Motivations of capital seekers in the Dutch hospitality and technology industry via crowdfunding

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Motivations of capital seekers in the Dutch hospitality and

technology industry via crowdfunding

Master Thesis MSc Entrepreneurship

VU University Amsterdam and University of Amsterdam Faculty of Economics and Business Administration

Student Sander van der Harst

Student number UvA/VU 11019905/2586420

Date June 2016

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1. Introduction

Crowdfunding is becoming a common way to provide capital for new ventures. Because of the world financial crisis, small and medium sized enterprises face a high rate of rejection of bank loans. The loan rejections increased 2,5 times since 2008 compared to 2004, from 6,1% to 16,3% (Sannajust, 2014). Crowdfunding was mainly used to finance artists from different sectors. However, crowdfunding is rising in popularity and provides a solution for various types of entrepreneurs who are facing difficulties with traditional ways of financing, e.g. venture capitalist, angel investors and banks loans (Gerber & Hui, 2013; Moritz & Block, 2016; Veuger, 2015).

Nowadays, crowdfunding is a multi-disciplinary and emergent field (Mollick, 2014). Crowdfunding platforms are the intermediary between capital seekers (the entrepreneurs) and the capital providers (the crowd). This process can be described as entrepreneurs who are “tapping the crowd”, where the crowd is promised (non-)monetary rewards by the entrepreneurs (Belleflamme, Lambert & Schienbacher, 2010).

In previous research, attention is paid to the motivations of entrepreneurs to start a crowdfunding campaign (Gerber, Hui & Kuo, 2012; Gerber & Hui, 2013). However, no emphasis is placed on the effect of the industries in which the venture operates. This thesis provides a better understanding on industry differences between these motivations to start a crowdfunding campaign.

The research question of this thesis is: Do entrepreneurs among various industries have different

motivations to start a crowdfunding campaign?

The contribution of this thesis is to get a better understanding in the differences between the incentives of crowdfunding creators to start their campaign. This thesis will address this topic, by providing a comparison between Dutch entrepreneurs in the hospitality and technology industry.

The article of Gerber et al. (2012) suggests a number of areas for future research. This thesis will contribute to their first suggestion to collect more data in order to provide a deeper analysis on the creator motivations of crowdfunding. Besides they mention factors such as expertise of the entrepreneur and project types, which may influence the motivations of the creators of a crowdfunding campaign. This thesis will elaborate more on the expertise of entrepreneurs by taking up the experience and level of education of the entrepreneurs. Besides, this thesis will also focus on different project types between the two different industries. This thesis specifically focuses on the motivational differences of the capital seekers to start a crowdfunding campaign.

This thesis will offer the first in-depth qualitative research on the differences between the motivations of entrepreneurs in different sectors. Besides, this thesis contributes to the literature regarding the development of the initial motivations of crowdfunding campaign creators. Insights in the differences of motivations of the creators of crowdfunding campaigns, can help the creators as well as the funders

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4 of crowdfund campaigns to gain a deeper understanding of the expectations and goals of the campaign.

This research will first concentrate on the available literature about crowdfunding and the differences between the hospitality and technology industry. Thereafter, the method and study design is discussed. Next, an analysis with the research results is provided. Finally, implications for further research and the conclusion including a discussion about the results of this thesis is given.

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2. Literature review

Online crowdfunding platforms, such as Kickstarter and IndieGoGo, provide the possibility for entrepreneurs to pitch their ideas. Entrepreneurs are using these online platforms and payment systems to attract a relatively large number of individuals for financial contributions (Gerber et. al., 2012). Over the world, the crowd invests millions of dollars in entrepreneurial creators each month (Gerber & Hui, 2013). According to the crowdfunding industry report of Massolution (2015), crowdfunding is growing rapidly. Figure 1 presents the results of this report by the worldwide funding volume. The total investment in 2012 is $2.7 billion and predicted investment in 2015 grows to $34.4 billion.

Figure 1, Crowdfunding Industry Report (Massolution, 2015)

In the last years, crowdfunding became a serious alternative financing source, as can be witnessed by a spectacular growth in volume. The growth of the volume can be explained by the perception of a quick and easy way to finance startups (Hui, Gerber & Greenberg, 2012). Crowdfunding has emerged as a way to fill the funding gap in the first stages of new ventures (Moritz & Block, 2016). This funding gap refers to the difficulty of reaching funds between the early stages and the later development stages of startups. New venture financing comes mostly from friends and family in the early stages and from venture capitalists and banks in the later stages (Moritz & Block, 2016).

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6 Many research papers on crowdfunding follow a “phenomenon-based approach” (Moritz & Block, 2016). These research papers contributed to the development of a definition and description as well as the differentiation of crowdfunding to related concepts (Moritz & Block, 2016). Crowdfunding in this thesis is defined as: “Efforts by entrepreneurial individuals and groups – cultural, social, and for-profit – to fund their ventures by drawing on relatively small contributions from a relatively large number of individuals using the internet, without standard financial intermediaries” (Mollick, 2014, p. 2).

Literature on crowdfunding identified four main types of crowdfunding (Mollick & Kuppuswamy, 2014). These types are equity-based, lending-based, reward-based and donations-based crowdfunding. With equity-based crowdfunding, funders may be treated as investors, giving them equity stakes in return for their investment. Second, lending-based crowdfunding provides funds offered as loans, with a rate of return on the invested capital. Third type is reward-based crowdfunding, in which funders are treated as early customers. During this ‘pre-selling’, funders are offered early access to the product, for a better price or some other benefit. Finally some crowdfunding campaigns focus on donations. With donation-based crowdfunding, funders do not get direct return for their donation. This kind of crowdfunding is often used by art or humanitarian projects (Mollick & Kuppuswamy, 2014).

2.1 The Dutch crowdfunding market

This research will focus on crowdfund campaigns in the Netherlands. The crowdfunding sector is growing in The Netherlands, and is even in the European top according to the report ‘Current State of Crowdfunding in Europe' of Crowdfundinghub (2016). In recent years several international platforms entered the Dutch crowdfunding market, which results in a doubling volume of crowdfunding each year. After the UK, The Netherlands take a second position as the most mature crowdfunding market of Europe with 128 million raised via crowdfunding in 2015 (Crowdfundinghub, 2016). The report of Crowdfundmarkt (2016) investigated 42 registered crowdfunding platforms at the Dutch Authority Financial Markets (AFM) in 2015. Crowdfundmarkt (2016) found an average amount of 134,000 euro per successful crowdfunding project in The Netherlands.

In order to understand the landscape of available platforms, an overview of the most important platforms that are active in the Netherlands is given in Appendix A. Each platform has its own characteristics. Zonnepanelendelen.nl for example, offers only loans for solar panel projects. Most platforms offer lending-based crowdfunding.

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7 2.2 Capital seeker motivations

One of the aspects around the phenomenon of crowdfunding, is the detection of the creator motivations of crowdfunding campaigns. This provides a starting point from where this thesis can elaborate, and find differences between those primary motivations.

Gerber and Hui (2013) identified six creator motivations. The motivations to choose for crowdfunding instead of other funding possibilities are the desire to raise funds, expand the awareness of work, connect with others, gain approval, maintain control, and learning new fundraising skills (Gerber & Hui, 2013). These motivations are explained in table 1.

Table 1, explanations of creator motivations by Gerber & Hui (2013)

Creator motivations Explanation

The desire to raise funds “Creators are motivated to use crowdfunding platforms because it provides an easy, efficient, organized way to solicit and collect financial support from many people in a distributed network”(Gerber & Hui, 2013, p. 8).

To expand awareness of work “Unlike traditional fundraising methods in which only the application reviewers read about the project, crowdfunding provides an avenue for anyone on the Internet to view one’s project through a brief video and written description. Creators expand awareness by posting links to their project in social media and sending emails about their campaign to friends, family, and news media outlets” (Gerber & Hui, 2013, p. 9).

To connect with others “Because crowdfunding platforms store supporter contacts and provide online messaging services, creators are able to easily communicate with supporters in answering questions and giving project updates” (Gerber & Hui, 2013, p. 10). To gain approval “Creators are also motivated to satisfy a desire for

approval.” “The number of supporters and amount of dollars raised is often seen as a quantification of the value of one’s project” (Gerber & Hui, 2013, p. 11).

To maintain control “Unlike many traditional fundraising methods, funding is not contingent upon a select group of people’s preferences, such as those of an angel investor or venture capitalist”

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8 (Gerber & Hui, 2013, p. 12).

Learn new fundraising skills “Having control over a crowdfunding campaign forces creators to gain experience in areas outside their professional expertise” (Gerber & Hui, 2013, p.13).

Other research papers (Gerber et. al., 2013; Belleflamme et. al., 2013) discovered comparable creator motivations. The creator motivations found by Gerber et al. (2013) are; raise funds, establish relationships, receive validation, replicate successful experience of others, and expand awareness of work through social media. The creator motivations found by Gerber et al. (2012), have many similarities with the motivations identified by Gerber & Hui (2013). Some motivations are even written the same, while ‘establishing relationships’ can be compared to the motivation to ‘connect with others’, and ‘receive validation’ is similar to the motivation to ‘gain approval’. The biggest difference is the addition of ‘Replicate successful experience of others’. Gerber et al. (2013) clarify this motivation by putting creators who succeed a crowdfunding project as a ‘social proof’ for other entrepreneurs who want to create a crowdfunding project as well. So according to Gerber et al. (2013), a successful crowdfunding project can serve as a motivation for other entrepreneurs.

Three elements discovered by Agrawal, Catalini & Goldfarb (2011) have been the driving force behind the success of crowdfunding. These elements are, first, the shortage of capital between seed-capital and seed-capital provided by venture seed-capitalists, also known as a funding gap (Lam, 2010). Second, the evolution of technologies in order to make the development of crowdfund platforms easier. Third, the success of the crowdsourcing phenomenon. These three factors have contributed to the creator motivations of crowdfund campaigns (Giudici et al., 2012). According to Giudici et al. (2012), there is plenty room for future research to understand the motivations concerned the creators of crowdfunding. In particular on the characteristics of the projects shaped by the institutional and social context.

2.3 Differences between hospitality and technology industry

The hospitality and technology industry may contain overlapping parts. They can even reinforce each other by collaboration as the adoption of information technology in hotels (Siguaw et. al., 2000; O’Connor & Murphy, 2004). For example, booking.com enables consumers to compare hotel rates on the internet. Although the hospitality and technology industries can build customer value together, they are two clearly distinct industries (Minghetti, 2003). The clear separation in most cases between these industries is the reason these sectors are selected in this thesis.

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9 In addition, these industries also make extensive use of crowdfunding, and are therefore easily accessible. In the report of crowdfundmarkt (2016), all crowdfunding projects in the Netherlands in 2015 are presented in percentages of the total amount of 730 projects (figure 2). Figure 1 shows a percentage of 18.7 for the Hotel & Catering market, in this thesis called hospitality sector. Besides the ‘ICT’ and ‘Energy and Sustainability’ industry, the technology industry is more difficult to detect. Technology can serve many overlapping industries, which make it hard to measure the precise percentage of technology focused companies involved in crowdfunding. However, including ‘ICT’ and ‘Energy and Sustainability’, the technology industry is likely to cover a large part of crowdfund campaigns in The Netherlands.

Figure 2, Distribution number of projects per sector

The question is, do entrepreneurs in the hospitality and technology sector have different motivations to create a crowdfunding campaign? Belleflamme et al. (2013) identified three reasons for choosing crowdfunding during their interviews with crowdfunding-experienced entrepreneurs. Because the collection of funds via the traditional sources was most of the time not possible, the main reason for choosing crowdfunding was the collection of funds (Belleflamme et. al., 2013). The other motives were receiving feedback and the attainment of public attention for their products.

The lack of funding by traditional capital providers such as venture capitalists is often the result of asymmetric information (Trester, 1998). Asymmetric information can also play a role in the choice of

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10 contract type. The choice of preferred equity over debt occurs due to the possibility of information asymmetry (Trester, 1998). In particular in technological fields, when the products involve tests which only the entrepreneur can judge correct. Equity financing is more suited for businesses with a higher investment risk and a bigger return on investment (Palermo, 2014). These businesses are “high-volatility” businesses which are not able to generate a constant cash flow, like tech startups (Palermo, 2014). This explains the regularly use of preferred stock in venture capital contracting in technological fields as software and biotech (Trester, 1998).

This way of thinking is supported by the average interest rate per sector, discovered in the report of Crowdfundmarkt (2016). Figure 3 shows the average interest rates in all sectors. This figure provides also an average interest rate in the ICT sector of 7.6 percent, while the interest rate of the hotel and catering industry is 7.2 percent. In corporate finance, the return on an investment is the market interest plus the rate for projects of equivalent risk (Smith et al., 2011). When the rate of return of a project is higher than another project, generally the risk is higher of the project with the highest rate of return (Ross, 1973; p. 189). Since the ICT industry provides a higher return on investments, this sector carries a higher risk than the hospitality industry.

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11 The use of fund mechanism by venture capitalists, indicates the use of debt presents less probability of asymmetric information (Trester, 1998). So the less risk, the more debt based funding is applied. Starting from the assumption that technology industries generate more risk caused by asymmetric information (Trester, 1998), motivations for choosing crowdfunding might be different in the technology sector. Therefore, it seems there are differences in creator motivations between the technology and hospitality industry.

Besides the theory of Trester (1998), Hellmann and Puri (2000) found that innovator firms are more likely to obtain venture capital than imitator firms. An explanation for this is that high innovative companies are higher performers than less innovative companies (Subramaniam & Venkatraman, 1999). Also, the most important factor in the strategy of a company can be innovation, because innovation provides a path for the development of a company (German & Muralidharan, 2001; Hamel, 2000).

The theory of Hellmann & Puri (2000) is focused on technology companies based in Silicon Valley, they define innovator firms as; “those firms that are the first to introduce new products or services for

which no close substitute is yet offered in the market” (Hellmann & Puri, 2000). Hellmann & Puri

(2000) explain companies that are not first movers in their markets as imitator firms. The theory of Hellmann & Puri (2000) does not indicate if the technology industry has more innovator companies compared to the hospitality industry. The article of Den Hertog, Gallouj and Segers (2011) illustrates that innovation in the services industry is higher and more varied than previously claimed. However, prior research discusses the use of trademarks as an indicator for innovation at companies (Amara, Landry & Traoré, 2008; Block et al., 2015; Mendonça, Pareira & Godinho, 2004). These researchers found that firms in technology-intensive industries employ trademarks more often than companies in other industries (Block et al., 2015). Although the level of innovation in the hospitality industry is high, based on the use of trademarks as indicators the level of innovation in the technology sector is expected to be higher. Therefore, technology companies are more likely to obtain equity-based venture capital than hospitality companies. This generates the first hypothesis.

H1: The technology industry will use more equity-based crowdfunding compared to the hospitality industry.

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3. Method

3.1 Study design

The motivations found by Gerber and Hui (2013) are presented in a questionnaire to the respondents. This thesis is partly a replication study of Gerber and Hui (2013). This research will establish the self-stated reasons for these creator motivations, by providing detailed questions. In addition to Gerber and Hui (2013), this thesis will make a comparison between two industries and will try to discover the reasons behind the creator motivations.

3.1.1 Mixed method approach

In this research, a mixed method approach is used. A mixed method approach concerns the combination and integration of qualitative and quantitative research data (Creswell, 2013; p14). During the interviews, open-ended and closed-ended questions were asked (Appendix B). A combination of these two methods is selected, because the quantitative part of this research make it possible to detect patterns that otherwise may not be visible via a solely qualitative approach (Davidsson, 2004; p57). Creswell (2013; p16) explains this method as a sequential procedure. At the beginning, the study will test theories and concepts with a quantitative method. Thereafter a qualitative method will provide a detailed exploration (Creswell, 2013; p16).

In order to make a comparison between the hospitality and technology industry, the previously found motivations by Gerber and Hui (2013) and Gerber et al. (2013) are tested in the third part the interview. Since the motivation ‘Learn new fundraising skills’ is the weakest motivation discussed in the paper of Gerber and Hui (2013), this motivation will be replaced in the interview by the motivation ‘Replicate successful experience of others’ found by Gerber et al. (2013). The participants were asked to indicate on a scale from 0 to 10 how strong these motivations were when starting the campaign. The number 0 indicates this motivation is not applicable to their campaign, while the number 10 indicates a strong motivation to start their crowdfunding campaign.

A T-test is used in order to find a significant difference between the capital seeker motivations in the hospitality and technology industry. The measured variables are of a discrete ordinal scale, it would not be wise to assume the distance from 5 to 6 would be interpreted the same by a subject as the distance from 9 to 10. One could see this scale of measurement as the commonly used Likert-scale, which normally ranges from 1 to 5 or 1 to 7 (Brooke, 1996). To investigate differences between the groups of entrepreneur’s statistical tests will be employed. Common methods of comparing several groups are the t-tests and the analysis of variance (ANOVA). However, due to the ordinal type of data several assumptions of these methods are not met (De Winter and Dodou, 2010). These include continuity of the data and normal distribution of the population where the sample originates from. In

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13 this research, it is safe to conclude the sample size is not of adequate size to assume normality as implied by the central limit theorem.

Non parametric tests are more commonly used as they make no assumptions on the underlying distribution the samples are drawn from nor the continuity of the data. An appropriate non parametric test would be the Mann-Whitney-Wilcoxon (MWW) test. Its null hypothesis states two samples come from the same distribution and the alternative hypothesis states this is not the case. More specifically it shows one population has larger samples than the other by using the sum of the rank of the data.

Whether to use parametric or non-parametric tests when confronted with ordinal data has been an ongoing debate of the statistical community. Simulation studies such as De Winter and Dodou (2010) have concluded small differences, even for small sample sizes such as in this case. Type I errors (the chance of rejecting the NULL whilst it is true) and Type II errors (the chance of failing to reject the H0 whilst it is false) were very close to the specified target amounts. Meaning both tests behave similar when confronted with Likert scale data.

Besides the quantitative part of this research to detect patterns, a qualitative inductive approach is used. Inductive data analysis is building theory from particular to general themes (Creswell, 2013; p.4). This research will use an inductive approach because the hypotheses are not fully substantiated. This is because the research development on crowdfunding is still in its infancy. The hypotheses must therefore be supported by this inductive method of theory building for the likelihood of the hypotheses.

Qualitative research is an approach for exploring and understanding the meaning actors ascribe to a phenomenon (Creswell, 2013; p.4). A qualitative method is used in this research because this approach is most satisfactory when seeking for a deeper understanding of the motivations of the entrepreneurial creators of crowdfund campaigns.

3.1.2 Data collection

Interviews are a widely used way to collect data in qualitative research, since interviews are highly efficient in collecting rich empirical data (Eisenhardt & Graebner, 2007). A regular challenge of theory building is case selection. The challenge is to collect data by a collection approach that limit bias. Researchers may make the faulty assumption that cases should be representative of some population (Eisenhardt & Graebner, 2007). Cases can also be selected by theoretical sampling. This means, cases are selected because they are particularly suitable for theory building. When the purpose of the research is developing theory, theoretical sampling is an adequate way of selecting cases, because the purpose of the research is to develop theory and not to test it (Eisenhardt & Graebner, 2007).

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14 In this research 20 semi-structured interviews with entrepreneurs who consulted crowdfunding are performed. Multiple interviews are performed in the technology and hospitality industry, because multiple-case studies provide a stronger base for theory building (Yin, 1994). During case selection, two highly different industries are chosen in order to collect suitable data for theory building. To ensure extreme cases, which are distant from each other (Yin, 1994), cases in the product based technology industry and service based hospitality industry are chosen.

Concerning the four main models for crowdfunding, this research will only focus on equity-based, lending-based and reward-based crowdfund projects. This thesis will not focus on donation-based crowdfunding platforms since the intention of these projects is focused on generosity of the crowd and may influence the motivations which are sought in this research. In the interviews, emphasis is also placed on the decision-making regarding the available models of financing, by asking why the creator has not opted for another model of financing. This supports the reasoning behind the answer to the hypothesis. Other factors, which may influence the results of this research are kept as equal as possible among the two researched industries. Factors which have taken into account during case selection are the amount of money asked for in the campaign and the ratio of (un-)successful campaigns.

Besides the previous conditions on the sample, the technology and hospitality industry are chosen in this research because many crowdfund campaigns in these industries are launched, which make them easily accessible for doing interviews.

3.2 Procedure

Each interview started with a description of the aim of this research and explanation of the method used. It is also indicated in each interview that the interview will be recorded and the data will be used for the research. Besides, the participants are guaranteed that no names, titles, project titles, or positions would be revealed in order to maintain anonymity.

The interviews were divided into three parts (Appendix B). The first part deals with general information about the creator of the crowdfund campaign. During the second part participants were asked to describe their crowdfunding process and their motivations. Finally, the third part requested to what extent the motivations found by Gerber and Hui (2013) and Gerber et al. (2013) can be applied to the crowdfunding campaigns of the surveyed entrepreneurs. The questions to test these previously found motivations have been placed in the last part, so these motivations would not influence the responses of entrepreneurs to the questions in the second part of the interview.

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15 3.3 Participants

In this research 20 Dutch-based participants are interviewed in a 6-week period. In general, the interviews lasted 20 minutes. The distribution of participants between the hospitality sector and technology sector has kept exactly the same, so 10 interviews are conducted in each industry. The participants are chosen from the crowdfunding platforms shown in Appendix A. Although I did not use a random sampling procedure, all participants are approached unpremeditated. Fourteen participants did successfully fund their project, four participants where still collecting money, and 2 participants experienced an un-successful campaign. The amount of money requested in their crowdfunding campaigns ranges from 3,000 euros to 2.49 million euros.

The participants located in the hospitality industry, are the founders of hotels, bed and breakfasts, restaurants, catering services and cafés. The average age of the entrepreneurs is 42. The highest level of education finished, varies from secondary School to a Master’s degree.

Besides, participants located in the technology industry are the founders of companies that make robots, mobile apps, and other software. The average age of the entrepreneurs is 41, and the highest level of education ranges from intermediate vocational education to a Master’s degree. Overall, the entrepreneurs in the technology industry are higher educated than the entrepreneurs in the hospitality industry. For instance five entrepreneurs in the technology industry obtained a Master’s degree against one in the hospitality industry.

The distribution between the number of reward-based, lending-based and equity-based crowdfunding campaigns in the hospitality and technology industry is given in table 2.

Table 2, the distribution of crowdfunding models.

Reward-based Lending-based Equity-based

Hospitality 4 5 1

Technology 3 1 6

Table 2 shows a clear difference in equity- and lending-based campaigns between the hospitality and technology industry. This difference will be discussed in the analysis.

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4. Analysis

In this analysis, the results of the third part of the interview are given, which contains the tested motivations found by Gerber and Hui (2013) and Gerber et al. (2013). Subsequently, the results of the second part of the interview are discussed in order to elucidate on the results found in the third part of the interviews. Finally this analysis will elaborate on the motivations mentioned by the entrepreneurs, and will try to find an explanation for the results that have been found.

4.1 Quantitative analysis of motivations found by Gerber and Hui (2013) and Gerber et al. (2013)

A graphical display of the distributions of each question per entrepreneurial group is shown (figure 4). The mean and standard deviation are provided to give a representation of the distribution. Arguments can be made that means and standard errors are not suitable for a discrete ordinal variable, since interpretation becomes somewhat harder as both have been calculated on an arbitrary scale. However, they enable us to easily communicate the nature of the distributions and serve this purpose well.

Figure 4, distribution of strength in motivations per question and industry.

The results in figure 4 show the differences in motivations between the hospitality and technology industry. First of all, the desire to raise funds shows in both industries the highest score. Besides, the motivation ‘to connect with others’ seems to be much stronger in the technology industry, while the motivations ‘to gain approval’ and ‘to maintain control’ seems to be much stronger in the hospitality industry.

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17 The results of this distribution are in line with the findings of Belleflamme et al. (2013). Bellaflamme et al. (2013) identified ‘the collection of funds’ as the most important motivation for choosing crowdfunding. The distribution of strength in motivations in this thesis, also show the desire to raise funds as the strongest motivation to choose for crowdfunding. Further analysis on the results will be given in the qualitative part of this research.

For the reasons mentioned in the method description, a t-test is employed to investigate the differences between two populations. No assumptions have been made on whether one group is expected to score higher than the other, therefore we employ a two sided t-test with Welch correction. The formula and explanation for this Welch correction can be consulted in Appendix C. The results of the t-test can be found in table 3.

Table 3, results of t-test between motivations in the hospitality and technology sector

T-test The desire to raise funds To expand awareness of work To connect with others To gain approval To maintain control To replicate success of others Significance _0.195 _0.700 _0.090 _0.098 _0.034 _0.728

As can be seen from table 3, the motivation ‘to maintain control’ is significant on a significance level of 0.05. Also the motivations ‘to connect with others’ and ‘to gain approval’ are near significance. The motivations ‘to expand awareness of work’ and ‘to replicate success of others’ show certainly no significant difference. However, the qualitative part of this study indicates a slightly stronger motivation in the technology sector for the motivation ‘To expand awareness of work’. This difference can be the result of several factors. First of all the difference can be caused by the limited sample size of this research. Besides, during the interviews attention is drawn to the entrepreneurial experience, work experience, experience with crowdfunding and educational level of entrepreneurs. When analyzing these variables, no surprising results are obtained in terms of entrepreneurial, crowdfunding and work experience. Overall, experienced entrepreneurs asked for a bigger amount of money during their crowdfunding campaign. However, when analyzing the level of education, the creators of the crowdfunding campaigns in the technology sector are higher educated on average than those in the hospitality sector. This might influence the way respondents fill in the discrete ordinal scale between the technology and hospitality sector. Therefore, the Qualitative analysis is employed.

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18 4.2 Qualitative analysis of the results

According to the sequential mixed method procedure (Creswell, 2013), the second part of the interviews was created to interpret the quantitative results found in the third part of the interview. The first question of the interview reads ‘Why did you choose for crowdfunding?’ This open question gave the respondents the ability to display response in the beginning of the interview without any influence from other questions. The results are first presented for the hospitality industry and thereafter for the technology industry.

4.2.1 The desire to raise funds in the hospitality industry

Respondents in the hospitality industry are motivated to use crowdfunding platforms because it provides a suitable alternative to a bank loan. In particular for entrepreneurs who are unable to get traditional financial support. During the interviews it became clear that young entrepreneurs and start-ups had no chance to be eligible for a loan from the bank. Two young entrepreneurs who executed a successful crowdfunding campaign for their restaurant explained:

“When you're young you have little choice. The bank will not get you a loan, especially if you are a starter in the hotel and restaurant sector.”

This answer supports the theory of the funding gap discussed by Moritz & Block (2016). In addition, an experienced entrepreneur who just started a catering company, announced:

“Young companies cannot get money from banks. Currently, there is only private money and money of the crowdfunding campaign in the company. The banks do not want to participate.”

The owners of a starting boutique hotel, who were in the middle of their crowdfunding campaign explained:

“Banks do not want to be active in the hospitality industry, the risk is too high for them”

Besides the reason to choose for crowdfunding because the banks do not cooperate, the interviews revealed several other reasons to choose crowdfunding. In particular for entrepreneurs who owned a successful company, which was not a start-up anymore. Even if a bank loan was a possibility, entrepreneurs choose for crowdfunding for other reasons. An entrepreneur who executed a successful crowdfunding campaign in one day for his restaurant chain explained:

“[We choose for crowdfunding] Actually for one reason: with crowdfunding you can create a relationship with your fans and family, because they can invest. It was mainly in order to extend our fan base, and to be able to relate them more firmly to the company. Even though a bank loan was also a possibility.”

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19 Overall, the most common reason for choosing crowdfunding in the hospitality industry is because the banks are unwilling to provide loans. This is especially true for startups and young entrepreneurs. Therefore, the desire to raise funds seems to be the strongest motivation to choose for crowdfunding in the hospitality sector. This is supported by the quantitative analysis in this research.

Additionally, crowdfunding for entrepreneurs can be more attractive than a bank loan because it is a faster way to obtain money. An experienced entrepreneur of another restaurant chain clarified:

“Banks are very reluctant, and crowdfunding is just faster”

Subsequently, two entrepreneurs who were running a hotel together mentioned the speed as a big benefit of crowdfunding. They indicated:

“A big advantage of crowdfunding over a bank loan is the speed, it takes much more time to get a loan from the bank”

In addition, one of the co-founders of a technology company indicated the exposure and the lead-time of the campaign as the most important motivations. Gerber and Hui (2013) already mentioned the example of a game designer who was motivated by the potential speed of receiving funds. However, they pertain this motivation to the ‘desire to raise funds’. In fact, this thesis found several other creators who indicated the speed of receiving funds as an important motivation. Therefore, the motivation ‘speed of raising funds’ is strong enough to be considered as an independent motivation. This leads to the first proposition of this thesis.

Proposition 1: ‘The speed of raising funds’ can be considered as additional creator motivation of crowdfunding campaigns.

4.2.2 The social contacts in the technology industry

In contrast to the motivations of entrepreneurs in the hospitality industry, the motivations of entrepreneurs in the technology industry are less focused on the desire to raise funds. This is consistent with the results provided in figure 4. However, Figure 4 shows not a significant difference for the lower motivation on the desire to raise funds in the technology sector. Only two entrepreneurs in the technology industry mentioned the possibility of a bank loan, and would consider a bank loan when going for a next financing round. Answers of entrepreneurs in the technology industry are based more on the social aspects of the crowdfunding campaign. The entrepreneur of a fast growing technology company explained:

“Kickstarter gives international exposure for our product. The campaign page has been viewed 30,000 times by people from our target group. You do not get leads of that quality through AdWords

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(…) Otherwise it will cost us 1 euro per click. So basically we obtained 30,000 euros of marketing campaign through Kickstarter.”

This answer indicates the additional benefit of the crowdfunding campaign in the form of marketing. Besides, other creators of a crowdfunding campaign mentioned several other motivations. The founder of a start-up who launched a technological product indicated:

[I chose for crowdfunding] Actually, for two reasons. Partly to spread the risk and partly for the exposure of the company.

The exposure of the product is a frequently recurring motivation in the technology sector. But also the connections with others seem to be a notable motivation. An entrepreneur who developed an app stated:

“You gather people around you who believe in you. (…) Our focus was on large investors who can do something for you”

Another entrepreneurs who started a technological company specified:

“People who participate are also ambassadors of your work. The investors are motivated, they do not only look at the company, but also to you as a person.”

And an entrepreneur who developed an app indicated:

“The campaign gives much brand awareness for your company.”

Overall, the entrepreneurs indicated more social aspects of crowdfunding campaigns. The ability to get more exposure, and to create a community seems to be important for technology companies. Also the possibility to generate more customers, is a motivation to start a crowdfunding campaign. Compared to the hospitality sector, these explanations underpin the stronger motivation ‘to connect with others’ found in the quantitative part of this thesis. Therefore, we can make the second proposition of this thesis.

Proposition 2: Creators of a crowdfunding campaign in the technology industry are likely to be more motivated ‘to connect with others’ than the creators in the hospitality industry.

4.2.3 The confidence of entrepreneurs in their product.

In the strength distribution of motivations (figure 4), the motivation to gain approval scores higher in the hospitality industry compared to the technology industry. During the interviews, the entrepreneurs were asked to indicate the main drivers of their (un)successful campaign. The answers of the entrepreneurs provided an indication in the level of confidence in their product or service.

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21 Within the hospitality industry, there are many entrepreneurs who are confident of their concept. Therefore, these entrepreneurs have also given a low score on the motivation ‘to gain approval’. For example, two young entrepreneur who started a new franchise restaurant, indicated the motivation ‘to gain approval’ with the number 2, and explained;

‘Our concept is successful. It is an accessible unique concept. (...) It was already known the concept just works.’

Also the owner of another big restaurant chain, owes his success to his admirable track record. He stated;

‘[The success] is because our clear communication. Everything is set up professional, like the media around it. Our track record and the supply of information is important.’

Subsequently, one of the founding partners of a successful restaurant formula indicated;

‘The location in Amsterdam of [their restaurant formula] was a great success already , so consumers knew how to find our concept.’

However, in an interview with the owner of a starting restaurant, it emerged the owner was very surprised about the success of the campaign. He was not sure about the concept of his restaurant yet, and used the crowdfunding campaign partly as a test of his concept. For this reason, he indicated the motivation ‘to gain approval’ in the third part of the interview with an 8. He explained;

‘I was surprised, because within five weeks obtained 60,000 euros from the campaign. I cannot give a reason for this success. Maybe it is the good location of the restaurant. That could be a reason.’

Regarding these statements, the motivation ‘to gain approval’ is likely to be a subsidiary of the track record and former success of the hospitality concept. Compared to the hospitality industry,

entrepreneurs who started a campaign in the technology sector gave different answers.

Not every technology entrepreneur was very confident about the product they offer. One of the co-founders of a product based technology startup indicated that they used the crowdfunding campaign to test the market. He clarified;

‘We wanted to have a real proof of the market, and extra cash to keep going. (…) The main goal was to proof the investors the product can sell.’

However, many technology entrepreneurs were confident about their product. For example, the co-founder of a software startup explained that the main factor behind the success of the campaign was not the product itself, but the promotion of it. He stated;

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‘You can have a good product, but you really have to promote it’.

Building on this, an entrepreneur who experienced an unsuccessful campaign stated the reason for this failure was not the product itself. Presumably it was the performance of their campaign. He explained;

‘The crowd is not yet ready for our product. The campaign was not a success. Possibly this is our own fault, because we focused on large investors while leapfunder is not the right platform for this.’

Based on the statements of the entrepreneurs, differences are showed in the motivation ‘to gain approval’ between the hospitality and technology industry. Since the entrepreneurs of existing hospitality concepts already have proven their concept, they are not motivated to start a crowdfunding campaign in order to gain approval. However, the motivation ‘to gain approval’ is mainly stronger for hospitality start-ups without a track record. Compared to start-up entrepreneurs in the hospitality sector, the responses of the entrepreneurs in the technology industry indicated that they are more confident about their product or service during their start-up phase, also without a track record. This overconfidence has effect on the motivation ‘to gain approval’ and provides the third proposition.

Proposition 3: During start-up phase, entrepreneurs in the hospitality sector are likely to be more motivated by the motivation ‘to gain approval’ than entrepreneurs in the technology industry.

4.2.4 Why did the entrepreneurs choose for these models of crowdfunding?

This thesis examined 4 reward-based, 5 lending-based and 1 equity-based campaigns in the hospitality sector, and 3 reward-based, 6 equity-based and 1-lending-based campaigns in the technology sector (Table 2). The focus here will be on the difference between the lending-based and equity-based campaigns since these are divers between the hospitality and technology sector. In this sample, the technology industry used more equity-based crowdfunding compared to the hospitality industry. It is not possible to draw a statistical conclusion on basis of the sample of 20 respondents in this thesis. However, a qualitative approach can will provide a basis for theory building by discussing the data obtained from the respondents. Table 3 and table 4 present the reasons why the creators of their crowdfunding campaigns chose for equity-based or lending-based crowdfunding.

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23 Table 3, Hospitality:

Model Motivation for this model

1 Equity “Because you get people inside your business with

relevant knowledge and skills”

2 Lending “Decided by the head office of our franchise business

(…) they think the interest rate is low enough”

3 Lending “We choose lending-based crowdfunding because it

is the most attractive to investors, besides we do not want to give equity away because we want to keep running the business with the two of us”

4 Lending “Lending based is easy, and I do not want to sell a

part of my business to someone else”

5 Lending “Lending -based, because I want to be the only one

with control over the company”

6 Lending “Lending -based is best suited for the product (…) no

reward-based because you get a lower amount of money on each investment (…) no equity-based because we want to keep our company in control”

Table 4, Technology:

Model Motivation for this model

1 Lending “Actually, we have opted for a loan because it was

recommended to us during a crowdfunding workshop.”

2 Equity “We choose for equity-based crowdfunding, because

entrepreneurs often do not see the consequences of a loan.”

3 Equity “[Equity –based] because we want investors who

believe in our product (...) we offer a free product, so rewards are not possible.”

4 Equity “I think we are part of the equity -based category,

because we wanted to issue convertible notes (…) We choose for convertible notes because you do not give too much of your business away by doing it this way.”

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the entrepreneur.”

6 Equity “We choose for equity because it favorable regarding

the cost, in particular in the beginning because you do not have to pay for a loan at that moment.”

7 Equity “Chosen equity because it is a B2B product, and the

people we get as investors, are people who can support us in our network and for business support.”

When comparing the lending-based and equity-based crowdfunding campaigns in the hospitality and technology sector, several factors are dominant in the motivations to choose for these models of crowdfunding. According to motivation 3, 4, 5 and 6 of table 3, the entrepreneurs in the hospitality sector indicated that they have opted for lending-based crowdfunding because they did not want to give a part of their business away. This indicates that these entrepreneurs want to maintain control of their company. Two entrepreneurs even reported literally they did not want to lose control of their business.

One factor is dominant among the motivations of entrepreneurs in the technology sector to opt for equity-based crowdfunding. This factor concerns the financial situation of the entrepreneur. Motivation 2, 4, 5 and 6 of the technology entrepreneurs indicate that the choice of equity-based crowdfunding is based on the favorable financial circumstance. Unlike lending-based crowdfunding, equity-based crowdfunding does not require the entrepreneur to pay the investors from the beginning of financing. During the first years of funding there is no need to pay dividend. This reduces risks for the entrepreneur, because there are no fixed costs in the early financing stage of the company.

In general, technology entrepreneurs choose for equity-based crowdfunding based on the favorable financial circumstances. On the other hand, hospitality entrepreneurs opted frequently for lending-based crowdfunding because they wanted maintain sovereignty over their business. This indicates that these entrepreneurs want to maintain control of their company. Together with the statistical evidence that hospitality entrepreneurs are more motivated by the motivation ‘to maintain control’ to start a crowdfunding campaign, the fourth proposition can be made.

Proposition 4: Entrepreneurs situated in the hospitality industry are more motivated to start a crowdfunding campaign in order ‘to maintain control’.

The interview also tried to figure out why entrepreneurs have opted for the platform where they executed the campaign. Some platforms offer only one particular form of crowdfunding. The reason for the platform choice of the entrepreneur can therefore provide a better understanding in the choice for the model of crowdfunding. Two Dutch platforms are active in equity-based crowdfunding. These platforms are Symbid and Leapfunder. To determine the choice of equity-based crowdfunding, the

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25 focus is on the business owners who have used these two platforms. During the interview, the question: ‘Why did you choose for this crowdfund platform? And have you considered other platforms?’ is asked. The entrepreneurs who started a campaign on Symbid and leapfunder have mostly made a conscious decision to opt for these platforms because of the equity-based model of crowdfunding. The one entrepreneur who funded his hospitality business with equity, deliberately choose the only platform that could crowdfund shares at that time for limited companies. Other entrepreneurs in the technology industry also carefully thought about the decision for a platform. They obtained information about the experiences of other entrepreneurs, or participated in crowdfunding classes.

An entrepreneur who developed a mobile app also indicated his carefully consideration by making a comparison with other platforms. He also stated:

“

Also there are many startups on the platform that have a lot of similarities with us (…) The network with investors is quite good.”

Besides, a developer of a special GPS tracking system stated:

“[We choose for] Symbid because it is the largest equity-based platform”

A founder of a mobile app indicated:

“We have chosen for Symbid because we wanted to do a share transaction. (…) We had a good look at other platforms, but Symbid was the best choice. (...) [Symbid was the best choice] because the other platforms were too pedantic, or were not involved in equity transactions”

The entrepreneurs have mostly chosen these platforms because these specific platforms offer stock trades. The answers of the entrepreneurs who have opted for an equity based crowdfunding campaign, indicate that the entrepreneurs have not made an improvident choice.

The combination of reasons to choose for lending- or equity-based crowdfunding, and the confirmation that these choices are well considered, supports the hypothesis that the technology industry will use more equity-based crowdfunding compared to the hospitality industry. Therefore, it is likely the hypothesis (H1) is true.

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5. Discussion and further research

5.1 The effect of various variables

The interviews carried out in this thesis, gave the unique chance to obtain more answers than needed in order to answer the research question. First of all, this study showed the use of equity-based crowdfunding in the technology sector was used more than in the hospitality sector. The motivations for this choice are shown in qualitative part of the analysis. It is therefore to be expected that this is true, however, this should be quantitatively proven on a large scale. This provides a challenge to study this topic with a larger sample in further research.

Furthermore, the differences in motivations between hospitality and technology companies can be explained by the fact that the level of innovation in technology companies is higher than hospitality companies, as discussed in the literature review. The theory of Hellmann and Puri (2000), found that innovator firms are more likely to obtain venture capital. This theory supports the thought that technology firms are less focused on the desire to raise funds, since they have overall a higher chance to obtain capital. Instead of the desire to raise funds, creators of a crowdfunding campaign in the technology sector can focus on other (social) aspects, such as ‘connect with others’. In particular the connection with VC’s and serious angel investors. Future research can built further on this, by performing an in-depth research on the differences in motivations regarding the desire to raise funds.

During the interviews, the entrepreneurs were asked to indicate how much effort they put in their campaign. The results show that the effort and time they put into their campaign vary widely between the entrepreneurs. This variation ranges from a few hours to a few full time weeks. The following example gives a comparison between two entrepreneurs in the hospitality industry.

 Entrepreneur 1 has achieved the goal of his crowdfund campaign and collected 13,000 euros. He indicated: “it cost me a full-time week to set up the campaign.”

 Entrepreneur 2 has also achieved the goal of his crowdfund campaign and collected 200,000 euros. He indicated: “we spent about 8 to 10 hours on our campaign.”

This example shows that the amount of effort put into the campaign, does not automatically lead to the collection of more money. The interviews mainly showed that the platform has a lot of influence on the success of the campaign, and not the effort to be made by the entrepreneurs. The operators of a boutique hotel, who have spent 20 hours on their campaign told:

"The people of this platform are true specialists in the hospitality industry. (...) they give a lot of help and advice”

In contrast, the owners of a B&B, who set out their campaign on another platform, spent about 60 hours on their campaign. They described:

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"We received very little help from the platform. (...) it is not as easy as it seems. (...) the money that we raised only comes from the effort we have put into the campaign ourselves. "

This example also indicates that the efforts put into the campaign by the entrepreneurs, does not always have a direct result on the outcome of the campaign. In contrast, the platform just seems to have a greater impact on the outcome of the campaign. Therefore, the effect of platforms on the success of crowdfunding campaigns is an interesting topic for further research.

5.2 Deterrents

Finally, this research give some input for the development of the deterrents for the creators of crowdfunding campaigns. While the main focus of this thesis is on the motivations of creators, two questions in the interview focused on the disadvantages of crowdfunding campaigns. The result of these questions are an addition to the work of Gerber and Hui (2013), who discovered the deterrents;

- Inability to Attract Supporters - Fear of Public Failure and Exposure - Time and Resource Commitment

During the interview the following questions are asked in order to find new deterrents;

- What do you see as the advantages and disadvantages of crowdfunding?

- When seeking for a next financing round, would you prefer crowdfunding again? Or another type of investment?

The first question clearly asked about the disadvantages of crowdfunding. Also the second question attempt to figure out the underlying idea for choosing a different type of crowdfunding. The results are not surprising, since almost all answers given by the entrepreneurs, pertain to the deterrents found by Gerber and Hui (2013). However, during an interview I had an interesting discussion with an app developer who considered his choice for equity-based crowdfunding very well. He introduced a topic about the fear that entrepreneurs should have to start a lending-based crowdfunding campaign. He argued:

“A loan is given too easily and quickly through crowdfunding nowadays. This should actually be a disincentive for entrepreneurs to start a campaign, because this easy money carries a big risk (…) Within 2 years, entrepreneurs will experience big problems with the ability to get money this easy (…) With stocks, you do not have this risk (…) Crowdfunding organizations should be stricter in their regulations.”

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28 This entrepreneur did not only indicate the risk of losing money for investors by providing a loan, but also the risk for the creators of a crowdfunding campaign. This risk for entrepreneurs can be very large, because in some cases they are private liable for the debts they make. The idea of acquiring money very easily, can be a deterrent for businesses to engage in crowdfunding. Research into the dangers of acquiring ‘easy money’ through crowdfunding would be very interesting, since this topic is underexposed in the literature.

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6. Limitations

Because of restricted time for this thesis, the sample size of this research is limited. Especially for the quantitative part of this thesis, a more comprehensive sample size (a larger N) would improve the quality of the t-test. However, the 20 interviews performed provide a solid basis for the qualitative understanding of the motivations to start a crowdfunding campaign.

Another issue in this sampling method can be the use of the same participants for both the quantitative and qualitative part of this research (Creswell, 2013; p222). However, according to Creswell (2013; p222) the more the databases in mixed method research are similar, the better the equation. Also the possibility of a type 1 error increases in this quantitative analysis, since six tests are performed. The probability of making a type 1 error is 1- (1-0.05)^6 = 0.26. Whereas the risk of a type I error is not very high, no correction is applied. It is possible to correct for this type 1 error by multiple methods. However, when doing this the significant result will not be significant anymore, regardless the method used.

During this thesis a couple of variables, like ‘the experience of the entrepreneurs’ and ‘effort put into the campaign’, have been taken into account. However, besides these variables, there are other factors that may affect the outcome of this research. For example the differences between product based and service based companies. It is conceivable that the motivations to start a crowdfunding campaign can be different for product based companies in comparison to service based companies. There is an opportunity this variable has affected this research, since product based companies are represented more strongly in the technology industry than the hospitality industry. This, and other possible variables can be considered in future research.

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7. Conclusion

This thesis offers the first in-depth qualitative research on the differences between the motivations of entrepreneurs in different industries. The research question of this thesis is;

Do entrepreneurs among various industries have different motivations to start a crowdfunding campaign?

Several differences on the strength of previously found motivations have been detected. The combination of quantitative and qualitative results provides an appropriate basis for this research. Besides the statistical significant evidence on the motivation ‘to maintain control’, the qualitative part of this research demonstrated also some fundamental differences on the motivations ‘to connect with others’ and ‘the desire to raise funds’.

By application of mixed methods, this thesis found that creators of a crowdfunding campaign in the technology industry are likely to be more motivated ‘to connect with others’ than the creators in the hospitality industry. Besides, entrepreneurs in the hospitality sector are likely to be more motivated by the motivation ‘to gain approval’ than entrepreneurs in the technology industry during start-up phase. Eventually, this thesis revealed that entrepreneurs situated in the hospitality industry are more motivated to start a crowdfunding campaign in order ‘to maintain control’.

The difference between creator motivations in the hospitality industry and technology industry can be explained by the difference in lending- and equity-based crowdfunding. This difference is supported by the available literature discussed in the literature review. Besides, the qualitative analysis of this thesis revealed the motivations of entrepreneurs to choose for lending- or equity-based crowdfunding. Furthermore, the selection of crowdfunding platform and associated model are considered carefully by the creators of crowdfunding campaigns. However, appropriate quantitative comparative research is desirable, to verify the differences between the hospitality and technology industry concerning lending- and equity-based crowdfunding.

Finally, this thesis contributes to the literature, by proposing ‘the speed of raising funds’ as additional motivation for the creators of crowdfunding campaigns.

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Motivations of capital seekers in the Dutch hospitality and technology industry via crowdfunding