Crowdfunding: An innovation for innovation? - An exploratory study of the role of crowdfunding in entrepreneurial organisations.

Abstract

Availability of investment capital is one the most daunting problems for firms. The OECD has indicated that a significant number of firms could use funds productively if these were available. A problem especially pressing for (innovative) small and medium sized companies (SME’s). A financial innovation is on the rise that allows entrepreneurial organizations to collect investment capital through social networks on the internet, otherwise known as crowdfunding. This study focuses on the investment type of crowdfunding where investors financially benefit from participating. The current perception of the adoption of this innovation by firms will be investigated, leading to the following main research question:

Do firms perceive crowdfunding as a viable alternative for financing investments?

The theory of adoption and diffusion theory has been used as a theoretical framework, leading to a conceptual model of the willingness to adopt crowdfunding as a way to collect investments by the entrepreneurial firm. Empirical data was collected by means of a survey among a representative sample of 2000 firms in the Netherlands with a response rate of 10 %. Using Pavitt’s taxonomy of main economic activities to compare the original sample with the sample of respondents, no systematic biases were found. The empirical model shows a significant 44% explained variance and may prove itself useful for future research in order to measure the expected adoption rate of innovations.

The entrepreneurial firm perceives a relative advantage of crowdfunding on two dimensions as compared to existing financial services, namely the perceived chance of successfully acquiring investment capital via crowdfunding and market exposure through crowdfunding. Both dimensions are positively related with the willingness to use crowdfunding as a way to acquire investment capital. A third dimension, business network extension through crowdfunding, shows a strong positive correlation with market exposure (r = 0.8) and may therefore be regarded as an additional explanatory dimension of the concept of relative advantage of crowdfunding. Current degree of involvement in crowdfunding or company circumstances are not related with the willingness to use crowdfunding as a way to acquire investment capital. Apparently the perception of crowdfunding is more important than particular firm circumstances. The degree of involvement is, however, considered low. Over 80% has never or only vaguely heard of the concept of crowdfunding.