How Can Differences in the Underlying Entrepreneurial Ecosystems Explain the Difference in Performance of the Equity Crowdfunding Industries in the United Kingdom and the United States? A Comparative Analysis of how Systemic Differences in the Entrepreneurial Ecosystems of Equity Crowdfunding in the United Kingdom and the United States Drive Varying Performance of the Two Industries

Abstract

In recent years, ECF has emerged as an alternative financing form, helping bridge the funding gap that SMEs face. Moreover, it has enabled individuals to enter the investment scene, thereby providing new opportunities for both SMEs and investors. In terms of the global ECF transaction volume, both the US and UK comprise approximately a third of this market each. Despite the US and UK both being LMEs and appearing as similar markets at a glance, they experience differing performance levels of their ECF industries, with the UK having an ECF volume per capita almost five-fold that of the US. In order to explain this phenomenon, the underlying entrepreneurial ecosystems are examined, identifying and disclosing the systemic differences that lead to this result. This is reflected in the following research question: How can differences in the underlying entrepreneurial ecosystems explain the difference in performance of the equity crowdfunding (ECF) industries in the United Kingdom and the United States? This is therefore an explanatory study, which adopts a critical realism philosophy and an abductive approach, utilizing both quantitative and qualitative secondary data. In order to answer this research question, a theoretical framework has been created, which represents an entrepreneurial ecosystem, consisting of material, cultural, and social attributes, and additionally incorporates the institutional environment. The elements of this framework are compared in order to uncover the systemic differences of the underlying ecosystems, and how these explain diverging performance of the two ECF industries. It is found that the governance element of the entrepreneurial ecosystem constitutes the main systemic difference between the two ecosystems, and is therefore the main explanatory factor for the differing performance of the ECF industries in the UK and US. Additionally, as part of the institutional environment, governance has a permeating effect across the ecosystem, impacting and interacting with the remaining elements. This study provides an alternative theory and perspective as to why ECF industries in the US and UK differ, but has also highlighted the importance of continuous research of the ECF industry, as it is still in a nascent stage.