Related Work on Crowdfunding

135

JumpStartFund and tried to develop a novel form of transportation (Yin 2008). To derive an adequate understanding of this case and its underlying model, I propose the following research question:

How can JumpStartFund’s crowdfunding model be characterized and how can it help to redefine the success of existing crowdfunding models?

The contribution of this study is threefold. First, I extend existing crowdfunding literature by considering a new crowdfunding model that contributes to a better understanding of more diverse crowdfunding models. Second, my paper contributes to the discussion of how such a dynamic model may influence and redefine entrepreneurial success within crowdfunding. Third, I also contribute to the broader topic of crowdsourcing by discussing the implications of my model in view of existing research in this context.

136

solve them more efficiently (Brabham 2008; Schenk and Guittard 2011). At the heart of crowdfunding are intermediary platforms that employ certain web technologies that make it economically feasible to pool small amounts of money from different people to collect a sufficient investment sum.

To distinguish between crowdfunding models, the literature makes use of different conceptualizations. One of the most common conceptualizations discriminates crowdfunding models based on the type of exchange relationships between founders and investors (Zhang 2013). Models are, thereby, generally distinguished between donation-based, reward-based, lending-based and equity-lending-based crowdfunding (Mitra 2012; Bradford 2012; Griffin 2013). In donation-based crowdfunding, users usually donate their money without being eligible for a tangible return (Bradford 2012). Because of this, donation-based crowdfunding is usually appropriate for charity fundraisers. In reward-based crowdfunding, users are usually granted certain benefits in return for their contribution. These benefits are usually tangible and take the form of non-monetary rewards, such as the product that is advertised by the campaign, mementos of the campaign, and invitations to events as well as the appreciation of supporters (Belleflamme et al. 2014; Beaulieu et al. 2015). A model that is very similar and, therefore, usually subsumed under the reward-based model is the pre-purchase model. Like the reward-based model, financial supporters are entitled to a return that is usually the product the entrepreneur is going to produce. Thus, with their contributions, users of

reward-137

based crowdfunding usually pre-purchase the product or service from the entrepreneur. In the case of the lending-based model, which is also often denoted as peer to peer lending, contributors usually act as lenders to borrowers (Lin et al. 2013). In doing so, lenders provide loans on a temporary basis for which they expect repayment. In some cases, they also expect a financial return in the form of interest rates on top of the principal they loaned. The fourth and last model is the equity-based model or profit-sharing model. In this model, users receive a share of the profits of the business they fund. As such, the model comes closest to investments into securities (i.e., shares or bonds) (Ahlers et al.

2015).

Another conceptualization is provided by Schwienbacher and Larralde (2010),who further distinguish between active as well as passive crowdfunding models. Passive models, thereby, denote platforms that allow only limited involvement of the crowd beyond funding. Hence, these types of crowdfunding models are mainly used by entrepreneurs who seek passive investments and are solely interested in monetary exchange (Schwienbacher and Larralde 2010). One example of such a crowdfunding model is lending-based crowdfunding with its main purpose being the exchange of funds to grant a loan. Active crowdfunding models, on the other hand, allow funders to become active in the initiative next to offering rewards to them.

Examples of active crowdfunding models constitute reward-based as well as equity-reward-based models, which allow companies to gather important feedback with regard to products (i.e., the case

138

of reward-based crowdfunding) as well as on the general value of one’s business (i.e., the case for equity-based crowdfunding) (Belleflamme et al. 2014).

To position my research, I will focus mainly on active crowdfunding models as this categorization seems to be best suited to contrast and explain my case. I will focus on reward-based and equity-reward-based crowdfunding, which are active crowdfunding models as they allow customers to engage beyond funding. By positioning my study, I can exclude research on crowdfunding models (e.g., lending-based and donation-based crowdfunding models) that do not provide valid reference points for my case. Hence, in the following section, I will provide a short review on the relevant literature regarding active crowdfunding models with emphasis on equity-based and reward-based crowdfunding.

5.2.2.2. Research on Crowdfunding Models

Looking at current research on reward-based as well as equity-based crowdfunding, I was able to identify three main research streams. Most research to date deals with success factors within these crowdfunding models. Mollick (2014), for example, shows that success in reward-based crowdfunding is predicted by the size of social networks as well as the underlying project quality.

Apart from that, research identifies a variety of other success factors, such as the incorporation of videos (Mollick 2014), the regular use of updates and comments (Xu et al. 2016; Clauss et al. 2018; Kuppuswamy and Bayus 2018), the use of social media

139

(Mollick and Kuppuswamy 2014; Thies et al. 2014; Lukkarinen et al. 2016; Courtney et al. 2017), geographical proximity of the funder (Agrawal et al. 2014) and the appropriate setting of funding goals as well as the use of adequate rewards (Cholakova and Clarysse 2015; Moritz et al. 2015; Frydrych et al. 2016; Xu et al. 2016). The second main research stream is concerned with users’ motivations in crowdfunding. The most important motives among entrepreneurs to use crowdfunding are to raise funds, to establish relationships with funders and customers, to gain validation and to create awareness as well as to learn something. Investors of crowdfunding, on the other hand, are motivated mainly to gain a reward, to engage with a community, to support creators, to gain recognition from others, to develop a positive self-image and because it is fun (i.e., hedonic reasons) (Gerber and Hui 2013; Haas et al. 2014; Bretschneider and Leimeister 2017). Research further suggests that these motivations differ depending on the crowdfunding model employed. Thus, while investors of equity-based crowdfunding are believed to be driven mainly by economic and profit-oriented motivations, investors of reward-based crowdfunding seem to be guided primarily by hedonic and altruistic motives (Haas et al.

2014). The third research stream is preoccupied mainly with investigating the intermediary function of crowdfunding models.

Most research in this regard proposes that one important function of a crowdfunding platform is reducing information asymmetries among users of crowdfunding platforms (Haas et al. 2014;

Cumming et al. 2015; Courtney et al. 2017). They do so by

140

relying on certain platform mechanisms that allow the transmission of information, based on which the capital giver can derive the profitability, viability, and risk of the proposed business (Ahlers et al. 2015). This information can take different forms. Examples include direct information, such as the textual description of a company’s business, stated reasons for a loan application, and information on the maximum interest rate a user is willing to pay. Other examples include more indirect information (i.e., information from which the quality of a company can be inferred indirectly), such as links to affiliated partners and lead investors (Kim and Viswanathan 2014) and third party endorsements (Mollick 2014; Agrawal et al. 2016;

Courtney et al. 2017) as well as the selection of an appropriate funding mechanism (KIA or AON) (Burtch et al. 2015).

A relatively small but slowly developing research stream is preoccupied with the more active properties of crowdfunding models. Part of this research, already discussed in Chapter 5.2.2.1., shows that different types of crowdfunding can be used to extract different kinds of information from the crowd (Belleflamme et al. 2014). More recent research seems to suggest that involving customers in innovation-related activities has important implications for a company’s success. For example, research by Stanko and Henard (2017) shows that involving customers in product development during crowdfunding can benefit the market performance of products within such campaigns. This is also supported by my own research, in which I lay out why reward-based crowdfunding is

141

conducive to co-create value with customers beyond funding and also provide a guideline on how to best engage customers in innovation related activities (Lipusch et al. 2018). While the above findings relate primarily to reward-based and equity-based crowdfunding models, I found relatively little research on alternate crowdfunding models and how they involve customers in value-creating activities beyond funding. One exemption constitutes the study by Belleflamme et al. (2013), which examines individual crowdfunding practices (i.e., crowdfunding practices that are conducted through a direct appeal without the involvement of a crowdfunding platform) and which suggests that such models are better suited to extract additional value from the crowd. One reason for this is that entrepreneurs using such a model can decide on their own how to involve users during crowdfunding and, hence, are not constrained by the rules and functionalities of standard crowdfunding models.

From my literature review, I conclude that only little research is devoted to crowdfunding models that lie outside of conventional norms and properties (Ordanini et al. 2011). This is unfortunate, since research seems to indicate that alternate crowdfunding models often employ mechanisms that allow for a more flexible extraction of value from the crowd (Ordanini et al. 2011;

Belleflamme et al. 2013). Also, existent crowdfunding research conveys relatively little in-depth understanding as to what such new crowdfunding models may look like and how they may differ from standard crowdfunding models. Furthermore, I note that there is relatively little in-depth understanding about the

142

strategies and architectures that crowdfunding models employ to extract additional value from the crowd and how this value may relate to a company’s funding success. My study aims to address this particular research gap by investigating the case of JumpStartFund and the Hyperloop project in depth.