results in one choice or another. The factors mentioned by
Hustedde & Pulver (2013) are not defined in such a way that one can discriminate for
example the characteristics of an entrepreneur (the first factor) that has chosen for
equity crowdfunding or an entrepreneur that has chosen another form of financing.
Therefore, these characteristics are merely used as a control variable. The more
interesting factors are considered in the next section.
19
Hypotheses
This section will discuss the motivations and factors identified in literature, and distill
three separate hypotheses. The hypotheses each have two sub-hypotheses to be tested.
It has become clear that according to the literature, the equity model of crowdfunding
is best suited for ventures that are expected to grant a high economic return but have
relatively low social value (Schwienbacher & Larralde, 2010; Meyskens & Bird,
2015). Therefore, it can be expected that entrepreneurs that believe their venture has
high economic potential value but low social value, are more likely to employ equitybased crowdfunding as a means to acquire capital:
H1: Entrepreneurs that choose equity-based crowdfunding are more likely to believe
their venture has a relatively low and social and high economic value
H1a: Entrepreneurs that choose equity-based crowdfunding are more likely to believe
their venture has relatively low social value
H1b: Entrepreneurs that choose equity-based crowdfunding believe are more likely to
believe their venture has relatively high economic value
Looking at the specific differences between equity-based crowdfunding and other
funding types, it is characterized by the spread of risk between the entrepreneur and
the crowd, but ultimately the control mostly remains with the entrepreneur (Wilson &
Testoni, 2014). Therefore this model of crowdfunding is an excellent fundraising tool
where the entrepreneur can reduce risk without giving up too much control. The riskreducing aspect of this hypothesis applies to all kinds of equity capital raising.
20
H2: Entrepreneurs that want to remain in control as much as possible but also wish
to reduce risk are more likely to use equity-based crowdfunding.
H2a: Entrepreneurs that have a high tendency to remain in as much control as
possible in their venture are more likely to choose equity-based crowdfunding
H2b: Entrepreneurs that want to reduce risk are more likely to choose equity-based
crowdfunding
This research does not discuss legal issues, because as we will see later, the
entrepreneurs in the research population are from different countries. Therefore the
specific legal issues differ per entrepreneur. However, legal issues in general are a for
entrepreneurs to choose for equity-based crowdfunding. A mitigation of these issues,
whether it be due to the companies own expertise or the enabling environment, is
expected to support entrepreneurs to choose equity-based crowdfunding:
H3: Entrepreneurs that either internally or externally mitigate the legal issues and
associated with equity-based crowdfunding, and are positioned in a favorable legal
environment are also more likely to choose equity-based crowdfunding
H3a: Entrepreneurs in an environment where legal issues are mitigated externally
are more likely to choose equity-based crowdfunding
H3b: Entrepreneurs that are able to internally mitigate legal issues are also more
likely to choose equity-based crowdfunding
21
H3c: The legal environment influences the extent to which the expertise of either the
entrepreneur or the platform can enable equity-based crowdfunding.
An example of an external mitigation is the JOBS-act in the United States which
allowed companies to sell their shares to private investors via equity crowdfunding.
Another example is the Symbid platform in the Netherlands. The Symbid platform
enables entrepreneurs to sell their equity to the crowd via a special legal construction
(for more information see the Symbid website). In other words, external mitigation is
the mitigation of institutions or organizations that are not the entrepreneur him- or
herself or their business. An internal mitigation is where the entrepreneur him- or
herself can mitigate the legal issues. For example, if the entrepreneur can set up a
legal construction that allows the sale of equity shares with the expertise available
within their firm. Finally, it is expected that the legal environment influences whether
it is at all possible to mitigate legal issues. If equity-based crowdfunding is downright
illegal in a country, even the highest levels of legal expertise cannot enable firms to
employ equity crowdfunding. If regulations allows it under some conditions, legal
expertise becomes much more important.
Conceptual model
Figure 4 displays the conceptual model. The model was constructed based on the
literature previously discussed, and displays the expected relations between the
relevant factors and motivations and the choice of an entrepreneur for funding. This
22
choice has been specified to relate to this research: the choice for equity-based
crowdfunding.
Arrows indicate either a moderating or mediating effect of a dependent variable. The
dependent variables are the different factors and motivations. The minus and plus
signs next to the arrow indicate a positive or negative relation respectively. A positive
mediating relation means that when the independent variable increases, the dependent
variable is expected to increase as well. The same goes for a decrease. For a negative
mediating relation, the effect is opposite: an increase of the independent variable is
expected to result in a decrease of the dependent variable. Moderating effects are
effects of a variable on the relation between an independent variable and the
dependent variable. The circle in the middle represents the independent variable: the
entrepreneurs’ choice for equity-based crowdfunding.
23
Figure 4: Conceptual model
On the left side the social and economic value are shown to mediate the independent
variable: entrepreneurs’ choice for equity crowdfunding. Social value is expected to
have a negative mediating effect on the choice (if social value rises, the likeliness of
the entrepreneurs choice for equity-based crowdfunding is expected to decrease and
vice versa) while the effect of economic value is positive. The first hypothesis
supports this part of the conceptual model.
On the bottom side, the control preference and perceived risk are displayed. The riskreducing propensity of the entrepreneur, has a positive mediating effect on the choice
of funding, this variable captures both the risk perceived by the entrepreneur, and his
propensity to reduce this risk form him- or herself. Control preference is also
expected to positively moderate the choice, since the more the entrepreneur wants to
stay in control of the venture, the more likely it will be he/she chooses for equity
24
crowdfunding. This part of the conceptual model is encompassed by the second
hypothesis.
Lastly, the right part of the model considers the legal issues. While legal issues are a
broad term, the main focus of this research lies on whether the legal environment is
supportive and allows entrepreneurs to sell an equity-stake of their venture to the
crowd. Therefore the legal environment has a direct mediating effect. Moreover, the
legal environment moderates the effect of the expertise of either the entrepreneur or
the platform that may enable equity-based crowdfunding.
25
Research Design
In this section the research design will be discussed. First, the sample of this research
is discussed. Following is the description of the survey and its’ questions. Lastly, the
statistical tests are discussed that will be done on the acquired data.
Sample
The sample for this research comprises of all the entrepreneurs listed in the
Crunchbase database. Crunchbase is a company that accrues and provides information
about companies and investors. They have an extensive, freely available database
with currently close to 60.000 listed organizations. They keep track of funding rounds
and investment amounts of companies, as well as mergers & acquisitions and start-up
funding. Companies that had employed crowdfunding were searched for first in the
database and approached first, companies that used other types of funding were
contacted later. Since not all companies listed in their database are relevant to this
study, and not all companies have opted to receive unsolicited e-mails, not every
company listed in the database was eligible for this study. In addition, only firms that
were created in the last 4 years are included, since the aim of this study is to be topical
and the entrepreneurs are still in or nearly passed the start-up phase of their business.
Additionally, some companies that are listed on European equity-crowdfunding
platforms with freely available contact information (e.g. on their website) were also
contacted via e-mail with a survey solicitation. These platforms were found through
Luzar (2013). The following platforms were searched through: Seedmatch, Bihoop,
Crowdcube, CrowfundMe. After the selection criteria were applied and several
26
companies were added to the sample via the search on crowdfunding platforms, a
total of 9,121 e-mails were sent over the period of approximately one month. Since
the entrepreneurs were approached ‘cold’ and there were no tangible rewards for
filling out the survey the response rate was expected to be low (Scheaffer & Dillman,
1998; Bryman, 2008). In addition, the survey was sent out relatively late. Still, since
the high number of entrepreneurs in the sample even a low response rate may result in
sufficient data to test the hypotheses. The solicitation e-mail that was sent can be
found in Appendix II.
Survey Design
This study aims to collect data from many different entrepreneurs to include as many
different environments and business types. Since the hypotheses in this research are
mostly about the entrepreneurs’ own motivations and perception on the relevant
factors, a self-completion questionnaire design, or survey, is most suitable (Bryman.
2008). As mentioned earlier, the sample will be discussed in a later section. Since
there hasn’t been extensive research on the relevant factors and motivations yet, it
may prove difficult to find adequate measures for the factors. The measures must
therefore be extracted from conceptual arguments found in literature. In order to keep
the reliability of the survey as high as possible, objective questions were designed.
The survey could be used to research another sample of entrepreneurs and it can be
expected that the results will be about the same.
The survey consists of two parts. The first part contained 7 questions about various
demographics of the entrepreneur and his or her company. The entrepreneur is also
27
asked here to specify what kinds of funding have been used. The second part was
aimed to measure the variables of the three distinct categories of relevant factors: the
perceived economic and social value, control preference and risk, legal issues. This
way, data can be compared between varying funding types.
The variable that will measure the dependent variable will be a dichotomous dummy
variable: EQUITYDUMMY can take on value 0 or 1, for entrepreneurs that did not
and did employ equity crowdfunding respectively.
Economic and social value
Two questions were used to gauge the perceived relative economic and social value of
the entrepreneurs’ business. Entrepreneurs were asked to rate the economic and social
value on a 5-point Likert scale raging from Very Low to Very High. The ‘true’ social
and economic value of a company is not necessary for this research. Not only is it
hard to determine these values, the expected effect is caused by perceived value.
These two questions generated two items: EconV and SocV, standing for economic
value and social value respectively. The range of possible values for both items is 1
through 5, standing for Very Low through Very High respectively.
Control preference and Risk
A total of 11 questions were asked to entrepreneurs to measure their control
preference and how they perceive and deal with the risk associated with owning a
business. The questions were asked in a multiple question matrix format, asking the
entrepreneur on a 5-point Likert scale whether they agreed or disagreed with
statements regarding control preference and risk. 5 items measuring risk-reducing
28
propensity of the entrepreneur were called RISK_RED1 through RISK_RED5 and the
4 items measuring control preference were called CONT_P1 through CONT_P4. Two
statements measured both control preference and risk reducing propensity, these were
items were labeled CONT_RISK1 and 2. State Table 1 shows which items represent
which statements in the survey.
Table 1: Statements measuring risk and control preference and their corresponding item names
The$main$goal$of$raising$capital$is$reducing$risk$by$diluting$
(dividing)$the$risk$among$investors$
The$main$goal$of$raising$capital$is$to$acquire$funds$in$order$for$the$
business$to$develop$further$
I$do$not$take$risk$in$consideration$when$looking$for$ways$to$fund$
my$business$
I$strongly$prefer$funding$types$where$I$do$not$have$to$give$up$any$
ownership$share$of$my$company$(such$as$debt$financing)$
Being$in$full$control$of$my$business$is$my$one$of$my$biggest$
priorities$
I$do$not$mind$giving$up$some$control$to$people$in$return$for$their$
expertise$or$funds$
I$wish$to$retain$control$of$my$company$even$if$this$brings$great$
risks$with$it$
Except$capital,$I$wish$to$benefit$from$the$expertise$and$
knowledge$of$investors$in$helping$make$corporate$decisions$
I$do$not$mind$giving$up$some$control$of$my$company$when$raising$
capital$
I$am$willing$to$bear$a$significant$amount$of$risk,$as$long$as$I$am$in$
full$control$of$my$company$
Except$capital,$I$wish$to$dilute$or$decrease$the$risk$I$am$bearing$
when$finding$investors$
RISK_RED1$
nRISK_RED2$
nRISK_RED3$
CONT_P1$
CONT_P2$
nCONT_P3$
CONT_RISKR1$
nRISK_RED4$
nCONT_P4$
CONT_RISKR2$
RISK_RED5$
Five of these items were counter indicative (these items were labeled by adding an n
in front of their name, e.g.: nRISK_RED2 and nCONT_P3). The counter indicative
items were transformed to reverse their score. Now that the items measure in the same
direction, the internal reliability can be tested with Cronbach’s α. For the control
29
variables, the reported α had a value of .624, not very high but still acceptable. The
Risk reduction variables had an α of .754. Both variables are within acceptable levels
of consistency, so the scale means of both variables control preference and risk
reducing propensity were computed into two new variables: CONT_TOT and
RISKR_TOT respectively. The CONT_RISK variables are discussed further in the
results section.
Legal issues
Three separate variables were defined to measure the different aspects of legal issues:
the legal environment, the legal expertise of the entrepreneur (and within its’
company) and the legal expertise of the crowdfunding platform. A total of 10
questions were used resulting in 10 corresponding items, again consisting of
statements with a 5-point Likert agreeability scale. The 6 items measuring the legal
environment were labeled LGL_ENV1 through LGL_ENV6. The items are designed
that a higher score represents a more enabling legal environment for equity
crowdfunding, so that counter indicative terms would have a low score for a more
enabling legal environment. For the measure of expertise available in the
entrepreneurs’ firm and in the crowdfunding platform, 2 items were used for each
variable LGL_ENTR1 2 and LGL_PLT1 2. Table 2 shows which statements
correspond with which items. Three of the legal questions were only asked to
respondents that indicated that they employed equity crowdfunding, these were not
included in calculating the scale means when a respondent didn’t answer these
questions. The relevant statements are marked with an asterisk.
30
Table 2: Statements measuring the legal variables and their corresponding item names
The$legislation$of$my$country$or$region$were$beneficial$to$the$
process$of$equity$crowdfunding*$
The$crowdfunding$platform$enabled$my$company$to$use$equity$
crowdfunding*$
My$company$would$have$been$able$to$sell$equity$shares$to$the$
crowd$without$the$help$of$a$crowdfunding$platform*$
The$legal$institutions$of$my$country$or$region$are$strict$regarding$the$
sale$of$equityCshares$to$nonCinvestors$
A$crowdfunding$platform$that$allows$the$sale$of$equityCshares$to$the$
crowd$is$available$in$my$country$or$region$
The$legislation$in$my$country$or$region$mostly$allows$the$sale$of$
equity$to$the$crowd$
It$is$hard$to$sell$equity$shares$to$the$crowd$in$my$current$legal$
environment$
The$process$of$using$equityCcrowdfunding$seems$like$a$difficult$and$
cumbersome$process$to$me$
My$company$has$enough$legal$expertise$to$employ$equityCbased$
crowdfunding$without$external$help$(e.g.$from$a$crowdfunding$
platform)$
The$legislation$in$my$country$or$region$simply$does$not$allow$equity$
crowdfunding$
LGL_ENV1$
LGL_PLT1$
LGL_ENTR1$
nLGL_ENV2$
LGL_PLT2$
LGL_ENV3$
nLGL_ENV4$
nLGL_ENV5$
LGL_ENTR2$
nLGL_ENV6$
Again, the counter indicative items were recoded and the internal reliability was
tested. The α’s reported were .672 for LGL_ENV items; .776 for LGL_PLT variables
and .751 for LGL_ENTR variables. Note that for the last two variables, only 2 items
were indicative and most cases had a missing value on the first item since this item
was only present when the respondent indicated he or she employed equity
crowdfunding. Since respondents that did not indicate they used equity crowdfunding
did not answer three questions, there were some missing values in most cases.
Therefore, an artificial variable was created to account for these cases. The variable
31
was computed in the following way: If there was a missing value in LGL_ENV1, the
artificial value LGL_ENVA1 was the scale mean of LGL_ENV2 through nLGL_ENV6.
If however, LGL_ENV1 did contain a valid value, LGL_ENVA1 would take on this
value. In the computation of the scale mean of LGL_ENV items, instead of
LGL_ENV1, LGL_ENVA1 was used.$ This way, missing values would not influence
the scale mean LGL_ENVTOT. This same process was repeated twice for the platform
expertise and entrepreneur expertise value.
Statistical tests
The statistical tests employed in this study are aimed to either support or reject the
hypotheses. Since the variables of the independent variables have been constructed as
the means of several items, these variables will be treated as continuous variables.
The dependent variable is a dichotomous or binary value indicating whether the
entrepreneur employed equity crowdfunding. According to Bryman (2008), the best
method of bivariate analysis when dealing with a dichotomous and continuous
variable is the Spearman’s ρ method. Spearman’s ρ is similar to the Pearson’s r test,
but the Pearson’s r method is only suited when dealing with two interval or ratio
variables. The Spearman’s ρ method will be used to construct a correlation matrix for
each variable group. This will provide the first indication on whether hypotheses will
be supported, as well as indicate whether there exists multicollinearity that needs to
be accounted for. Next a multiple regression model will be designed. The aim of this
model is to test whether the legal environment indeed moderates the interaction
32
between the legal expertise of the entrepreneur and the platform (internal and external
expertise respectively).
33
Results
This section will discuss the acquired data of this study. First the characteristics of the
sample are discussed accompanied with some descriptive statistics. Then correlation
matrices are given for the three variable groups. For the legal group, the result of the
correlation matrix will either support or reject hypothesis H3c. In the second half of
this section, the rest of the hypotheses will be tested with aforementioned bivariate
analyses.
Sample description
In total, 181 surveys were started of which 177 were fully completed, resulting in an
effective response rate of 177/9121 = 1.94%. The low response rate was expected due
to reasons mentioned in the previous section, but still sufficient data was available for
statistical testing. The high amount of actual survey completion is probably due to the
relatively short length of the survey (Bryman, 2008). The respondents in the sample
were 39,5 years old on average. 94,9% of the respondents was male. Of all
respondents there were 72 (40.68%) cases that employed one or more models of
crowdfunding. This high amount can be explained due to the fact that more
entrepreneurs that are registered on a crowdfunding platform were approached.
Moreover, the entrepreneurs that used crowdfunding were approached first, giving
this group more time to respond. Of all the respondents that indicated having used
crowdfunding, approximately 57% used equity-based crowdfunding. Again, this is
probably not representative with reality. The high number of equity-crowdfunding
companies can be explained due to the fact that equity crowdfunding platforms were
34
used as a prominent source of respondents. Figure 5 shows the frequencies of each
model of crowdfunding. Most entrepreneurs indicated they have a Masters degree
(36.2%) or a Bachelors degree (35.0%). Only 2 respondents did not at least finish
high school. Entrepreneurs that indicated their company operated in the Technology
field had the highest average education. The Technology sector was also the biggest
reported sector with 66,2%. The average age of the companies was 2,7 years, this
could be expected due to the sample group was selected on their company age and
being in an early stage.
80!
70!
Frequency)
60!
50!
40!
30!
20!
10!
0!
Donation!
Reward!
Debt!
Crowdfunding)model)
Figure 5: Frequency of crowdfunding models in the data
35
Equity!
Total!
Correlation matrices
This subsection will discuss the correlations between the variables on the basis of the
correlation matrices. Correlation matrices were generated using Spearman’s ρ
method. This is done per subgroup of variables, defined in the conceptual model and
generated from the data.
Economic and social value
According to the data, there is almost no correlation between perceived economic
value of the entrepreneur and the choice for equity crowdfunding. An explanation for
this could be that all entrepreneurs believe their business has high economic value.
Social value however has a moderate negative correlation with the choice of equity
crowdfunding that is also highly significant. This means that entrepreneurs that
believe their business has a relatively low social value are more likely to choose the
equity-based crowdfunding model. There is also a moderately negative and highly
significant correlation between social value and economic value. Thus the higher the
indicated social value, the lower the economic value and vice versa. This is probably
due to the way the question was asked to entrepreneurs: if you enter a low value on
one of the specific items, they probably believe that the other item should score
relatively higher. Table 3 shows the correlation matrix for economic and social value.
Control preference and risk
The correlations of control preference and risk and the choice for equity based
crowdfunding were mostly insignificant. The only significant result (on the p < .1
level) was the slight correlation between control preference and the dependent
36
variable. This means that if the entrepreneur indicated he prefers to have more
control, he was more likely to also have chosen equity crowdfunding as a means to
fund his company. The other results of the correlation analysis were highly
insignificant, so there are no conclusions that can legitimately be drawn. Table 4
displays the correlation matrix of the control preference and risk variables.
Legal variables
The analysis has shown that the expertise available within the company of the
entrepreneur or of the entrepreneur him- or herself (earlier also called simply called
internal expertise) did not have a significant correlation with the other variables. The
legal environment however, did have positive correlations with both the platform
expertise and the dependent variable. The correlation between platform expertise and
legal environment is explained by the enabling role the legal environment. If the legal
environment enables platforms, it is more likely that these platforms exist and in their
turn enable entrepreneurs to employ equity-based crowdfunding. Though the
correlation between the platform expertise and the dependent variable is significant, it
is not very high. The most important role is that of the legal environment: a highly
significant and moderately high correlation value. It becomes clear that the legal
environment plays an important role in this framework, not only directly on the
dependent choice variable, but also on the platform expertise variable. Please refer to
Table 5 for the correlations between the legal variables.
37
Table 3: Correlation matrix economic and social value
Variables
1
2
1. Employed Equity CF (dependent)
-
2. Economic Value
-.003
-
3. Social Value
-.365**
-214**
3
-
**p < .01
Table 4: Correlation matrix control preference and risk reducing propensity
Variables
1
2
1. Employed Equity CF (dependent)
-
2. Control preference
.121*
-
3. Risk reducing propensity
.049
-.055
3
-
*p < .1
Table 5: Correlation matrix legal variables
Variables
1
1. Employed Equity CF (dependent)
-
2. Legal environment
.438**
-
3. Platform expertise
.195**
.256**
-
4. Entrepreneurial expertise
-.047
-.035
-.055
**p < .01
38
2
3
4
-
Regression analysis
In order to test whether the legal environment moderates the relation between the
expertise of the entrepreneur and platform, a hierarchical logistic regression analysis
is conducted. The model is constructed as follows. First, the effect of the predicting
effect of the expertise variables on the dependent variable: choice for equity-based
crowdfunding is analyzed. Then, the mediating effect of the legal environment on
these variables is analyzed by looking at the change of predicting power when the
legal environment variable is added. Before this model was constructed, the
independent variables were first standardized. This was done to avoid issues
associated with multicollinearity. Table 6 displays some predicting power variables of
the two blocks. The first block only contained the expertise variables. In block 2, the
legal environment variable was plugged into the model.
Table 6: Predictive capacity of the regression model
Variables
χ2
Percentage correct prediction
Nagelkerke R2
Block 1
7.1644
76.8%
.060
Block 2
30.339**
83.1%
.289**
*p < .01
It becomes clear that the predicting power of the model greatly increases when the
legal environment is added. The χ2 value increases greatly and also becomes highly
significant. This means that the overall predicting power has increased. The same is
reflected in the extra 6.3% of correct predictions. The Nagelkerke R2 is a measure that
39
indicates what part of the variance in the dependent variable is explained by the
model. This measure also greatly increases to 28,9% of variance explained.
Overall, it has become evident that the legal environment variable greatly influences
the effect of both expertise variables. Earlier analysis has also shown a positive
correlation between the environment and expertise variables, especially the platform
expertise variable.
40
Conclusion
This study was aimed to find the motives behind the entrepreneurs’ funding choice for
equity-based crowdfunding. The identified factors and motivations that were deemed
relevant from literature were then operationalized in a survey research design and the
hypotheses were statistically tested against the acquired data. Table 7 provides an
overview of which hypotheses were supported and rejected by the data.
Table 7: Summary of results
Hypothesis
H1
Observation
Entrepreneurs that choose equity-based crowdfunding Partly supported
are more likely to believe their venture has a relatively
low and social and high economic value
H1a
Entrepreneurs that choose equity-based crowdfunding Supported
are more likely to believe their venture has relatively low
social value
H1b
Entrepreneurs that choose equity-based crowdfunding Rejected
believe are more likely to believe their venture has
relatively high economic value
H2
Entrepreneurs that want to remain in control as much as Rejected
possible but also wish to reduce risk are more likely to
use equity-based crowdfunding
H2a
Entrepreneurs that have a high tendency to remain in as Rejected
much control as possible in their venture are more likely
41
to choose equity-based crowdfunding
H2b
Entrepreneurs that want to reduce risk are more likely to Rejected
choose equity-based crowdfunding
H3
Entrepreneurs that either internally or externally mitigate Partly supported
the legal issues and associated with equity-based
crowdfunding, and are positioned in a favorable legal
environment are also more likely to choose equity-based
crowdfunding
H3a
Entrepreneurs in an environment where legal issues are Supported
mitigated externally are more likely to choose equitybased crowdfunding
H3b
Entrepreneurs that are able to internally mitigate legal Rejected
issues are also more likely to choose equity-based
crowdfunding
H3c
The legal environment influences the extent to which the Supported
expertise of either the entrepreneur or the platform can
enable equity-based crowdfunding.
Two main hypotheses were only partly supported by the data and one was fully
rejected. They will be discussed in this section one by one, and the section will end
with some concluding remarks on this study.
42
Hypothesis 1: The effect of perceived economic and social value
Data has shown that among the respondents, entrepreneurs that believe their company
has low social value are more likely to choose the equity-based model of
crowdfunding. There was no evidence that indicated that entrepreneurs that believe
their venture has high economic value are also more inclined to choose equity
crowdfunding. Hence, hypothesis 1 is only partly supported. Namely sub-hypothesis
1a is supported and 1b is rejected.
Hypothesis 2: The effect of control preference and risk
To measure risk, the entrepreneurs were asked questions to gauge their risk-reducing
propensity. This measure is assumed to encompass both the perceived risk of the
entrepreneur in combination with how they deal with risk. While the control
preference may have been of influence of the choice, the results weren’t significant
enough to support the hypothesis. The risk also did not significantly affect the choice
of funding according to this dataset.
Hypothesis 3: The effect of legal environment and legal expertise
According to the data, the legal environment plays a major role in the entrepreneurs’
choice of funding. Not only does it directly affect the dependent variable, but also
positively mediates the effect of both the entrepreneurs’ expertise and the platform
expertise on the choice of funding. However, the effect of the entrepreneurs’ legal
expertise did not have a significant effect, a mediating effect still could be shown. The
effect of the platform expertise enabling entrepreneurs to choose for equity-based
crowdfunding has been shown to directly have an effect on the dependent variable.
43
Logically, if an equity-based crowdfunding platform is available, entrepreneurs are
more likely to employ equity-based crowdfunding.
The hypotheses were aimed to provide an answer to the research question:
What relevant factors and/or motivations influence the decision of entrepreneurs to
choose specifically for equity-based crowdfunding as a means to financing their
venture or project?
While the research question is hard to answer, this study has provided some insight
into the motivations and factors that steer entrepreneurs’ in the direction of the equitybased crowdfunding model. Entrepreneurs that believe their venture has a relatively
small social value are more inclined to choose equity crowdfunding. Second, data
suggests that the legal environment is very important to enable entrepreneurs. This
effect was of course expected, since without a platform to actually be able to employ
equity crowdfunding, it is almost impossible. On the other hand, it was expected that
the legal expertise that may be available in the entrepreneurs’ own company may have
caused some entrepreneurs to still find a way. There were actually no cases of that in
the data, and this may only occur very rarely if at all. Ventures are most often in an
early phase when crowdfunding and often do not have the legal resources for such a
feat. Control preference and risk did not significantly affect the choice of
entrepreneurs according to the data.
44
Discussion
This section will discuss some limitations and considerations of this study that need to
be regarded when reviewing the results. Then, the implications of this research are
discussed and placed within current literature along with some suggestions for future
research.
Limitations and considerations
An important note that should be considered is that the conceptual model used in this
research most certainly does not paint a complete picture regarding the factors and
motivations influencing an entrepreneurs’ choice for funding; specifically equitybased crowdfunding. This research therefore actually only partly answers the research
question: just considering value creation, control preferences, risk and legal issues.
Still these factors are considered to be the most important and applicable to equitybased crowdfunding (Schwienbacher & Larralde, 2010; Meyskens & Bird, 2015;
Cosh et al., 2009). An important factor that was not considered in this study was the
creation of legitimacy, since this has already been the focus of Frydrych et al. (2014).
Regarding the research design, even though the consistency of most items was within
acceptable levels, whether the questions actually measured their relative variables is
not completely certain. This is an assumption that has to be made, however, if even
one of the questions can be proven to actually measure it’s respective variable, the
others are very likely to also be good measures since the internal reliability is so high.
To prove this though, a separate methodological study on the items is required.
45
Implications and suggestions for future research
The results of this study have contributed to current literature in the following ways.
First, while most literature on the subject of factors influencing entrepreneurs’ choice
of funding simply identifies these factors, this study examined what state or value of
specific factors may result in a certain outcome, specifically the choice for equitybased crowdfunding The only other study found that did this to a small extent was
Meyskens & Bird’s (2015) study that suggested that the relative economic and social
value constitute which model of crowdfunding best suits a venture. At least the first
step has been made to map not only which, but also how relevant factors may
influence entrepreneurs in their choice of funding. Future research should be focused
on the remaining factors that exist, and the other types of crowdfunding. Second, this
research has found that legal environment and legal expertise and the availability of
an equity crowdfunding platform can greatly influence the choice of entrepreneurs.
This is supported by Hemingway & Hoffman (2010), but this study provides actual
empirical data that supports it. The finding that entrepreneurs whom believe their
venture has relatively low social value are more likely to employ equity crowdfunding
is in accordance with Meyskens & Bird’s (2015) framework. The influence of
perceived economic value was however not supported by the results however. Finally,
As mentioned earlier the applying the factor ‘legitimacy creation’ specifically to
equity-based crowdfunding may also prove an interesting research topic for future
studies. Moreover, additional factors and motivations may be found in the future that
could be considered. Since the interest in crowdfunding has increased greatly over the
last few years, more factors are likely to be identified in the near future. Here lies an
46
opportunity for scholars to empirically test what factors or combinations of factors
steer to which types of funding entrepreneurs pursue.
All in all, this study has provided new insights in what moves an entrepreneur in their
choice of funding, specifically equity-based crowdfunding. However, this research
design could be applied to every type of funding in combination with relevant factors
as long as these factors can be properly operationalized.
47
References
Belleflamme, P., Lambert, T., & Schwienbacher, A. (2010). Crowdfunding: An
industrial organization perspective. Prepared for the Workshop Digital Business
Models: Understanding Strategies’, Held in Paris on June, 25-26.
Belleflamme, P. Lambert, T. Schwienbacher, A. (2013) Individual Crowdfunding
Practices Venture Capital: An International Journal of Entrepreneurial Finance
15(4), 313-333
Belleflamme, P., Lambert, T., & Schwienbacher, A. (2014). Crowdfunding: Tapping
the
right
crowd.
Journal
of
Business
Venturing,
29(5),
585-609.
doi:http://dx.doi.org/10.1016/j.jbusvent.2013.07.003
Bryman, A. (2008) Social Research Methods 3rd edition Oxford University Press
ISBN: 978-0-19-920295-9
Collins, L., & Pierrakis, Y. (2012). The venture crowd crowdfunding EQUITY
INVESTMENT INTO BUSINESS. (Unpublished NESTA,
Cosh, A., Cumming, D., & Hughes, A. (2009). Outside enterpreneurial capital*. The
Economic Journal, 119(540), 1494-1533.
48
de Buysere, K., Gajda, O., Kleverlaan, R., Marom, D., & Klaes, M. (2012). A
framework for european crowdfunding. European Crowdfunding Network (ECN),
Available at Www.Europecrowdfunding.org/european_ crowdfunding_framework,
Ekedahl, M. Wengström. Y. (2010) Caritas, Spirituality and Religiosity in Nurses’
Coping European Journal of Cancer Care 19 (4), 530-537.
Frydrych, D. Bock, A.J. Kinder, T. Koeck, B. (2014) Exploring entrepreneurial
legitimacy in reward-based crowdfunding Venture Capital: An International
Journal of Entrepreneurial Finance 16(3), 247-269
Futko, J. (2014) Equity vs. Debt Crowdfunding – Crowdfund Insider Available at:
http://www.crowdfundinsider.com/2014/09/ 50628-equity-vs-debt-crowdfunding/
Gerber, E. M., Hui, J. S., & Kuo, P. (2012). Crowdfunding: Why people are
motivated to post and fund projects on crowdfunding platforms. CSCW Workshop,
Giudici, G., Nava, R., Rossi Lamastra, C., & Verecondo, C. (2012). Crowdfunding:
The new frontier for financing entrepreneurship? Available at SSRN 2157429,
Hemer, J. (2011). A Snapshot on Crowdfunding Available at SSRN ,
49
Heminway, J., Hoffman, S. (2010) Proceed at your peril: crowdfunding and the
securities act of 1933. Tennessee Law Review 78, 879–972
Kotha, R., & George, G. (2012). Friends, family, or fools: Entrepreneur experience
and its implications for equity distribution and resource mobilization. Journal of
Business Venturing, 27(5), 525-543.
doi:http://dx.doi.org.proxy.uba.uva.nl:2048/10.1016/j.jbusvent.2012.02.001
Lam, W. (2010) Funding gap, what funding gap? Financial bootstrapping
International Journal of Entrepreneurial Behavior & Research 16 (4), 268-295
Lambert, T., & Schwienbacher, A. (2010). An empirical analysis of crowdfunding.
Social Science Research Network, 1578175
Lasrado, L.A. (2013) Crowdfunding in Finland - A New Alternative Disruptive
Funding Instrument for Business Tampere University of Technology
Lehner, O.M. (2013) Crowdfunding social ventures: a model and research agenda
Venture Capital: An International Journal of Entrepreneurial Finance 15 (4), 289311
50
Luzar, C. (2013) Equity Crowdfunding In Europe: Where It Stands Crowdfund
Insider
Available
at:
http://www.crowdfundinsider.com/2013/06/17310-equity-
crowdfunding-in-europe-where-it-stands/
Massolution (2013) The Crowdfunding Industry Report Available at:
http://www.compromisoempresarial.com/wp-content/uploads/137356857Massolution-2013CF-Excerpt-Revised-04182.pdf
Macht, S. A., & Weatherston, J. (2014). The benefits of online crowdfunding for
Fund Seeking business ventures. Strategic Change, 23(1
2), 1-14.
Meyskens, M., & Bird, L. (2015). Crowdfunding and value creation. Entrepreneurship
Research Journal, 5(2), 155-166. doi:10.1515/erj-2015-0007
Mitra, D. (2012). The role of crowdfunding in entrepreneurial finance. Delhi Business
Review, 13(2), 67-72.
Mollick, E. (2014). The dynamics of crowdfunding: An exploratory study. Journal of
Business Venturing, 29(1), 1-16.
Moritz, A., & Block, J., H. (2014). Crowdfunding: A literature review and research
directions. (Unpublished SSRN, doi:http://dx.doi.org/10.2139/ssrn.2554444
51
Outlaw, S. (2013) Which Type of Crowdfunding is Best for You? Available at:
http://www.entrepreneur.com/article/228524
Schaeffer, D.R. Dillman, D.A. (1998) Development of a Standard E-Mail
Methodology Public Opinion Quarterly 62, 378-397
Valanciene, L., & Jegeleviciute, S. (2013). Valuation of crowdfunding: Benefits and
drawbacks. Economics and Management, 18(1), 39-48.
van Osnabrugge, M. S. (1998). The Financing of Entrepreneurial Firms in the UK: A
Comparison of Business Angel and Venture Capitalist Investment Procedures
Wilson, K. E. and Testoni, M. (2014) Improving the role of equity crowdfunding in
Europe's capital markets, Policy Contributions - Bruegel
Agrawal, A., Catalini, , Christian, & Goldfarb, A. (2014). Some simple economics of
crowdfunding. Innovation Policy and the Economy, 14(1), 63-97.
52
Appendix I: Survey
Factors Influencing the Entrepreneurs' Choice of Funding
T1 Dear Entrepreneur, Recently, crowdfunding has grown to be an important tool for
entrepreneurs to raise capital. One specific type of crowdfunding that has not received
much attention in literature yet is equity-based crowdfunding. In this type, a company
raises capital from the crowd and in return the crowd receives a small share of the
company. This research focuses on the factors and motivations of entrepreneurs to
choose specifically for this type of crowdfunding. Please note that even though you
yourself have not employed equity crowdfunding, your response is just as useful. The
average time to complete this survey is around 7 to 13 minutes. It consists of 2 parts.
The first part asks some basic demographic questions. The second part asks about
several factors and motivations that you may have considered in your search for
funding. The main categories of these factors are: value creation, control preferences
& risk, legal issues .At the end of the survey you have the possibility to leave your email address and name should you want to receive the results of my research. Thank
you very much for your time to help me with my research!
Kind regards,
Floris de Joode
Q1 What is your gender?
53
! Male
! Female
Q3 What is your age in years?
Q4 How many years has your company been active in years? (If your company no
longer exists please specify how many years it had existed.)
Q5 In which country was your company founded?
[Edited: list of all countries]
Q6 What is the highest level of education you have completed?
" Less than High School
" High School / GED
" Bachelors Degree
" Masters Degree
" Doctoral Degree
" Professional Degree (JD, MD)
54
T2 For the next part of the survey, it is important to know what equity crowdfunding
is exactly: raising capital by selling equity-shares of a company to individuals of the
general public (the 'crowd') that are not professional investors (such as venture
capitalists or angel investors).
Q11 Please specify what kind of fund-raising your company has employed (multiple
answers possible):
! Friends & Family
! Venture Capital
! Angel Investor
! Crowdfunding (any type)
! Government Grants and/or subsidies
! Loans from banks or other financial institutions
! Other (please specify) ____________________
If Crowdfunding (any type) Is Not Selected, Then Skip To The following question
lists a series...
Q12 You specified your company has used crowdfunding to raise capital. What type
of crowdfunding was used? (multiple answers possible)
! Reward-based (backers were given a product or service for their investment)
! Debt (a loan with a certain interest rate)
! Donation (backers did not receive any return but voluntarily supported your
company)
55
! Equity-based (backers received an ownership share of the company)
! Other (please specify) ____________________
If Equity-based (backers recei... Is Not Selected, Then Skip To The following
question lists a series...
Q15 You specified you used equity crowdfunding. Please indicate if you agree with
the following statements and to what extent:
Strongly
Disagree
Disagree
Neither
Agree
Agree
nor
Strongly
Agree
Disagree
The legislation
of my country
or region were
beneficial
to
"
"
"
"
"
"
"
"
"
"
the process of
equity
crowdfunding
The
crowdfunding
platform
enabled
my
company
to
use
56
equity
crowdfunding
My company
would
have
been able to
sell
equity
shares to the
"
"
"
"
"
crowd without
the help of a
crowdfunding
platform
Q13 The following question lists a series of statements about the legal institutions in
your country or region. Please specify whether and to what extent you agree or
disagree with these statements
Strongly
Disagree
Disagree
Neither
Agree
Agree/
Strongly
Agree
Disagree OR
Do not know
The legal institutions of
my country or region are
"
strict regarding the sale
of equity-shares to non-
57
"
"
"
"
investors
A
crowdfunding
platform that allows the
sale of equity-shares to
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
the crowd is available in
my country or region
The legislation in my
country or region mostly
allows the sale of equity
to the crowd
It is hard to sell equity
shares to the crowd in
my
current
legal
environment
The process of using
equity-crowdfunding
seems like a difficult and
cumbersome process to
me
My company has enough
legal expertise to employ
equity-based
crowdfunding
58
The legislation in my
country or region simply
"
"
"
"
"
does not allow equity
crowdfunding
Q16 Please specify the relative value of the economic and social value of your
company. Economic value is value added to the economy, not just in monetary terms
but also employment, prospects etc.). Social value is value added to society or a
charitable cause (helping the elderly, improving wildlife conditions etc.)
Very low
Low
High
Very high
Economic value
"
"
"
"
Social value
"
"
"
"
Q14 The following statements are about your control preferences and associated risk.
Please indicate per statement if you agree or disagree and to what extent:
Strongly
Disagree
Disagree
Neither
Agree
Agree
nor
Strongly
Agree
Disagree
I wish to retain control of
"
my company even if this
59
"
"
"
"
brings great risks with it
I strongly prefer funding
types where I do not have
to give up an ownership
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
"
share of my company
(such as debt financing)
Except capital, I wish to
benefit from the expertise
and
knowledge
of
investors
I do not mind giving up
some
control
of
my
company when raising
capital
There is significant risk
associated
with
full
control over my company
Except capital, I wish to
dilute or decrease the risk
I
am
bearing
finding investors
60
when
Email
If you wish to receive the results of this research please enter you e-mail address in
the following field.
E
Thank you very much for completing this survey! It will help me greatly in the
writing of my Masters thesis. If you leave you e-mail address above I will make sure
to send you a copy of my thesis once it is finished.
61
Appendix II: Survey solicitation e-mail
Dear Entrepreneur,
I am a Dutch student currently writing my Master’s thesis on equity-based
crowdfunding. More specifically I write on certain motivations and factors (risk,
control preference, value creation and legal issues) that may influence an entrepreneur
as yourself to choose equity crowdfunding as a means of raising capital. Whether you
have used equity crowdfunding to raise funds or not, you would greatly help me by
filling in my survey. The survey takes approximately 5 to 10 minutes to complete.
Please note that you do not need to have experience with equity crowdfunding! Your
response is valuable regardless.
By helping me do this research, you help furthering the understanding of equity
crowdfunding. You might also learn some interesting things while filling in this
survey. Your response will be handled with outmost confidentiality and anonymity.
If you have any questions or remarks please do not hesitate to e-mail me.
Thank you in advance
Kind regards,
Floris de Joode
<SURVEY LINK>
62