Signaling Effects of Crowdfunding on Venture Investors‘ Decision Making

verfasst von: Michael Mödl

Verlag: Springer Fachmedien Wiesbaden

Buchreihe : Innovation und Entrepreneurship

Enthalten in: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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Über dieses Buch

Michael Mödl examines the impact and signaling effects of crowd-based start-up financing on subsequent venture capital funding rounds. The digital era has substantially expanded the entrepreneurial financing landscape and crowdfunding is emerging as a novel way for young innovative firms to secure scarce early-stage funding. As the evaluations of venture capitalists and business angels remain to be consequential for securing critical resources in later stages, questions on the interactions between new and traditional forms of venture financing arise. Drawing on choice experimental research designs the author provides causal empirical evidence that while “the crowd” is generally seen as a negative signal, it can generate certain positive signals which increase the likelihood of professional venture investors to consider crowdfunded start-ups for investment. The presented findings yield important implications for capital-seeking entrepreneurs, investors and public policy.

Dr. Michael Maximilian Mödl completed his dissertation under supervision of Prof. Dietmar Harhoff, Ph.D. at Ludwig-Maximilians-Universität München and at the Max Planck Institute for Innovation and Competition.

Inhaltsverzeichnis

Frontmatter

Chapter 1. Introduction

Abstract

In 2012, Munich-based start-up Smarchive (a developer of semantic software allowing users to store, organize, and finish their paperwork) was in need of capital for its expansion plans. Since the founders were not able to identify professional venture investors and conduct negotiations in the short term, they decided to run a crowdinvesting (equity-crowdfunding) campaign on Germany’s then leading crowdinvesting platform Seedmatch. They raised 100,000 Euros through 144 crowd backers in exchange for an aggregated 6 percent stake in equity.

Michael Mödl

Chapter 2. New Venture Financing Research

Abstract

Innovation is a key source of economic growth. While in his famous statement on the Process of Creative Destruction, selfsame can be set in motion by every entity of the economy, including within large organizations, Schumpeter becomes more explicit in his Theory of Economic Development. He draws attention to “the individuals whose function it is to carry out [new combinations, whom] we call ‘entrepreneurs’”.

Michael Mödl

Chapter 3. Theory and Hypotheses

Abstract

Venture capitalists solve an important problem in market economies: they connect founders with good ideas (but no money) with people who have money (but no ideas). VCs are thus considered to be key actors in the entrepreneurial ecosystem, and to serve as a catalyst for innovation within an economy. Venture capital has held this critical position over the last decades and—even though the VC industry faced considerable booms and busts—the nature of venture capital itself has been pretty stable.

Michael Mödl

Chapter 4. Methods

Abstract

To test our hypotheses on the effects of crowdfinancing on subsequent venture investors’ decision making, we combine a variety of research instruments. For our core analyses, we conduct two online stated choice experiments, namely a choice-based conjoint analysis and a factorial survey, also known as vignette analysis. As Hoenig and Henkel (2015: 1055) point out, “[t]he use of controlled experiments involving the manipulation of available information is a well-established approach used across all kinds of scientific research fields to answer questions that otherwise might go unanswered.”

Michael Mödl

Chapter 5. Data and Sample Description

Abstract

The following chapter is concerned with describing our primary dataset of 120 practicing venture investors, thereof 73 independent venture capitalists and 47 business angels. Section 5.1 explains our sampling strategy and extensive data collection efforts, owing to the difficulty of obtaining a large sample in surveys among venture investors. Thereafter, we provide detailed information on our respondents’ demographics, investment preferences, risk attitude, their usage patterns of digital social networks, as well as on their knowledge of and experience with crowdinvesting.

Michael Mödl

Chapter 6. Venture Investors’ Perceptions of Entrepreneurs’ Financing Hierarchies

Abstract

This chapter explores the proposed signaling mechanism by collecting causal empirical evidence on whether venture investors assume a negative selection bias for crowdfinancing as an initial source of equity funding. We aim to shed light on the question whether VCs believe that there is a hierarchy, or pecking order, in approaching investors by entrepreneurs, and if so, whether it is influenced by a start-up’s quality and business model.

Michael Mödl

Chapter 7. Effects of Crowdfinancing on Subsequent Venture Capital Selection

Abstract

To test the hypotheses derived in Section 3.3 we conduct choice-based conjoint experiments with venture investors, an approach that represents a robust technique for modeling VCs’ decision policies. To assure that only relevant and reasonable parameters are included in our experimental design, we based its composition on an extensive review of relevant academic literature on VC decision-making criteria and of practice-oriented literature, as well as on in-depth semi-structured interviews with venture investors.

Michael Mödl

Chapter 8. Summary, Discussion and Outlook

Abstract

The purpose of this dissertation has been to investigate the impact and signaling effects of crowdfinancing on the decision making of subsequent venture investors. Given the rise of crowdfinancing as a vital part of the entrepreneurial equity funding landscape, the question of how initial rounds of funding by the crowd influence prospective later-stage resource partners’ willingness to invest in innovative ventures is of great importance. Although there have been signs that prior crowdfinancing coincides with subsequent VC funding, a systematic review of prior literature shows that so far we have lacked a thorough understanding of the causal effects of initial crowd-based funding on a start-up’s probability of obtaining later-stage venture capital, in particular in comparison to other means of early funding, such as business angels.

Michael Mödl

Backmatter

Titel: Signaling Effects of Crowdfunding on Venture Investors‘ Decision Making
verfasst von: Michael Mödl
Verlag: Springer Fachmedien Wiesbaden
Electronic ISBN: 978-3-658-31590-0
Print ISBN: 978-3-658-31589-4
DOI: https://doi.org/10.1007/978-3-658-31590-0