UVA UNIVERSITY AMSTERDAM 10 September 2014 Master Thesis MSc Organisation Economics
Adoption of Crowdfunding in the Banking Model: Analysis of
the Opportunities and Risks for Dutch Banks
A.P.R. van Schaick 10123458
Supervisor: Dhr. dr. A.M. Onderstal
ABSTRACT
This thesis examines the opportunities and risks of the potential business models for banks to adopt crowdfunding. The main conclusion is that Dutch banks should adopt crowdfunding in two ways, respectively by offering an SME fund to private banking clients and by co-financing SME loans with crowdfunding platforms. This generates various benefits for banks. First, banks stay in close contact with private banking clients by offering a new investment option and keep all assets of these clients in the banks’ deal flow. Second, co-financing SMEs is a low risk opportunity to maintain relationships with potential profitable clients, obtain data on SME performance, improve the banks’ network and knowledge, and receive deal fees. Third, the indirect benefits for banks when they adopt crowdfunding are improving their brand, image, and the loyalty of their clients.
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I.
Introduction
The credit crisis in 2008 has put pressure on bank lending to startups and small and medium enterprises (SMEs). Specifically, the outstanding volume of bank lending in the Netherlands to SMEs with an annual turnover up to 250,000 euros has decreased with 14% between
January 2010 and December 20131. Crowdfunding has arisen as an alternative financing form
for SMEs to finance their businesses besides bank lending. Lambert & Schwienbacher (2010) define crowdfunding as “an open call, essentially through the internet, for the provision of
financial resources either in the form of donation or in exchange for some form of reward and/or voting rights in order to support initiatives for specific purposes”.
This thesis determines the opportunities and risks of the business models for banks to adopt crowdfunding. Herewith the contribution of this thesis is twofold. First, it adds to a growing body of literature that studies crowdfunding as emerging form of alternative financing. Second, analyzing the conditions that influence the crowdfunding volume and describing the added value of integrating crowdfunding into the banking model has at the best of my
knowledge never been done in an academic research until now. This thesis fills this gap. Crowdfunding allows SMEs to request funding from private individuals (the ‘crowd’), in return for either nothing (donation-based), future products (reward-based), interest (debt-based) or future payoffs (equity-(debt-based). This occurs through the use of web-based portals (from now on referred to as “crowdfunding platforms”). Crowdfunding platforms range greatly in both model and magnitude. This results in a high variety of crowdfunded SMEs across various industries, with different sizes and stages of growth (Mollick, 2013). A well-known example of a campaign in the US is the Pebble smartwatch, initiated on the crowdfunding platform Kickstarter. Initially, traditional venture capitalists showed no interest in funding the smart watch. Hence, Pebble decided to start a crowdfunding campaign in April 2013. Within two hours of going live, the crowdfunding project had met the $100,000 goal and within six days, the campaign had become the most funded project in the history of Kickstarter to that point by raising over $4.7 million. In this way, Pebble first demonstrated demand for the product with a campaign whereafter venture capitalists provided additional funding. According to Mollick (2013), this example provides evidence that demonstrating demand and creating interest in products during the early stages of development could, besides funding, provide additional incentives for startups and SMEs to start a campaign. Vice versa, the ‘crowd’ may have little interest in certain products which makes it easier for entrepreneurs to quit without making any additional investments (Mollick, 2013).
The most famous crowdfunding project in the Netherlands has been the Windcentrale. The firm Windcentrale collected 7 million euros for the purchase of two windmills in 2012. In total, 5,500 Dutch households crowdfunded this project by buying a wind section for a minimum of 400 euros. This example shows that Dutch individuals have enough direct savings to invest considerable amounts in crowdfunding projects. (Douw & Koren, 2013).
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There may be several underlying reasons for this reduced amount of bank lending to the SME market, including (i) a worsened financial outlook for startups and SMEs, (ii) increased capital costs for banks and (iii) the introduction of strict Basel III requirements which
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Analyzing the adoption of crowdfunding into the banking model has never been done in an academic research. It is likely that there is potential for crowdfunding in banking models as it is a way of connecting the mass of crowdfunders with the knowledge of bank employees. In the Netherlands, integrating crowdfunding into banking models has the potential to breathe life into the currently distorted mechanism of bank lending to startups and SMEs.
Also, basic knowledge is lacking when it comes to the conditions that affect the regional crowdfunding volume. This is surprising since during the past years, crowdfunding has quickly become a billion euros industry with millions of funded projects. Thus, crowdfunding has drawn the interest of many academics, such as Agrawal et al. (2011) and Mollick et al. (2013), but their focus has primarily been on the success factors of individual projects. Based on the above, I formulate the research question and five subquestions as follows: Research question: What opportunities do Dutch banks face when integrating crowdfunding
into their business models?
Subquestion I: How large is the Dutch crowdfunding industry (i) relative to other financing
forms in the Netherlands and (ii) compared to crowdfunding industries in other countries?
Subquestion II: What are the macro-economic drivers of crowdfunding volume?
Subquestion III: What is the added value of banks when providing crowdfunding services? Subquestion IV: Which business- and revenue models does crowdfunding offer to banks? Subquestion V: Which steps should banks take to successfully adopt crowdfunding? For Dutch banks, it is most attractive to adopt crowdfunding if it is potentially a significant financing form to SMEs in the Netherlands. This thesis determines that crowdfunding is small relative to other financing forms in the Netherlands, while the Dutch crowdfunding industry has an intermediate volume compared to other countries. Lastly, on the basis of international data I determine the conditions that affect the crowdfunding volume. The conclusions are that the percentages of entrepreneurs and high net worth individuals have a positive effect on the crowdfunding volume. Also, the cultural dimensions ‘indulgence’, ‘uncertainty accepting’, ‘individualism’ and ‘normative’ positively influence the crowdfunding volume.
To determine whether and how banks should adopt crowdfunding, I conduct interviews with 25 crowdfunding stakeholders, including nine employees of banks and five owners of
crowdfunding platforms. The key conclusions are that the two best ways for banks to adopt crowdfunding are offering an SME fund to private banking clients as new investment option and co-financing SME loans with platforms. Adopting these models offers various direct benefits to banks, such as staying in contact with clients, keeping the assets of clients in the banks’ deal flow, obtaining data on SME performance, improving the banks’ network and sector knowledge and earning deal fees. The adoption of crowdfunding also offers indirect benefits to banks such as improving the brand, image, trust, and their clients’ loyalty.
The remainder of this thesis is organized as follows. Chapter II describes the related literature and provides an insight in the current state of crowdfunding in the Netherlands. Chapter III provides the interview results. Chapter IV proposes the ten hypotheses, while chapter V explains the data set and the methodology for the empirical research. Chapter VI presents the empirical results. Chapter VII contains conclusions and directions for future research.
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II. Literature
In this chapter, I discuss the crowdfunding literature and provide an insight in the current state of the Dutch crowdfunding industry. Section A describes the findings of existing crowdfunding research which are relevant to this thesis. Section B shows the current state of the crowdfunding industry. First, it puts in perspective the current state of crowdfunding in the Netherlands. Second, it zooms in on the development of the Dutch crowdfunding industry compared to the crowdfunding industries of other countries across the world.
II.A Academic research on crowdfunding
This section discusses the existing crowdfunding literature which is relevant to this thesis. Treur (2014) uses a macro-economic perspective to describe crowdfunding as emerging alternative financing form. He explains that crowdfunding does not increase the total availability of company financing as a substitute for bank credit. In this way, Treur (2014) argues that alternative financing forms, such as crowdfunding, are relevant when (i) they are complementary to traditional bank credit and (ii) they have growth potential.
Crowdfunding in the Netherlands appears to satisfy these two relevance conditions. First, crowdfunding is not a substitute for traditional bank credit to SMEs in the Netherlands. Treur (2014) explains that private individuals in the Netherlands prefer to put their money on a bank savings account. These individuals see crowdfunding as a risky investment for a longer period. Therefore Treur (2014) believes it to be highly unlikely that Dutch individuals widely convert the money on their savings accounts to investments in startups and SMEs. After all, these individuals run higher credit- and liquidity risk with crowdfunding and have to put in additional time to monitor their individual investments. In this way, crowdfunding in the Netherlands cannot be seen as a substitute for bank credit.
Second, crowdfunding in the Netherlands has growth potential. Douw & Koren (2013) predict that the volume of the Dutch crowdfunding industry in 2013 will triple both in 2014 and 2015. It is interesting to study which factors influence the growth of crowdfunding volume, which is one of the research topics in this thesis. Unfortunately, there is no existing literature that directly addresses this issue.
Academic research on crowdfunding has only emerged in recent years. Most of the
crowdfunding literature has been published after 2008 and the vast majority of crowdfunding research focuses on the success factors of individual crowdfunding projects, thereby
primarily providing a microeconomic point of view. Only little research has been done on the crowdfunding industry as a whole. This thesis aims at filling this gap by providing a macro-economic perspective on the development of the crowdfunding industry.
Until now, there are no other studies that have examined the effect of macro-economic factors on the crowdfunding volume per country. Also, no existing academic research has yet described the opportunities and risks of adopting crowdfunding in traditional banking models. However, there are studies on the geography of crowdfunding that are relevant to this thesis. Agrawal et al. (2011) and Kim & Hann (2013) hypothesize that geography plays no role in crowdfunding, based on the broad geographic spread between crowdfunders and founders. The dataset of Agrawal et al. (2011) shows that the average distance between crowdfunders
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and entrepreneurs is much larger than between traditional VC companies and entrepreneurs. According to Kim & Hann (2013), crowdfunding causes geographical boundaries to
disappear. With crowdfunding, there is no need for an intermediary as funds are transferred electronically. In this way, Kim & Hann (2013) state that “crowdfunding has the ability to
democratize access to capital” (p. 1).
When Agrawal et al. (2011) and Kim & Hann (2013) are right that geography plays no role in crowdfunding, this implies that there should not need to be differences in the crowdfunding volume per country. This conclusion would make a part of this thesis less relevant. However, Agrawal et al. (2011) conclude that their hypothesis is incorrect. They show that
crowdfunding does not eliminate distance-related frictions but only reduces them when compared to offline settings. This implies that a startup or SME is still ideally close to the crowdfunder because it results in lower distance-sensitive costs. Subsequently, a decrease in distance-sensitive costs has a positive effect on the number of crowdfunding projects. When compared to this thesis, the research of Agrawal et al. (2011) has a major drawback. Agrawal et al. (2011) only use data of a specific industry setting in one country, namely recorded music in the US. Therefore it is uncertain whether the findings of Agrawal et al. (2011) can be applied to other industries and other countries.
Another research on the geography of crowdfunding is provided by Mollick (2013). He shows that geographic effects influence crowdfunding. One of his conclusions is that that both the amount of crowdfunded projects and the success rate of crowdfunding projects are unevenly distributed across the US. More specifically, Mollick (2013) shows that the number of crowdfunding projects is higher in three metropolitan areas, respectively New York, Los Angeles and San Francisco, than in other cities, after controlling for the size of these areas. The research of Mollick (2013) is related to this thesis because we both show that the
crowdfunding activity differs per region. However, there also three clear differences between the studies. First, Mollick (2013) restricts his research to the US while this thesis incorporates all regions in the world that have a significant crowdfunding volume. Second, Mollick (2013) uses the number of crowdfunding projects per region as proxy, while this thesis uses the relative crowdfunding volume as measure. Third, Mollick (2013) only shows that there is a geographic dispersion but does not search for the underlying reasons. This thesis aims at digging further and try to determine the factors that explain the difference in crowdfunding volume between geographical areas.
II.B Current state of the crowdfunding industry
II.B.I Current state of crowdfunding in the Netherlands
Douw & Koren (2013) provide extensive data on the Dutch crowdfunding industry. In their report Crowdfinance, they give advice to the Ministry of Economic Affairs about the development of crowdfunding in the Netherlands. Based on the data of Douw & Koren (2013), figure I presents a graphical overview of the absolute crowdfunding volume in the Netherlands during the period from 2009 to 2013. Before 2009, the crowdfunding volumes in the Netherlands are negligible and are therefore not included in figure I.
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Figure I exhibits the emergence of the Dutch crowdfunding industry in recent years. It shows that crowdfunding volume in the Netherlands was 32 million euros in 2013. Also, it provides evidence that the Dutch crowdfunding volume on average increased with 356% each year during the period from 2009 to 2013. Douw & Koren (2013) estimate that crowdfunding volume in the Netherlands will continue to grow to 85 and 255 million euros in 2014 and 2015, respectively.
Figure I shows the crowdfunding volume in the Netherlands but does not clarify how this volume is distributed over the players in the Dutch crowdfunding market. Crowdfunding occurs through the use of web-based portals (from now on referred to as “crowdfunding platforms”).
Figure II provides an overview of the cumulative raised capital until July 2014 of each platform in the Netherlands. The data are provided by the founders of platforms in the Netherlands and Douw & Koren (2013).
Figure II: Overview of cumulative raised capital until July 2014 of each platform in the Netherlands, in %
Figure II shows how the total crowdfunding volume in the Netherlands during the period of January 2009 to July 2014 is distributed over the different crowdfunding platform. The figure shows that the lending-based platform Geldvoorelkaar is the market leader in the
Netherlands. Based on volume, Crowdaboutnow, Voordekunst and Symbid are respectively the second, third and fourth biggest platform in the Netherlands.
The comments of interviewees in chapter III relate to this distribution of the crowdfunding industry in the Netherlands. Their expectation is that the emerging Dutch crowdfunding
0 5 10 15 20 25 30 35 2009 2010 2011 2012 2013 million (€) 63% 9% 9% 8% 4%4% 2% 1% Geldvoorelkaar (33.6 million) Crowdaboutnow (5.0 million) Voordekunst (4.8 million) Symbid (4.4 million) Oneplanetcrowd (2.2 million) WeKomenErWel (2.0 million) Share2Start (1.0 million) Seeds (0.2 million)
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market will further consolidate in the future years. Generally, interviewees foresee that some of the larger platforms in the Netherlands will continue to grow bigger while other players will go bankrupt.
Although figures I and II provide interesting insights in the development of the absolute crowdfunding volume in the Netherlands, the magnitude of crowdfunding with respect to other financing forms in the Netherlands is yet unknown. Figure III provides an overview of the outstanding volume of traditional financing forms from financial institutions to non-financial companies in the Netherlands per December 2013, while figure IV gives an overview of the outstanding volumes of recently emerged alternative financing forms to startups and SMEs in the Netherlands per December 2013. These data are gathered from different sources. For figure III, De Nederlandsche Bank provides the volumes of bank credit, equity shares (exchange) and bonds (exchange), Factoring & Asset Based Financing
Association Netherlands (FAAN) provides data on factoring volume, Nederlandse Vereniging van Participatiemaatschappijen (NVP) provides both the private equity and venture capital volume and Leaseurope provides the data on leasing in the Netherlands. For figure IV, Qredits and NPEX, respectively the organization for microfinance and the exchange index for SMEs in the Netherlands, deliver data on the microfinance volume and SME equity exchange volume in the Netherlands.
Figure III: Outstanding volume of traditional financing forms from financial institutions to non-financial institutions in the Netherlands per December 2013, in billions of euros
Figure IV: Outstanding volume of recently emerged alternative financing forms to startups and SMEs in the Netherlands per December 2013, in millions of euros
The total outstanding volume from financial institutions to non-financial firms in the Netherlands, which is the sum of all traditional and alternative financing forms presented in figures III and IV, is around 650 billion euros. Bank credit is the main financing form in the Netherlands with an outstanding volume of around 340 billion euros per December 2013,
0 100 200 300 400
Bank credit Equity shares (exchange)
Bonds (exhange) Factoring PrivateEquity/
VentureCapital
Leasing billion (€)
Funding to corporates Funding to startups and SMEs
0 20 40 60 80 100
SME equity (exchange) Microfinance Crowdfunding
million (€)
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respectively 290 billion euros to corporates and 50 billion euros to SMEs. Within the latter category, De Nederlandsche Bank (2013) defines the low segment of SMEs as all companies with a maximum annual turnover of 250 thousand euros. The bank credit to this lowest segment of SMEs is approximately 15 billion euros. Private equity and venture capital is another large financing form to startups and SMEs in the Netherlands, with a total outstanding volume of 20 billion euros per December 2013.
Based on figures III and IV, I draw the conclusion that the portion of crowdfunding volume relative to total funding volume in the Netherlands is negligible. Notwithstanding the enormous growth of crowdfunding during the past years shown in figure I, the volume of crowdfunding in the Netherlands is marginal when compared to either total outstanding volume from financial institutions to non-financial firms (0.0049%) or outstanding bank credit (0.0093%) per December 2013.
However, crowdfunding purely focuses on providing finance to startups and SMEs. Thus, it is relevant to check whether crowdfunding volume in the Netherlands is small relative to other financing forms that finance startups and SMEs. Figures III and IV show that the total funding volume to startups and SMEs in the Netherlands, which consists of bank credit to startups and SMEs, private equity and venture capital, SME equity index, microfinance and crowdfunding, is around 70,158 million euros at front of crowdfunding volume of 32 million euros in 2013. The percentage of crowdfunding relative to this outstanding volume to startups and SMEs is still relatively small (0.046%). In addition, figure IV shows that crowdfunding has the lowest volume within recently emerged alternative financing forms in the Netherlands that specifically provide funding to startups and SMEs.
To summarize, this section shows that crowdfunding is small relative to other financing forms in the Netherlands. The question emerges whether the Dutch crowdfunding industry is also small compared to the crowdfunding industries of other countries. The next section provides a global context.
II.B.II Current state of the global crowdfunding industry
Figure V shows the crowdfunding volume as percentage of bank credit per region during the period from 2010 to 2013, while figure VI provides an overview of the crowdfunding volume as percentage of bank credit and as percentage of Gross Domestic Product per region in 2013. Both figures V and VI include the relative crowdfunding volumes of nine countries, which are included in the regressions, and two regions. The two regions in figures V and VI are Europe and World, who represent the relative crowdfunding volumes in the complete regions. Figure V provides that the development of the crowdfunding industries in the nine countries and two regions has been quite similar with regard to the volume growth. For each country, the crowdfunding volume as percentage of bank credit has grown each year since 2010. Figure V also shows that the crowdfunding volume as percentage of bank credit of the UK and US is already higher in 2010 than the crowdfunding volume as percentage of bank credit reported by any other region, except for Canada and the World in 2013. When zooming in on Figure V: Crowdfunding volume as percentage of bank credit per region during the period from 2010 to 2013
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the development of crowdfunding in the United Kingdom (from now on: UK) and the United States (from now on: US), figure V reveals that the crowdfunding industry in the US has grown more rapidly with an average annual growth rate of 91.9% during the period from 2010 to 2013 than the UK industry with an average annual growth rate of 26.9% from 2010 till 2013. Figure V shows that the UK used to have a higher crowdfunding volume as
percentage of bank credit in 2010 and 2011 than the US. Since 2012, the US has become the country with the highest crowdfunding volume as percentage of bank credit in the world. Figure VI: Crowdfunding volume as percentage of bank credit and as percentage of GDP per region, in 2013
In figure VI, the crowdfunding volume as percentage of bank credit (as percentage of GDP) is denoted by gray (black) circles. The countries and regions in figure VI are arranged on the basis of ascending crowdfunding volumes as percentage of GDP, which are denoted by the black circles. Figure VI shows that there are three countries in the dataset, respectively Germany, Brazil and Italy, who have both a lower crowdfunding volume as percentage of bank credit and as percentage of GDP than the Netherlands in 2013. The figure also shows
0,00% 0,01% 0,02% 0,03% 0,04% 2010 2011 2012 2013 0,00% 0,01% 0,02% 0,03% 0,04% 0 20 40 60 80 100
Regions with lower crowdfunding volume than the Netherlands
Regions with higher crowdfunding volume than the Netherlands
Germany Brazil Italy Netherlands France Australia Europe World Canada UK US
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that France and the Netherlands are the middle range of crowdfunding volume. It illustrates that France respectively has a lower (higher) crowdfunding volume as percentage of GDP (as percentage of bank credit) than the Netherlands. Lastly, figure VI exhibits that there are five regions, respectively Australia, Europe, World, UK and North America, who have both a higher crowdfunding volume as percentage of bank credit and as percentage of GDP than the Netherlands. These regions are the front runners based on the crowdfunding volume in 2013. Figure VI shows that the crowdfunding volume as percentage of GDP is generally higher than the crowdfunding volume as percentage of bank credit. However, the United States is an exemption to this finding. This results from a relatively low amount of bank loans to non-financial institutions in the United States, where only 35% of total loans is provided by bank loans and 65% by alternative financing forms. In Europe, the opposite is true as bank loans to non-financial institutions form on average 75% of all provided loans in 2013.
In this way, figures V and VI provide a global context of the crowdfunding industry per country. The main conclusion is that the crowdfunding ratios of the Netherlands are lower than Australia, Canada, UK and US. However, figures V and VI do not show how the global crowdfunding volume is distributed over the various crowdfunding platforms, which is instead provided in Table I for the global crowdfunding industry.
Table I: Overview of characteristics of platforms in both the Dutch- and global crowdfunding industry
Table I shows that the platforms with a global reach use donation- and reward crowdfunding as model type. These global players fund startups and SMEs across all industries. The big foreign players in UK and US with only a national reach use P2P lending as model type. P2P lending implies lending from a peer to a peer through an electronic platform. An example is the Lending Club in the US which globally has the highest raised capital per July 2014. Another interesting foreign platform is ASSOB in Australia, which is the first and biggest equity crowdfunding platform in the world. Crowdfunding platforms in the Netherlands vary in model type and industry focus. Geldvoorelkaar is the market leader and the only P2P lending platform in the Netherlands. Seeds is the only known crowdfunding platform in the world that is established through an innovation platform of a bank.
Platform (country) Raised capital per
July 2014 (€m) Focus
Donation
and Reward Lending Equity P2P Startups SMEs
Kickstarter (US) 898 All
Indiegogo (US) unknown All
KIVA (US) 433 All
Lending Club (US) 2975 Consumer loans
Prosper (US) 811 Consumer loans
ZOPA (UK) 728 Consumer loans
Funding Circle (UK) 398 Consumer loans
Ratesetter (UK) 354 Consumer loans
ASSOB (AUS) 96 All
Geldvoorelkaar (NL) 34 All
Crowdaboutnow (NL) 5 Sustainable
Voordekunst (NL) 5 Art
Symbid (NL) 4 Technology
Oneplanetcrowd (NL) 2 Social cause
WeKomenErWel (NL) 2 All Share2Start (NL) 1 Sustainable Seeds (NL) 0.2 All Global Foreign Netherlands
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Section B of this chapter puts the growth of crowdfunding volume in the Netherlands in perspective. It concludes that the Dutch crowdfunding volume in 2013 is small compared to the total outstanding volume to startups and SMEs in the Netherlands. It also provides evidence that the Netherlands has an average crowdfunding ratio when compared to other countries. Albeit small, the development of crowdfunding still provides an interesting form of alternative financing to startups and SMEs.
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III. View of stakeholders on crowdfunding in the Netherlands
At present, there are no academic studies in the existing literature that have examined the opportunities and risks of integrating crowdfunding into banking models. Yet, there are reasons to believe that this integration could provide benefits for the three most important groups of stakeholders, respectively banks, entrepreneurs and investors. First, since the credit crisis banks pay increasingly more attention to their client. For banks, the
adoption of crowdfunding adds to this renewed customer focus. Second, De
Nederlandsche Bank2 reports that the provision of loans to SMEs up to 250,000 euros
have decreased with 14% between January 2010 and December 2013. This shows that startups and SME receive less financing from banks and are searching for alternative financing forms. Crowdfunding increases the set of options that banks have to offer to those startups and SMEs in need of financing. Third, banks are able to offer an
integrated total-service to crowdfunders with the adoption of crowdfunding. In this way, investors can diversify saving, crowdfunding and traditional funding at the bank.
This chapter describes the general opinion of the interviewees on the adoption of crowdfunding within the banking model. I conduct interviews with a broad mix of crowdfunding stakeholders in the Netherlands, to ask them about their personal view on crowdfunding. Table II provides an overview of the 25 interviewees. The interviewees are respectively nine employees of the major banks, five owners of crowdfunding platforms in the Netherlands, one representative of the SMEs interest group, one crowdfunding expert, two supervisors of the crowdfunding industry, two regulators of the crowdfunding industry, two employees of consulting firms and three employees of an investment management firm. However, I do not quote or refer to the interviewees in this chapter due to the confidential nature of company information.
Table II: Overview of interviewees
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http://www.dnb.nl/nieuws/nieuwsoverzicht-en-archief/dnbulletin-2014/dnb309784.jsp, date: 17.07.2014
Type of stakeholder Company Name Role Interview date
Banks ABN AMRO Robert Harryvan Director Corporate Clients 27-06-2014
ABN AMRO Bram de Jaeger Relationship Manager SME Business 16-07-2014
ABN AMRO Astrid Brouwer Director Finance 04-08-2014
ABN AMRO Joris Wijnen Productmanager Lending, Corporate Banking 04-08-2014
ING Carlijn Bijvoet Marketeer 28-07-2014
Rabobank Hidde Bulthuis Productmanager Strategy and Innovation 10-06-2014
Rabobank Guust Jutte Manager SME Business 26-06-2014
Rabobank Maikel Ringe Thesis Intern: Crowdfunding as Subject 09-06-2014
Rabobank Filip Zoeteweij Manager Business Relations 12-06-2014
Crowdfunding platforms Crowdaboutnow Tom Vroemen Founder/Owner 07-07-2014
Geldvoorelkaar Edwin Adams Founder/Owner 17-06-2014
Oneplanetcrowd Maarten de Jong Founder/Owner 08-08-2014
Seeds Arthur van de Graaf Founder 24-06-2014
Symbid Korstiaan Smit Founder/Owner 17-07-2014
Interest groups MKB-Nederland Rob Wolthuis Secretary Entrepreneurship and Finance 18-06-2014 Crowdfunding experts WEBExclusive Ronald Kleverlaan Builder of Crowdfunding Platforms 03-07-2014 Supervisors Authority Financial Markets Sarah Chorus Strategic Policy Adviser Public Affairs 09-07-2014 Authority Financial Markets Gerben de Jong Manager Supervision Officer 09-07-2014 Regulators Ministry of Economic Affairs Simon Boogaard Policy Officer Entrepreneurship 10-07-2014 Ministry of Economic Affairs Coos Santing Policy Advisor Finance and Innovation 10-07-2014 Advisory firms Capgemini Consulting Pascal Spelier Managing Consultant All Channel Experience 12-08-2014
Douw & Koren Consulting Gijsbert Koren Founder/Owner 08-08-2014
Investment firms Van Lanschot Hans Schmitz Business Advisor 07-08-2014
MeesPierson Jeroen Hofhuis Relationship Manager Charitas 11-08-2014
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This chapter is divided into six sections. The first two sections provide a macro-economic view on crowdfunding. Section A describes the opinion of the stakeholders on the current state of crowdfunding in the Netherlands. Section B goes into detail on the potential of crowdfunding in the Netherlands to be a significant part of financing to startups and SMEs. This is an essential part of the question whether Dutch banks should adopt crowdfunding as part of their propositions, since it would not be attractive for banks to adopt crowdfunding if it does not have potential to be a significant part of financing to SMEs in the Netherlands. The next two sections go into detail on the role of banks within crowdfunding. Sections C and D discuss the added value of banks when providing crowdfunding and the potential business- and revenue models for banks to adopt crowdfunding. Then, section E presents the recommendations for banks to benefit from crowdfunding. This section determines which steps banks should take to successfully adopt crowdfunding. Lastly, section F draws the general conclusion of interviewees on both the macro-economic conditions that affect the crowdfunding volume per country and the question whether and how Dutch banks should adopt crowdfunding.
III.A Current state of crowdfunding in the Netherlands
Recall that figures V and VI in chapter II show that the crowdfunding volume in the Netherlands lags far behind the crowdfunding volumes in the UK and the US. According to the interviewees, this has several reasons. First, the regulations for crowdfunding platforms differ per country. Second, the government promotions of the crowdfunding industry vary per country. Third, the interviewees appoint the different culture in the Netherlands relative to the UK and the US as a cause for the relatively lower maturity of the Dutch crowdfunding industry. The successive sections discuss these three reasons in a more comprehensive manner.
III.A.I Regulations for crowdfunding platforms
On the one hand, crowdfunding platforms in the UK and the US have a relatively smooth access to the market. In the US, there are no regulations for lending-based platforms. In April 2012, the Jumpstart Our Business Startups (JOBS) Act also legalized the equity-based platforms. In the UK, there are no regulations for P2P-lending platforms. Each lending-and equity based platform only has to apply for a Financial Conduct Authority (FCA) permit after it has raised 5 million euros of capital.
On the other hand, crowdfunding platforms in the Netherlands have more difficult access to the market. For them, the same legal provisions apply as for existing companies with a mediating role in the Dutch financial sector. The model type of a Dutch crowdfunding platform determines whether it has to apply for an exemption or permit. There are three options. First, article 4:3 Wet financieel toezicht (Wft) prescribes that an exemption is mandatory for those platforms that provide loans to business. Second, an AFM permit is mandatory for each platform that provides loans to consumers (2:80 Wft). Third, an AFM permit is mandatory for each platform that mediates in bonds and shares (2:96 Wft).
III.A.II Promotions of crowdfunding industry
The Dutch government did not financially support the crowdfunding industry until 2013. However currently, there are several initiatives to promote the crowdfunding industry in the Netherlands:
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• The Dutch government launched a campaign for 500 thousand euros to spread crowdfunding awareness in the Netherlands.
• The five largest crowdfunding platforms in the Netherlands, respectively Geldvoorelkaar, Crowdaboutnow, Voordekunst, Symbid and Oneplanetcrowd, have established a crowdfunding association. Their first act was to introduce a “code of conduct” that applies to each platform.
• Crowdfunding is promoted by the Kamer van Koophandel and remains a recurring theme at several entrepreneurial events in the Netherlands.
The interviewees argue that the absence of government support until 2013 did not slow down the growth of crowdfunding volume in the Netherlands. It is rather the case that the monetary support of the UK and US government for their domestic crowdfunding platforms has accelerated the growth of their respective crowdfunding industry. The US government funded several crowdfunding platforms, including Lending Club, Prosper and Indiegogo, during the period from 2009 to 2011 in order to stimulate financing to startups and SMEs. Crowdfunding platforms in the UK, such as Funding Circle & Zopa, received 70 million euros from the UK government in December 2012.
III.A.III Culture
The interviewees believe that the different culture is also a reason for the Dutch crowdfunding volume lagging behind the UK and the US crowdfunding volumes. Cited examples of the difference in culture are the entrepreneurial rate, bank financing as percentage of total financing, and the general culture. In my regression analysis, I will include the first two cited factors, respectively the percentage of entrepreneurs and bank financing as percentage of total financing, as variables in the performed regressions. For the third factor, I will use the cultural dimensions of Hofstede (2011) to make it more tangible what is meant with a difference in the general culture. Hofstede (2011) explains that there are six cultural dimensions that define the culture within a country, respectively individualism, indulgence, masculinity, normative, power distance and uncertainty accepting. The next chapter IV sets the hypotheses for empirical research and determines which of these cultural dimensions are included in the regressions.
III.B Potential for crowdfunding in the Netherlands
This thesis approaches the potential of crowdfunding in the Netherlands to be a significant part of financing to startups and SMEs from three different perspectives, respectively the presence of crowdfunding platforms, the demand for financing of startups and SMEs and the supply of money from crowdfunders.
III.B.I Presence of crowdfunding platforms
The interviewees are unambiguously positive about the presence of crowdfunding platforms. They all believe there to be a sufficient number of platforms in the Netherlands. Also, the interviewees see enough variation in the Dutch platforms with regard to the model type and industry focus. Recall that table I in chapter II confirms the high variation in Dutch crowdfunding platforms. The interviewees do not expect the presence of platforms to inhibit the growth of Dutch crowdfunding volume in the upcoming years. Indeed, some of the interviewees believe that there are currently too many crowdfunding platforms in the
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Netherlands. They are convinced that a shakeout of crowdfunding platforms is needed, which implies that only big platforms survive and the less developed platforms go bankrupt.
III.B.II Demand for financing of startups and SMEs
The interviewees confirm that there is sufficient demand for financing by startups and SMEs. Most of the interviewees refer to the fact that the provision of bank loans in the Netherlands to SMEs has declined in the past years. Data of De Nederlandsche Bank3 confirm that there has been a 14% decrease in bank loans to SMEs up to 250 thousand euros during the period from January 2010 to December 2013. This could have two reasons, respectively less demand for financing of SMEs or less supply of loans by banks. Figure VII shows the entrepreneurial rate in the Netherlands during the period from January 2009 to December 2012. Global Entrepreneurship Monitor defines the entrepreneurial rate as the annual percentage of 18-64 population who are either a nascent entrepreneur or an owner-manager of a new business between 0 and 42 months.
Figure VII: Entrepreneurial rate in the Netherlands during the period from 2009 to 2012, in %
Figure VII shows that the entrepreneurial rate in the Netherlands has increased with 43% during the period from January 2009 to December 2012. In this way, it is unlikely that the 14% decline in bank loans to SMEs up to 250 thousand euros is due to less demand for financing of Dutch startups and SMEs.
It is more likely that the 14% decrease in SME loans up to 250 thousand euros is caused by a reduced ability of banks to provide financing to startups and SMEs. This reduced ability has three reasons. First, the introduction of Basel III capital requirements demands banks to strengthen their balance sheets which puts pressure on the provision of loans up to 250 thousand euros. Second, a worsened financial outlook for startups and SMEs implies higher credit risk for banks who have tightened the credit requirements for SME lending in recent years. Third, banks have increased funding- and monitoring cost for loans to startups and SMEs.
In short, there is a 14% decrease in bank loans to SMEs up to 250 thousand euros during the period of January 2010 to December 2013. This decrease cannot be explained by the demand for financing since there has been a 43% increase in Dutch entrepreneurs during the period of January 2009 to December 2012. It is more likely that the decrease in bank loans to SMEs up to 250 thousand euros is due to a reduced ability of banks to provide financing to startups and SMEs. This confirms the potential for crowdfunding to be a significant part of SME financing by providing finance to the lower SME market.
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16 III.B.III Supply of money from crowdfunders
The interviewees state that the majority of crowdfunders are private individuals. They are convinced that private individuals in the Netherlands have large amounts of money available to invest in crowdfunding. To check for this, figure VIII provides a breakdown of the financial assets of private individuals in the Netherlands per December 2013. The data in figure VIII are provided by the website of De Nederlandsche Bank4 and the report of Schuit (2013) about the Dutch charity market.
Figure VIII: Financial assets of private individuals in the Netherlands per December 2013, in billion euros
The interviewees believe that crowdfunding has the potential to raise money from three classes of the private individuals’ financial assets, respectively charity investments, savings & deposits except for savings with a fixed term, and investments. First, Dutch private individuals invest in donation-based crowdfunding projects instead of supporting charity, which is a 4 billion euros market in the Netherlands per December 2013. Second, private individuals in the Netherlands invest in crowdfunding projects by using their direct savings and deposits which consists of 328 billion euros per December 2013. Third, the investment incentives of private individuals change from investing in stocks, bonds and funds with primarily a financial gain towards investing in crowdfunding projects with a social or sustainable cause. The investments in the Netherlands per December 2013 are 92 billion euros. In total, these three classes of financial assets have a value of 424 billion euros which could be directly invested in crowdfunding by Dutch private individuals. This shows that Dutch private individuals have large amounts of money available to invest in crowdfunding.
This classification in three groups of private individuals’ financial assets disregards the financial assets that are invested by companies, foundations and associations in Dutch crowdfunding projects. Also, it does not address the fact that foreign crowdfunders invest in Dutch crowdfunding projects. Vice versa, it does not take into account the fact that Dutch crowdfunders invest in foreign crowdfunding projects. Therefore three classes of private individuals’ financial assets may either be an underestimation or overestimation of the total classes of financial assets from which private individuals, companies, foundations and
4 De Nederlandsche Bank,
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associations could invest in crowdfunding projects. Due to the scope, this thesis nonetheless continues with an initial estimate of 424 billion euros that could be invested in crowdfunding by Dutch private individuals.
Now that figure IX has shown that Dutch private individuals have large amounts of financial assets available, the question remains why they would invest these financial assets in crowdfunding. Therefore his thesis continues to describe the offering of crowdfunding to private individuals. Figure IX provides an oversight of the incentives of Dutch private individuals’ incentives for four investment options, respectively saving, investing in shares or bonds, investing in donation- and reward crowdfunding and investing in lending- and equity crowdfunding. The scores of these four investment options and the private individuals’ wishes in figure IX are based on the opinions of interviewees and the reports of van den Akker et al. (2012) and Douw, Koren & Motivaction (2013) about the incentives of Dutch crowdfunders. Figure IX: Incentives of crowdfunding with respect to saving and investing in shares or bonds, according to the Dutch private individual
Figure IX shows five lines. The black dotted line shows the private individuals’ wishes based on the Dutch National Crowdfunding Research of van den Akker et al. (2012). The other four lines show what each investment option offers to private individuals. The black, dark gray, medium gray and light gray show the scores of respectively lending- and equity crowdfunding, donation- and reward crowdfunding, investing in shares or bonds and saving.
On the one side, crowdfunding offers advantages to private individuals relative to traditional investing and saving. Figure IX shows that all forms of crowdfunding provide private individuals with a relatively high ‘non-financial return’ relative to investing in shares or bonds and saving. This high score on ‘non-financial return’ relates to findings of the Dutch National Crowdfunding Research of van den Akker et al. (2013), who show that one of the most important incentives of crowdfunders to invest in projects is “being part of a project together with other people”. Crowdfunding also scores high on the criterion ‘investment experience’ when compared to investing in shares or bonds and saving. Regarding the ‘investment experience’, Douw, Koren & Motivaction (2013) conclude that crowdfunding is a way for private individuals to be “directly involved with interesting projects of startups and SMEs”.
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On the other side, crowdfunding has disadvantages for private individuals when compared to traditional investing and saving. Figure IX shows that the forms of crowdfunding generally score lower on the criteria ‘financial return’ and ‘financial certainty’ relative to investing in shares or bonds and saving. An exception is that the ‘financial return’ with lending- and equity crowdfunding is higher than with saving.
The main conclusion of figure IX is that crowdfunding offers other benefits and challenges to private individuals than investing in shares or bonds and saving. From an investor perspective, the interviewees agree that crowdfunding is complementary to traditional investing and saving. However, the interviewees disagree on the groups of private individuals that are especially addressed by the investment option of crowdfunding. The opinions of the interviewees can be distinguished in two separate groups.
First, a part of the interviewees believes that every individual is a potential crowdfunder. Each private individual can be attracted to crowdfunding based on the benefits and challenges it has to offer. Second, the other part of the interviewees believes that groups of richer
individuals are more likely to invest in crowdfunding projects than groups of less rich
individuals. Their hypothesis is that wealthier groups of individuals are more attracted by the higher benefits of crowdfunding on the criteria ‘non-financial return’ and ‘investment
experience’ and are more willing to accept the lower benefits of crowdfunding on the criteria ‘financial return’ and ‘financial certainty’, than less wealthy groups of individuals. Also, these interviewees believe that wealthier groups of individuals can both invest more frequently and invest higher amounts per crowdfunding project.
Due to the mixed opinions on this topic, it is especially interesting to study the impact that the separate wealth classes of individuals have on the crowdfunding ratios. The empirical
research of this thesis sheds more light on this issue. In this way, it tries to determine which of the interviewees are right.
In short, the interviewees expect crowdfunding to develop as an alternative asset class for the private individuals in the upcoming years. Herewith they believe that crowdfunding has the potential to raise a certain percentage of the three classes of private individuals’ financial assets, respectively charity investments, savings & deposits except for savings with a fixed term, and investments, with a combined value of 424 billion euros. In this way, crowdfunding in the Netherlands has the potential to be a significant part of financing to startups and SMEs regarding the supply of crowdfunders’ money.
Based on the presence of crowdfunding paltforms, the demand of startups and SMEs for financing and the supply of crowdfunders’ financial assets, I conclude that crowdfunding in the Netherlands has the potential to be a significant part of SME financing.
III.C Added value of banks when providing crowdfunding services
The interviewees have different opinions about the added value of banks relative to
crowdfunding platforms when providing crowdfunding services. This makes intuitive sense because the interviewees have different incentives. For instance, the owners of platforms see less added value for banks than the employees of the major banks in the Netherlands. The added value of banks relative to platforms can be compared on three point of views, respectively the added value for the entrepreneur, the added value for the investor and the external factors:
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• Banks add value to the entrepreneur when compared to platforms. Banks offer entrepreneurs industry knowledge and relations which is built up over many years. Also, entrepreneurs have established relations with a bank. However, banks show less commitment to entrepreneurs when compared to platforms.
• Banks outperform platforms from an investor perspective. Banks can offer a broad range of investment options enabling investors to diversify at a one-stop shop. Banks are also proficient in assessing risk with their credit experience and capabilities. In most cases, banks already have established relationships with investors.
• External factors are not favorable for banks. Crowdfunding platforms are more agile and quicker to bring innovations to the market. In addition, public sympathy is with crowdfunding platforms.
The key conclusion of this part is that banks and platforms each have their own strengths when providing crowdfunding services. Banks add value for entrepreneurs and investors while external factors are more favorable for platforms. Generally, this shows that banks have the potential to provide crowdfunding services.
III.D.I Potential business models for banks to adopt crowdfunding
The potential business models for banks to adopt crowdfunding can be classified in two categories, respectively models for the private banking clients who potentially invest in crowfunding (supply-side) and the models for the entrepreneurs who are in search for financing (demand-side). The business models are based on the opinions of interviewees. This section starts with the business models for the private banking clients. These private banking clients have a net financial wealth of more than $1,000,000 and search for new investment opportunities to allocate their assets. The interviewees distinguish between four potential business models for banks, when private banking clients are looking diversify their assets into investments:
• A bank only allocates the assets of private banking clients in traditional investments, such as shares and bonds. This is the business model that banks traditionally use. However the disadvantage of this model is that banks do not offer private banking clients a new opportunity to allocate their assets. This decreases the loyalty of private banking clients towards the bank, which may eventually cause them to defect to other banks who do offer additional investment opportunities.
• A bank allocates the vast majority of the private banking clients’ assets in traditional investments, such as shares and bonds. However, they also offer private banking clients an option to allocate a part of their assets in individual crowdfunding projects at the banks’ own platform. With this model, banks keep in contact with private banking clients. Also, for banks it is an easy adjustment of their current model to also refer private banking clients to their own crowdfunding platform. However, this is not the optimal business model for banks to adopt crowdfunding. One disadvantage for banks is the high reputational risk on single crowdfunding projects. Due to a higher risk, private banking clients are also less interested in allocating their assets in single crowdfunding projects than in an SME fund, where multiple projects are bundled. • A bank allocates the majority of the private banking clients’ assets in traditional
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private banking clients to allocate their assets in an SME fund, where multiple
crowdfunding projects are bundled. The huge benefit of this model is that banks offer private banking clients a new investment opportunity, which increases their loyalty to the bank. A drawback is that banks should develop an SME fund itself.
• A bank only offers private banking clients the possibility to allocate their assets in traditional investments, such as shares and bonds. Subsequently, private banking clients choose to allocate a part of their assets in individual crowdfunding projects at an independent crowdfunding platform. Benefits of this model are that banks keep in contact with private banking clients and that they do not have to change their current business models. A major drawback of this model is that banks do not offer the new investment opportunity to private banking clients that they are looking for.
In short, I conclude that banks should offer private banking clients a new option to allocate a part of their assets in an SME fund, where multiple crowdfunding projects are bundled. This is low-risk opportunity for banks to generate several benefits, which are discussed in the next section D.II.
This section continues with the business models for entrepreneurs who are in search for financing (demand-side). According to the interviewees, there are four potential business models for banks when SMEs demand for a bank loan:
• The bank does not provide a bank loan and does not refer SME to a crowdfunding platform. This is the business model that the banks have chosen often during the past years. The benefit of this model is that the bank does not run any risk. However, this is definitely not the best business model for banks because rejecting SME loans has negative implications for the bank. After banks reject a SME bank loan, it is more difficult for them to maintain in relationships with a client. Also, banks do not keep presence in the SME deal flow.
• The bank does not provide a bank loan, but funds the SME through its own crowdfunding platform which either has an own or private label. With this model, banks show commitment to SMEs and collect data on their performance. However, this is not the optimal business model for banks to adopt crowdfunding. The disadvantages of owning a platform are the high cost and high reputational risk. An example of a bank with a private label platform is ABN AMRO with Seeds.
• A bank does not provide a bank loan but refers the SME to a crowdfunding platform with which it has a partnership. With this model, the bank is an intermediary between entrepreneurs and investors on one side and platforms on the other side. The benefit for banks is that they remain aware of the clients’ needs. Also, the bank shows commitment to SMEs by providing them with an alternative financing option after rejecting their bank loan. However with this model, the bank does not keep presence in the SME deal flow and does not collect data on the performance of SMEs. Another challenge of this model is the high reputation risk, because the bank has no control over the operations at the partner platform. An example of this business model is the partnership between ABN AMRO and platform Voordekunst.
• A bank co-finances a SME loan together with an independent crowdfunding platform. This business model offers banks more certainty because the risk of providing a SME loan is spread across more participants. The co-financing offers clear benefits for all three involved parties, respectively the bank, platform and SME. Examples of this
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business model are the crowdfunding projects at the U.K. platform Funding Circle who are partly financed by the Spanish bank Banco Santander.
To summarize, I conclude from the interviews that banks should adopt crowdfunding by co-financing startups and SMEs together with platforms. This offers multiple benefits to banks, which are discussed in the next section, and mitigates both the cost and risk of providing SME loans themselves.
III.D.II Revenue model for banks
The adoption of crowdfunding offers three sort of benefits to banks. First, banks reap direct benefits when they offer a new investment opportunity to private banking clients. Second, co-financing SME loans together with platforms also offers direct benefits to banks. Third, the adoption of crowdfunding generally offers indirect benefits to banks.
First, by co-financing SME loans banks keep presence in the SME deal flow which offers them four tangible benefits:
• Banks maintain the relationships with their clients. This is a benefit because startups and SMEs have the potential to become profitable bank clients.
• Banks obtain more data on the performance of SMEs. Currently banks have few data on SME performance which negatively influences their ability to properly assess the provision of SME loans. Co-financing SME loans is an opportunity for banks to obtain more data on SME performance which will improve their risk assessments of SME loans.
• Banks improve their sector knowledge by co-financing SME loans. This business model adds to the network and knowledge of banks in specific sectors.
• Banks receive direct deal fees from co-financing SME loans.
Second, offering private banking clients a new option to allocate a part of their assets in an SME fund offers three direct benefits to banks:
• Banks stay in close contact with private banking clients who prefer to get a personal treatment from bank employees.
• Banks keep all assets of private banking clients in the banks’ deal flow. • Banks spread the risk of multiple crowdfunding projects in an SME fund.
Third, the intangible benefits for banks of adopting crowdfunding are improving the brand and image of the bank, and the loyalty of their clients towards the bank:
• Banks can use crowdfunding as mass media communication channel to upgrade their brand. The brand of the bank improves when it is associated with either cultural-, social cause- or sustainable crowdfunding projects. An example is the Dutch insurance company ASR who places its name on the website of crowdfunding platform Doorgaan.nl.
• The adoption of crowdfunding improves the image of banks. Banks show
commitment to SMEs which fits well within the mission and strategy of many top Dutch banks. Also with co-financing SME loans, banks can turn around the public image that they do not provide financing to the SME market.
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• Both by co-financing SME loans and setting up an SME fund, banks can improve the loyalty of their clients. With these business models, banks are more proactive towards their clients than only rejecting their loan or providing traditional investments. With the co-financing of SME loans, banks can also show loyalty to their client base in specific sectors. For instance, a bank co-finances an entrepreneur in the Food & Agri sector together with a platform that is specialized in the Food & Agri sector. For banks, this business model does not only increase the loyalty of their clients but also creates a knowledge exchange between the bank, platform and entrepreneur.
III.E Steps for banks to successfully adopt crowdfunding
This part provides the recommendations for banks to benefit from crowdfunding. The
interviewees mention that banks should take five consecutive steps before crowdfunding can be successfully adopted:
• Understanding the added value of crowdfunding. Banks should look at the benefits and challenges that crowdfunding could offer to them. In this way, banks can determine whether crowdfunding fits within their mission and strategy. Most of the interviewees believe that crowdfunding can help to fulfill each banks’ strategy. • Defining a model that fits with their own strategy, model and knowledge. First, banks
look at the existing models of Dutch crowdfunding platforms. Second, banks search for a fit with one of these models. For instance, equity crowdfunding is
complementary to bank lending while donation-, reward- and lending crowdfunding are not.
• Banks determine how to integrate the existing model(s) of crowdfunding platforms in their own business model(s). Banks should ensure that they can adopt a new
crowdfunding business model in their own model. This requires a solid understanding of the requirements that are needed for the integration of the crowdfunding model. Examples of requirements are building the legal framework and developing the IT technology.
• Banks choose a strategic option to adopt crowdfunding. Recall that section III.D discusses the potential crowdfunding business models who range from co-financing startups and SMEs with independent platforms to providing private banking clients with new options for the allocation of their assets.
• Banks create awareness and commitment for the chosen strategic option among both employees and clients. This ensures that the chosen strategic option is widely
accepted by the banks’ stakeholders. An example is that banks should communicate clearly and up-front to their employees and clients about their goals for the integration of the chosen strategic option.
III.F Conclusion
This section provides a general conclusion on both the macro-economic view and banking perspective of interviewees on crowdfunding. First, the interviewees mention several macro-economic conditions in sections III.A and III.B that influence the crowdfunding volume per country including:
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• Culture
• Bank financing as percentage of total financing • Entrepreneurial rate
• Supply of crowdfunders’ money
The macro-economic conditions above are all included in the empirical research of this thesis, except for the government measures. According to the interviewees, especially the culture is an important explanatory variable for the crowdfunding volume per country. This makes it interesting to study which of the six cultural dimensions of Hofstede (2011) precisely influence the crowdfunding volume per country. In this way, the next chapter IV sets the hypotheses for the empirical research and goes into more detail on the specific cultural dimensions of Hofstede (2011) that seem to influence the crowdfunding volume per country and are therefore included in the regressions.
Second, the main conclusion for banks is that there are two main opportunities to adopt crowdfunding. The first opportunity for banks is to adopt crowdfunding by co-financing SME loans together with platforms. Co-financing SME loans is a low risk opportunity for banks to keep presence in the SME deal flow which offers them four tangible benefits and three intangible benefits. The four direct benefits are maintaining relationships with potential profitable clients, obtaining more data on the performance of SMEs, improving their sector knowledge and generating direct deal fees. The three indirect benefits for banks are
improving the brand and image of the bank, and the loyalty of their clients. The second opportunity for banks is to offer private banking clients a new option to allocate a part of their assets in an SME fund. This offers two direct benefits to banks, respectively staying in close contact with private banking clients andkeeping all assets of private banking clients in the banks’ deal flow.
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IV. Hypotheses
This chapter describes the hypotheses which are the basis of the empirical research. Chapter II has shown that the crowdfunding ratios vary per country. In chapter III, the interviewees have identified some conditions, respectively government measures, culture, bank financing as percentage of total financing, entrepreneurial rate and supply of crowdfunders’ money, that are likely to influence these crowdfunding ratios. These conditions are all included in the empirical research, except for the government measures. For instance, the regressions include the entrepreneurial rate and bank financing as percentage of total financing per country, while the informal investors rate and the percentage of individuals with net financial wealth above $1,000,000 per country are the proxies for the money of crowdfunders per country.
Regarding culture, this thesis uses six dimensions of Hofstede (2011) that define the culture within a country. Figure X shows these six dimensions and estimates what sort of impact the dimensions have on the crowdfunding volume as percentage of GDP per country. This figure takes the relative scores of the Netherlands as a standard, which is illustrated by the vertical dark grey line. Based on the crowdfunding volume as percentage of GDP in 2013, figure X divides the countries in three classes relative to the Netherlands, respectively laggers, middle class and front runners. The laggers are Italy and Germany, the middle class consists of France and the Netherlands and the front runners are Australia, the UK and the US.
Figure X shows that the front runners, the middle class and the laggers of the crowdfunding volume as percentage of GDP in 2013 score respectively high, average and low on the dimensions indulgence, uncertainty accepting and individualism. Thus, these three
dimensions seem to have a positive effect in the crowdfunding volume. To test for the effects, this thesis includes the dimensions indulgence, uncertainty accepting and individualism in the regressions. Based on figure X, it is not likely that the three other dimensions, namely
normative, power distance and masculinity, have an impact on the crowdfunding ratio as percentage of GDP. Both laggers and front runners of crowdfunding volume have a relatively high score on the dimensions normative and masculinity, while both laggers and front runners of crowdfunding volume score medium on power distance. However in order to not exclude possible causal relationships, the regressions in chapter VI also test for the respective individual effects of normative, power distance and masculinity on the crowdfunding ratios. Figure X: Relative scores on the six dimension of Hofstede (2011) and crowdfunding as % of GDP in 2013
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In total, the regressions in chapter VI test the effects of many macro-economic conditions on the crowdfunding ratios per country. For ease, this chapter only discusses the eleven main hypotheses that are most interesting to study in this thesis. Thus, the following eleven hypotheses go into detail on the influence of ten specific macro-economic conditions on the crowdfunding volume per country:
H1: The cultural dimension “indulgence” positively influences the crowdfunding ratios
Hofstede (2011) provides the following definition for the cultural dimension indulgence versus restraint: “Indulgence stands for a society that allows relatively free gratification of
basic and natural human drives related to enjoying life and having fun. Restraint stands for a society that suppresses gratification of needs and regulates it by means of strict social
norms.”
When looking at figure X, it seems that indulgence has a positive effect on the crowdfunding volume per country. It is interesting to find out whether indulgence really influences the crowdfunding ratios based on two reasons. First, there is no existing research that examines the effect of indulgence on the crowdfunding ratios. Second, it is logical if the dimension indulgence positively influences the crowdfunding ratios per country. In a country where the
“human drives related to enjoying life and having fun” are relatively more important, a
country has more potential crowfunders and entrepreneurs who are in search for that human drives. Also, the values of enjoying life and having fun are included in many crowdfunding projects. For instance, there are many crowdfunding campaigns in the technology sector where the goal is to produce products that satisfy the human drives related to enjoying life and having fun. An example of such a campaign is the Pebble Smartwatch campaign. In short, a country with relatively high indulgence has more potential crowdfunders and entrepreneurs in search for projects that are related to enjoying life and having fun. This higher demand can fulfilled by crowdfunding projects, who are in many cases related to these human drives, which will increase the crowdfunding ratios.
H2: The cultural dimension “uncertainty accepting” positively influences the crowdfunding ratios
Hofstede (2011) provides the following definition for the cultural dimension uncertainty accepting versus uncertainty avoidance: “Uncertainty accepting deals with a society’s
tolerance for uncertainty and ambiguity. It indicates to what extent a culture programs its members to feel either uncomfortable or comfortable in unstructured situations. Unstructured situations are novel, unknown, surprising, different from usual.”
According to figure X, it seems that the dimension uncertainty accepting has a positive influence on the crowdfunding volume per country. It is interesting to find out whether this dimension really affects the crowdfunding ratios based on two reasons. First, there are no existing studies that examine the effect of uncertainty accepting on the crowdfunding ratios. Second, the expectation is that an uncertainty accepting culture has a positive influence on the crowdfunding ratios. This is due to the fact that countries with relatively many
uncertainty accepting inhabitants is more likely to accept “unstructured situations that are
novel, unknown, surprising, different from usual” than countries with relatively less
