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

SKU
17006

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: Forthcoming
Published Online in Issue: Forthcoming

https://doi.org/10.25300/MISQ/2022/17006

Abstract

We examine whether equity crowdfunding democratizes access to funding to non-traditional user entrepreneurs. User entrepreneurs start by creating a product to serve their own unmet needs with no expectations of a 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 about firm growth and broad product appeal.

Additional Details
Author Sofia Bapna and Martin Ganco
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Keywords Equity crowdfunding, randomized field experiment, entrepreneurship, user innovation, statistical discrimination
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