Equity Crowdfunding and Access to Capital for User Entrepreneurs: Evidence from a Randomized Field Experiment

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Publication History

Received: July 15, 2020
Revised: May 29, 2021; March 12, 2022; June 4, 2022; June 29, 2022
Accepted: July 30, 2022
Published Online as Articles in Advance: May 17, 2023
Published Online in Issue: June 1, 2023


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We examine whether equity crowdfunding democratizes access to funding for nontraditional user entrepreneurs. User entrepreneurs start by creating a product to serve their own unmet needs with no expectations of monetary profit, then later decide to commercialize the product through entrepreneurship. In contrast, traditional (producer) entrepreneurs take a more profit-driven path to entrepreneurship and start by identifying an opportunity that has commercial potential. Through a randomized field experiment, we randomly reveal to some investors that a firm producing a product used by musicians is founded by a musician and conceal this founder-related information from other investors. Revealing the information suggests that the firm is a user innovator firm and concealing it suggests that the firm is a traditional producer firm. We find that investors are significantly more interested in the traditional producer firm. Through an additional field experiment, we identify that the bias against user entrepreneurs is statistical (based on a response to limited information) rather than taste based (based on an idiosyncratic dislike). Our findings suggest that user entrepreneurs can mitigate investor bias by displaying signals of quality such as those regarding firm growth and broad product appeal.
Additional Details
Author Sofia Bapna and Martin Ganco
Year 2023
Volume 47
Issue 2
Keywords Equity crowdfunding, randomized field experiment, entrepreneurship, user innovation, statistical discrimination
Page Numbers 585-610
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