The Crowdfunder Story: Crowdfunder Decision-Making in Venture Financing

Abstract

Crowdfunding is a rapidly growing phenomenon whereby entrepreneurs are able to obtain a new form of venture funding by reaching out to the crowd rather than reaching out to exclusive investor groups such as venture capitalists or business angels. Crowdfunding is a recent phenomenon, with early initiatives taking place as late as 2006 and has only seen rapid growth in recent years. Despite this rapid growth, crowdfunding has received little attention in academics. No research has been done whereby researchers have interacted with the crowdfunders themselves, and little is therefore know about how these individuals act and how they choose which ventures receive funding and which are left unfunded. This research is the first attempt, to the best of the authors knowledge, of turning to the users of crowdfunder platforms in an attempt to shed light on what drives these individuals in their capital allocation among ventures. The research focuses on the reward-based crowdfunder decision-making process in capital allocation among ventures. This is also compared to the general theory on venture capitalists and business angels. The research was carried out by conducting interviews with crowdfunders who have backed at least three products through pre-orders, where at least one was backed within the last six months. These interviews were then analyzed to construct a model of crowdfunder decision-making. Finally, these results were discussed in light of theoretical perspectives relating to venture capitalists and business angels. This further leads to a discussion on how the reward-based crowdfunding system is expected to fit with current capital allocation systems. The results broadly present that crowdfunders on reward-based platforms are far more product-oriented in their decisions to allocate capital than are venture capitalists and business angels, who generally show a very high focus on the team behind the venture. This research further functions as a base on which future research on crowdfunding can continue in order to develop the academic field of crowdfunding further.