Emerging issues in Crowdfunding Research Are Topic of Discussion as Crowdfunding is Dissected at Leading Academic Conference.
How far we have come! Two years ago crowdfunding was seen as little more than an interesting phenomenon, not particularly worthy of study. At this year’s Academy of Management Conference (for those of you outside of academia – this is a very serious, major global conference for business school professors) that concluded today in Philadelphia, PA, there were five sessions on crowdfunding. The session by Dr. Gary Dushnitsky of London Business School was literally standing room only with professors overflowing the room.
As someone who straddles the world of academia and industry, it was fascinating to hear my research colleagues discuss crowdfunding. I will try to summarize some of the key insights and ideas about how business professors are viewing crowdfunding.
Idea 1: Crowdfunding is challenging the ways “companies” are formed
Traditional theory deals with how entrepreneurs recognize an opportunity, mobilize resources and then launch a company with the intention of growing the firm. Crowdfunding appears to challenge many of the traditional models of company formation.
Innovators and entrepreneurs are using crowdfunding to launch a product – but not necessarily to launch a firm. They are able to use outsourced manufacturing and distribution to run a microenterprise – often just one or two people – who are creating and selling innovative products. The intentions and expectations of these microenterprise entrepreneurs does not fit traditional theory, and this is deeply embedded in the collaborative economy movement and the rise of 3D printing.
Idea 2: Institutional Conflict
A recurrent theme was that the right lens for analysis is that of the conflict and competition between institutions. Academics are paying close attention to the battle over Title III and other crowdfunding regulations and becoming interested in the interplay between institutional actors. More of an issue for policy and law faculty, but the delays in Title III implementation and the interplay of the SEC, FINRA, and interested lobbying groups is catching the attention of policy faculty.
Idea 3: Crowdfunding and Community Creation
Several researchers have noted that crowdfunding may be less about securing financial resources for a firm, and more about the process of creating an ongoing social community around an entrepreneur and their idea. Data seems to show that successful crowdfunding is less about activating an exisiting community than creating a new community that brings social, intellectual and financial capital together.
Idea 4: Crowdfunding: Substitute and Complement to Traditional Capital
The Academic Community realizes that the argument conflating crowdfunding finance with venture capital is in error. The very narrow range of firms that are eligible to seek out venture backing is not representative of the vast majority of crowdfunding. In some industries crowdfunding finance may be a substitute for angel or seed finance. Is some other industries, for example Film production, it appears that crowdfunding is emerging as a real threat to traditional financial models. Despite initial push back from the Angel community, it now appears that crowdfund investing is emerging as a good complement to angel finance.
Idea 5: Democracy in Theory, Network Density and Access in Practice
The industry of crowdfunding touts its ability to democratize access to capital. However, reviews of several studies show that location of the company matters greatly, that there are significant variations in success of campaigns. This is a matter of extensive research, but it appears that the entrepreneur’s pre-existing network connections to the industry may have a great deal to do with the success of the campaign. This appears to be true based on three studies in two continents.
If you would like to keep up with latest research in crowdfunding, please follow our work at the Fung Institute at UC Berkeley. We have a limited number of slots available at our Second Annual Academic Symposium on Crowdfunding Research. These slots are open for policy makers, government officials, economists, academics, leaders of industry and trade associations, representatives of foundations, think tanks, etc. This is not a crowdfunding convention – this is a gathering of thought leaders researching the area and whose work is affected by developments in the field. If you would like to attend and fit the bill please contact me at [email protected]
Richard Swart, PhD., is the Director for the Program for Innovation in Entrepreneurial & Social Finance at the Fung Institute at UC Berkeley. Swart leads a research team that is studying how crowdfunding and other forms of alternative finance are changing the world of startup funding, SME finance, and investing opportunities created by P2P and P2B models. He has become one of the most sought after advisors for financial institutions, foundations, universities and governments. Swart is also a partner at Crowdfund Capital Advisors Group (CCA) – a group that has been involved with the crowdfunding movement since day one.