Entrepreneur fund-seeking: toward a theory of funding fit in the era of equity crowdfunding

Why do entrepreneurs prefer to seek one equity form of funding over another? To address this question, we develop a contingency-based model of perceived funding fit that delineates several factors that influence strategic fund-seeking decisions by entrepreneurs. In prior research, entrepreneur fund-seeking has largely been explained using models that rely on rule-based approaches (e.g., the pecking order assumption) or value capture considerations. In contrast, we propose a dynamic contingency-based model that delineates several factors that influence entrepreneur perceptions of funding fit over and above transactional efficiency, including atypical value creation from the fundraising process itself and external stakeholder values. We inductively assess our model in the context of equity crowdfunding (ECF) and find that perceived funding fit can motivate some strategic fund-seekers to opt to pursue ECF, even when they have a reasonable opportunity to obtain other more established sources of funding such as angel or seed-stage venture capital. This indicates that ECF in several cases is not a funding mode of last resort as proposed in prior literature.