Obtaining competitive advantages through crowdfunding : exploratory research on how additional benefits could emerge looking beyond just capital in the Dutch SMEs context

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Master’s Thesis Jonas P.S. Wiggelinkhuizen - 6097871

23-01-2016 Dr. M.P. Paukku

MSc Business Administration in International Management

University of Amsterdam – Amsterdam Business School 2016/2017

Obtaining Competitive Advantages through

Crowdfunding:

Exploratory research on how additional benefits could emerge looking beyond

just capital in the Dutch SMEs context

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Abstract

This exploratory research seeks to investigate the possible linkage that exists between financing a business through reward-based or loan-based crowdfunding, and possible competitive advantages these funding methods could imply. The study took place in the context of Dutch SMEs. Based on previously formed literature and transcripts of semi-structured interviews (n=10) with entrepreneurs who, since 2013, deployed crowdfunding, this thesis argues that entrepreneurial opportunity creation and marketing purposes, as derived from preliminary research by Mollick (2014) and Hendricks (2014), are two dimensions that do in fact contribute to perceived competitive advantages for a firm.

A positive statement as to the establishment and relation of the two dimensions in this specific context in argued. A link between these beneficial dimensions and competitive advantages is indicated by Barney’s resource-based view (1991). Furthermore, light is shed

on the experienced downsides a crowdfunding campaign implies. Interviewed entrepreneurs pointed out that higher interest rates and monthly annuity were amongst the concerns of crowdfunding. In addition to the existing theory, this research provides empirical proof for

accessibility as a possible new dimension that could lead towards competitive advantages for

Dutch SMEs. This qualitative research thesis deploys deductive reasoning as it takes previous literature as a starting point and then seeks to support the formulated working propositions. Research can be improved by analyzing more cases or adopting a scope that goes beyond just the Dutch context. The originality lies in its uniqueness of practically accessing the relatively new theories about crowdfunding in an entrepreneurial context.

Keywords: Crowdfunding, Competitive advantages (CAs), Small and medium enterprises (SMEs), Resource-based view (RBV), Entrepreneurship, Alternative financing

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Statement of originality

This master’s thesis research is conducted and written by Jonas P.S. Wiggelinkhuizen (The Hague, August 28 1990) who declares originality of the writings and is to take full responsibility for the contents of this document. Hereby I declare that text, quotes, findings and analysis as presented in this thesis, are original and that all sources cited are those mentioned and referred to in the text and table of contents.

The University of Amsterdam Faculty of Economics and Business – Amsterdam Business School is solely responsible for the guidance and supervision of the research, not for its contents.

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Acknowledgements

For guidance, supervision and feedback during the process of writing this thesis, great gratitude is owed to mister Dr. M.P. Paukku, University of Amsterdam – Amsterdam Business School. Secondly, I would like to thank the second reader and corrector of this thesis for his or her time and consideration. In addition, I wish to thank all the interview participants for the time they made to help me get to the required data. This study would have not been able to be conducted without the help of these people and/or their companies.

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2.8 Research gap ... 29 3. Theoretical framework ... 30 3.1 Working propositions ... 33 3.2 Research design ... 35 4. Methods ... 36 4.1 Questions ... 41 4.2 Analysis ... 41 5. Results ... 42 5.1 Entrepreneurship ... 43 5.2 Marketing ... 45 5.3 Downsides crowdfunding ... 46 5.4 Emanated dimension ... 48

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6. Analysis ... 49

6.1 Testing working propositions ... 49

6.1.1 Main working propositions ... 49

6.1.2 Sub working propositions ... 51

7. Conclusion ... 53

7.1 Contributions ... 54

7.2 Managerial implications ... 55

7.3 Limitations & suggestions for future research ... 55

Appendices ... 57

Appendix 1 ... 57

Appendix 2 ... 58

Appendix 3 ... 59

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List of abbreviations

CA = Competitive advantage CF = Crowdfunding

FSA = Firm-specific advantage IPO = Initial public offering PR = Public relations P2P = Peer-to-peer

RBV = Resource-based view

SME = Small and medium enterprise VC = Venture capital

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1. Introduction

Right after last summer, Dutch financial newspaper Het Financieele Dagblad (2016) reported that the Dutch economy would grow by €150 to €300 million when small and medium-sized enterprises could more easily find and gain access to alternatives to bank financing. Over the last years, crowdfunding, which has become increasingly prominent, has emerged as a new method of raising capital for start-ups, as well as for small and medium enterprises (SMEs). Crowdfunding is a relatively new but vastly developing phenomenon. Academic literature on this atypical matter is still forming, and studies are further evolving. It is therefore interesting to find existing gaps in the literature on crowdfunding in order to help development of academic knowledge and to eventually achieve complete understanding of the concept. Crowdfunding is defined in the literature as a solicitation of external capital from the ‘crowd’ (Cosh et al., 2009; Giudici et al., 2012; Lamert & Schwienbacher, 2010). Usually, each individual backer, as part of the crowd, contributes a small amount of capital (Belleflamme et al., 2014). Since 2010, crowdfunding has piqued the interest not only of the scientific community but also of entrepreneurial firms in their quest to fill the ‘funding gap.’ A funding gap occurs when a venture does not acquire sufficient funds needed to start or expand its operation. This gap could inhibit the company’s right to existence, progress or cause default (Lam, 2010). These possible gaps serve as the context of this study.

Where just capital financing is essentially somewhat generic, there are non-conventional financing methods that could provide the entrepreneur with additional benefits besides just money. Venture capitalist, for example, could potentially provide advice concerning business practices or get you in contact with useful contacts (Vinig & De Haag, 2002). Angel investors could, for example, create opportunities for entrepreneurs who do not have access to bank loans or other sources of capital (Prowse, 1998). Crowdfunding could bring an entrepreneur

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more than just money as well. Unlike traditional funding methods, crowdfunding offers a potential set of resources that go beyond capital and can be beneficial to founders (Mollick, 2014). There is some research on the motivations of entrepreneurs and the factors that influence their decisions on which funding means to employ. However, a practical assessment of the formed literature is lacking.

Mollick (2014) determined marketing purposes and the ability to test products when pre-selling them to investors that provide funding, to be the two main benefits of funding a business through the crowd. Besides, as stated by Hendricks (2014) in American business magazine Forbes, entrepreneurs themselves identify five primary reasons to make use of crowdfunding. They perceive it to be 1) convenient 2) it validates their concept 3) reduces risk 4) provides feedback 5) serves as a great PR and marketing tool. These dimensions will be further elaborated on in the literature review section.

This thesis will focus on reward-based or loan-based crowdfunding as opposed to conventional funding methods such as bank loans and institutional investments, and assess if this relatively new way of capital financing could lead to competitive advantages for SMEs in the Netherlands. This research will focus on a firm’s capital structure from an entrepreneurial

perspective. There is some research on the motivations and factors that influence the decision of entrepreneurs on which funding means to employ. No research has yet been done on the possible competitive advantages that particularly crowdfunding could provide. It would be interesting to explore possible relations that convenience of obtaining financing, concept validation, risk reduction, stakeholder feedback, and marketing could have on a firm’s

competitiveness in further studies, though they are not investigated in depth here. As preliminary focus, marketing and PR purposes a campaign could pose are taken into account in this research. This paper will further explore the applicability and relevance of preliminary research done by Mollick (2014) in the context of Dutch SMEs.

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The aforementioned ‘crowd’ as a source of crowdfunding oftentimes consists of small professional- or private parties providing equity to fund a specific capital raising request. Crowdfunding is an international, and therefore cross-jurisdictional, process. Regulations regarding equity crowdfunding vary between countries and are very heterogeneous (Moritz & Block, 2014). Lending based crowdfunding is regulated in the Netherlands by the Financial Markets Authority (AFM) and the Dutch National Bank (DNB). However, not much experience in this field is built by legal authorities just yet (AFM, 2017). This research will focus on reward-based and loan-based crowdfunding. Platforms offering this type of so called debt-financing are active on the Dutch market since the early 2000s (AFM, 2017). The desire for launching a crowdfunding campaign can emerge in a firm’s start-up phase but could also occur in later stages where companies look to fund research and development, expansion or organizational change.

Competitive advantages (CA) are explored rather than firm-specific advantages (FSAs) when assessing possible benefits. The competitive advantage is explained and used because it entails a more internally-focused approach toward assessing advantages for a firm. Originating from the resource-based view (Barney, 1991), it assesses a firm’s competitiveness based on its resources and, potentially, its capabilities. It refers to the advantages derived from specific assets, intangible assets, and capabilities that bring a superior competitive position to the firm that might possess these. It stipulates how a company’s own resources or assets can create additional value through superior

differentiation advantages (Aharoni, 1993). A firm needs asset power. Asset power is a set of necessary resources such as proprietary products, product or process technologies, specialized know-how about production and management, marketing or financing capabilities (Kimura and Pugel, 1995). Firm-specific advantages, on the contrary, refer to the establishment of location-bound and non-location-bound assets (Dunning, 1998) and the OLI-model as a

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framework to examine contextually specific theories about foreign direct investment and international production (Dunning, 2001).

The following, both original and relevant, research question emerged when combining a relatively new phenomenon as crowdfunding with better established and academically underpinned theories such as the competitiveness of the Dutch SME and its CAs. Therefore, the research question this thesis will aim to further explore is:

‘To what extent does capital financing through crowdfunding lead to competitive advantage(s) (CAs) as opposed to traditional finance for Dutch Small and Medium Enterprises (SMEs)?’

This research seeks to explore a possible connection between the contribution of reward-based or loan-reward-based crowdfunding on a firm’s resources and ultimately its perceived competitive advantages. Besides, it delves into determinants and motivations of entrepreneurs on what they expect and experience, other than just investment, when using this alternative way of financing. Gaining insight into which organizational forms are likely to specifically contribute to launch a crowdfunding campaign to raise capital effectively could also be explored by answering the research question using the selective coding process of interview transcripts as research method. The assumption is that there are downsides to crowdfunding as well. A special paragraph in the results section of this thesis will be dedicated to emerged downsides and risks. The following literature review will discuss relevant principles of crowdfunding and business studies. Previous relevant literature on the topic will be discussed, and a framework will be developed that will define factors that could indicate a relationship between crowdfunding and a firm’s CAs. The following methods section will cover how and

what data was gathered and analyzed. After that, the research design and interview questions will be presented. The relevant factors and motivations are then translated into working

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propositions. The data are then discussed in the results section. This section will assess the proposed conceptual framework based on the relevant theory that will help to shape the research in answering the research question. In this section, obtained interview codes are held against the emerged framework. In order to test the hypotheses and ultimately answer the research question, the data analysis section will test the hypotheses by using quote citations from the obtained interviews. Finally, a conclusion and discussion section will go over the implications of the results and discuss the relevancy and reliability of this research, its limitations, as well as implications of further research.

2. Literature review

In the literature review section, a theoretical discussion of the concept of crowdfunding will be provided. A specific definition of reward-based and loan-based crowdfunding, which is most suitable for this research, will be given. The paragraphs thereafter will discuss affiliated and additional theories on the topic to further explain the concept of crowdfunding. Then, in the main part of this literature review, an elaboration of alternative finance versus more conventional ways of financing, such as capital provided by banks, will be set out. The paragraphs thereafter will discuss the main motivations, pros, and cons for SMEs that are looking to make use of crowdfunding or whom already are (partly) financed their business through crowdfunding.

2.1 Capital financing

Given the lack of collateral and sufficient cash flows, and the presence of significant information asymmetry with investors, an inherent problem that entrepreneurs face at the very beginning of their entrepreneurial initiative is to attract outside capital (Schwienbacher, & Larralde, 2010). The academics explain crowdfunding as an alternative way of financing

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projects, with a focus on relatively small, entrepreneurial ventures. This approach is continued as a leading thread throughout this study and serves as the scope.

Traditionally, looking beyond conventional financing methods is needed when a company does not succeed in acquiring sufficient funds from investment rounds, inhibiting the company’s revenue progress and sometimes causing it to go bankrupt (Lam, 2010). However,

in this case, crowdfunding is mentioned as an overarching financing opportunity that can solely or besides other financing forms, serve a firm in its offset or expansion.

Young companies often overcome the lack of access to conventional financing by making use of seed funding that is provided by the founder him-/herself, friends and family and sometimes an angel investor (Collins & Pierrakis, 2012). Exhibit 1 displays a typical life cycle of a company and the funding options that might apply. Please notice that crowdfunding, while not the only option, is already mentioned to help overcome the initial funding gap as aforementioned in this exhibit.

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A company’s capital can be divided into debt and equity. Thus, capital finance can be classified in both equity financing and debt financing. Equity financing is the process of raising capital through the sale of shares in an enterprise. Equity financing essentially refers

to the sale of an ownership interest to raise funds for business purposes. On the contrary we find debt financing, which refers to funds borrowed by a business (Lasrado, 2013). Both of

these financing types are made available through crowdfunding. However, we see debt financing as the most frequently appearing alternative when looking at online crowdfunding platforms where participants often partly fund a more voluminous loan against a yearly interest payment to be received by the investor. As stated before, debt financing will thus be considered when referring to crowdfunding in this thesis.

2.2 Crowdfunding and its general principles

Alternative finance, or non-conventional financing methods, refers to channels and

instruments of finance that have emerged outside of the traditional ways of funding such as regulated banks and capital markets. Contrary to traditional financing methods the investors, often called ‘backers,’ ‘crowd investors’ or ‘participants,’ are a large number of individuals

of the general public. An investor that participated in a crowdfunding campaign often only devotes a relatively small amount of capital to a company (Belleflamme et al., 2014). Nowadays, crowdfunding practices are widely used by all types of industries, from arts and music to high-tech and science. As of December 2014 there were 672 active crowdfunding platforms worldwide, which have raised roughly $3 billion and successfully funded over 1.5 million campaigns all together in 2014 (Massolution, 2015). The predicted volume of funding for 2015 was $5 billion. Again, more than 1.8 million campaigns have raised a total of $5.2 billion. This indicates that there is 81% acceleration on a global scale. This almost exponential growth drives on digitalization mainly. Also the acceptance of participating in crowdfunding or its increasing convenience play a role in the development of popularity that

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crowdfunding experiences (Belleflamme et al., 2014). In Europe the growth was 54% ($995 million) between 2013 and 2014 (Massolution, 2015). Ever since the new decennium, crowdfunding gained popularity as relatively new method to raise funding for new as well as established firms in the Netherlands, specifically. Funds invested grew exponentially year-over-year as shown in the following graph.

Graph 1: after http://www.douwenkoren.nl/crowdfunding-in-nederland-in-2015

This growth has also raised interest of Dutch Central Bank (DNB) and Financial Markets Authority (AFM), who issued a joint statement of their view on crowdfunding. From the perspective of crowdfunder, they have identified 4 models: investments (equity- and debt-based), lending, donation and sponsoring (reward-based). No specific legislation has been developed from the perspective of platforms as of yet. However, as crowdfunding platform activities are similar to intermediary activities, AFM regulates these activities with rules on intermediation rather than rules on offerings of securities/shares/debt/etc. The latter are applied to crowdfunding entities: parties that are seeking funding through crowdfunding platforms (Gajda et al., 2013).

Since 2010, crowdfunding has caught the interest of not only entrepreneurs but also of a wider variety of academic researchers. The existing literature, nonetheless, still lacks a way

€ - € 20,000,000 € 40,000,000 € 60,000,000 € 80,000,000 € 100,000,000 € 120,000,000 € 140,000,000 2011 2012 2013 2014 2015

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of exploring the possible contribution to a firm’s funding beyond traditional financing

methods. Funding can, in this thesis, be approached as entrepreneurial capital in which the entrepreneur has, though not exclusively, an obligation on towards the funder (i.e. the ones providing capital). As mentioned earlier, this is where crowdfunding offers an advantage over other funding manners. Literature about this relatively new method of raising capital is still developing its academic foundation and formation. Mostly in the field of entrepreneurship but research increasingly entails finance and strategy as well. It is therefore interesting to identify gaps in the existing literature on crowdfunding so as to contribute to the development of academic knowledge on this matter. Of course, the ultimate goal is to completely understand this new and relevant concept of crowdfunding. Crowdfunding is a relatively new term and it has multiple definitions as demonstrated in earlier research by Moritz and Block (2014). Following the academic definition of crowdfunding as found in the literature (Cosh et al., 2009; Giudici et al., 2012; Lamert & Schwienbacher, 2010) this is explained as:

‘An open call, mostly through the internet, for the provision of financial resources either in form of donations or in exchange for a form of reward’

At its early-stage, crowdfunding was mostly used to finance creative and art projects (Agrawal et al., 2013), and creative crowdfunding platforms were among the first to be conceived (Moritz & Block, 2014). One of the early emerged crowdfunding platforms is Kickstarter. This is an American public-benefit corporation based in New York, which has built a global crowdfunding platform focused on creativity. The company’s stated mission is

to help bring creative projects to life. Another early on emerged platform is Indiegogo. This company, started in 2008 in San Francisco, is one of the first platforms to offer crowd funding. Indiegogo allows people to solicit funds for an idea, charity or start-up business.

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2.3 Types of crowdfunding

Different types of crowdfunding can be distinguished. The four main types of crowdfunding we currently distinguish are: donation-based, where the investor does not get a return; reward-based where the investor receives a specific reward, sometimes pre-ordering the product; lending-based, where the investor gets its money back later plus interest, basically debt issuance; and equity based, where the investor buys an equity share in the company (De Buysere et al., 2012). These different models of crowdfunding will be discussed more thoroughly in a later section. They differ in the returns investors receive for their financial commitment as well. Equity-based crowdfunding, often referred to as just equity crowdfunding or crowd investing, is a complex sort of crowdfunding as it involves issuance of equity in privately held firms, bringing legal issues with it (Hemer, 2011). Regulations regarding equity crowdfunding differ between countries and are very heterogeneous (Moritz & Block, 2014). Equity crowdfunding received attention mostly from a legal perspective. Traditional finance theory assumes normative principles to model how the markets should act. In traditional finance theory, investors are supposed to act rationally. They are assumed to have access to perfect information, process that information without bias or emotion, act in a self-interested manner, and be risk-averse (Ricciardi, 2008). Nonetheless, the fact that humans apply psychological insights into human behavior to explain economics decision-making, should be borne in mind as well. In this thesis, as aforementioned, emphasis will lay on reward-based and loan-based crowdfunding, two forms of debt financing. In 2012, worldwide, these types of crowdfunding respectively grew by 85% to $1.4 billion, whilst lending-based crowdfunding grew 111% to $1.2 billion (Massolution, 2013).

Financing through crowdfunding can, of course, also pose risk or cause problems for the SME. Any exploration of benefits should be complemented with some reference to the downsides in order to provide a balanced impression. To provide a clear overview to possible

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investors, the entrepreneur has to disclose sensitive information about the business and its products or services. This could raise the issue of intellectual property protection and entrepreneurs may be worries that competitors could access information they provided on crowdfunding platforms (Schwienbacher & Larralde, 2012). Besides, even if negotiations, due diligence, and contracts are not refined, the small contributions of numerous crowdfunders could result in very high transaction costs (Lambert & Schwienbacher, 2010). Managing a large amount of stakeholders is another process that tends to be time-consuming and challenging, especially since many crowdfunders may not have sufficient or relevant experience and knowledge when it comes to understanding the support an entrepreneur might need. More professional investors at least provide involvement in an emotionally supportive sense (Macht, 2011).

2.3.1 Reward-based crowdfunding

Reward-based crowdfunding is the most commonly used model. While some of the crowdfunding projects are based on donations, around 80% appear to offer some form of reward to the crowd (Belleflamme et al, 2010). The rewards can include T-shirts with the logo of the company, the product itself or other low-cost assets. In the case of reward-based crowdfunding campaign, the more interesting and unique the reward is, the more is the probability of success (Massolution, 2012). As of 2012, the reward-based crowdfunding grew by 524% and occupies 43% of the market (Massolution, 2012). There are 2 types of reward-based campaigns (Crowdfunding Platforms: To each their own, 2012):

 “All or Nothing” – In the case of this model, the targeted amount of money must be reached in order to collect the funding. If the project does not reach the financial goal on time, it is considered as unsuccessful and all the money pledged for it goes back to funders or stays pending on the platform and can be used to finance other projects.

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2.3.2 Loan-based crowdfunding

When deploying this method, founders usually get back the payback and the earned interest after the loan period. This is the smallest category in terms of number of platforms. As of 2012, it had 13% of the market with a growth rate of 78% (Massolution, 2013). There are 2 variations in loan-based crowdfunding:

 Micro lending – Micro lending is the collection of small amounts of loans from large number of people with the management of a local intermediary. This model is not popular for funding entrepreneurial or cultural initiatives (Crowdfunding Platforms: To Each Their Own, 2012).

 Peer-to-Peer lending – On peer to peer landing platforms the lending occurs directly between the individuals, without intermediary. A crowd lends money to a certain person or company expecting interest on the investment over a period of time.

2.4 Other alternative financing methods

The funding sources of entrepreneurs can be divided into different categories: bank loan, stock market, funding from own resources or their family/friends, which are more conventional, and venture capital (VC), angel investors, and crowdfunding as non-conventional financing methods. Because of the lack of collateral, the lack of sufficient cash flows and significant information asymmetry with investors (Cosh et al, 2009), it is difficult for a start-up to obtain finance from traditional sources such as banks and public stock markets (Fairchild, 2011). Since 2006, the funding gap has been filled with the help of venture capitalists and angel investors. Nowadays, the investment amounts made by VCs and

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angel investors are increasing year-over-year, which means that the equity gap remains relatively unexplored. This also indicates space for an original, alternative way of financing, such as crowdfunding. In this part of the literature review a short explanation of formal and informal investors that now fill the funding gap will be covered (OECD, 2011).

2.4.1 Venture capital

There are two ways VCs find out about companies. First is the passive deal-flow, where VC waits for the ventures to apply for funding, relying on the industry events, Internet, networking events and advertising. In the case of the active deal-flow, VCs actively look for possibilities to invest in companies using their network (Vinig & De Haag, 2002). Venture capitalists are believed to pick up a new venture and boost their growth by getting involved in management of the company, providing assistance with strategic and operational planning, marketing and obtaining additional capital. These could also be classified as benefits that go beyond capital that a firm could potentially benefit from. (Bernile et al, 2007). Also, the failure rate of VC-funded companies is substantially lower compared to those without VC funds (Gorman & Sahlman, 1989). Though VCs are believed to fund early stage start-ups (Sapienza, 1992), the recent trends show that they are getting more and more interested in later stage companies that already generate revenue.

One reason why venture capitalists do not want to invest in seeds-stage companies is the pressure from the capital providers. Reputation is crucial for VC firms to later attract new capital from its funders (Gompers, 1996, p. 135- 137). Capital partners are more willing to invest their funds in venture capitalists that have more successful cases. Success is defined by the number of companies they were able to take to IPO (Gompers, 1996, Lerner, 2002). So, it becomes important for the VCs to take already growing companies that are more probable to succeed in a relatively short period of time. Consequently, in relation to traditional financing methods, VCs pay more attention to the team, product and the market of the company (Vinig

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& De Haag, 2002). This is one of the fields in which VC differs from crowdfunding as this assumedly is more difficult for the relatively less professional crowdfunders. Lastly, empirical research on the Dutch VC market shows that a VC firm usually invests in one or 2 companies a year, in order to have enough time to actively participate in company management (Vinig & De Haag, 2002). All these factors lower the chances of startups that usually do not yet have an experienced team and a ready-to-be-made product to be funded and guided by a VC and thus VC does not really fill the funding gap.

2.4.2 Angel investors

Angel investors are the financers that on-board a company in the second round of financing that follows after family and friends' funds have been exhausted, but before venture capitalists are approached (Prowse, 1998, p. 786). According to the latest statistics, angel investor-financing exceeds the financing by venture capitalists globally, both in terms of the number of new firms receiving funding and the value of financial investment (Fairchild, 2011). One reason why entrepreneurs choose angel investors is that they usually have an entrepreneurial background (Prowse, 1998, p. 786). This way it is easier for both sides to understand each other, they are socially more attached to the companies and they invest and stay less formal with the entrepreneurs (Fairchild, 2011). Though many angels require a comprehensive business plan before considering the investment, the primary criteria of selection are the reputation of the entrepreneur, and the trust business angels have in the possible success of the proposed business (Prowse, 1998). One could assume that this mechanism applies to crowdfunding as well. Yet, the reputation of the entrepreneur being the primary criteria for investors to participate in a campaign remains to be examined.

Besides providing money, angel investors provide strategic and operational expertise for new ventures, as well as social capital (Nahapiet & Ghoshal, 1998). Angel investors are not the only ones bringing ‘social capital’ to the table; venture capitalists do so as well. Social capital

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is the network of strong personal relationships that provide the basis of trust, co-operation and collective action (Nahapiet & Ghoshal, 1998, 243). Because angels usually rely on their network to find out about new companies, studies have found that they usually invest locally and in a wide range of companies. Their contributions, however, are most of more significant than those provided by individual crowdfunding investors (OECD, 2011).

2.5 Crowdsourcing

Crowdsourcing is emerging as the new online distributed problem-solving and production model in which networked people collaborate to complete a specific task. This mode of sourcing to divide work between participants to achieve a cumulative result was already successful before the digital age. Crowdsourcing is distinguished from outsourcing in that the work can come from an undefined public and in that crowdsourcing includes a mix of bottom-up and top-down processes (Howe, 2006). Enterprises are increasingly employing crowdsourcing to access scalable workforce via the internet. Simultaneously, cloud computing emerges as a new paradigm for delivering computerized services, which fuses the physical and digital world through a parallel infrastructure. The explored crowdsourcing scenario in the software development domain derives the requirements for delivering a general-purpose crowdsourcing service. It proposes taxonomy for categorization of crowdsourcing platforms, and evaluates existing systems. A research agenda containing outlines for enhancing crowdsourcing capabilities, with focus on virtual team building and task-based service provisioning, is still lacking. It has been a barrier to the realization of a peer-production model that engages providers from around the world (Vukovic, 2009). Crowdfunding is closely related to crowdsourcing but works separately and individually in the way that the public (the crowd) raises financial contributions to fund campaigns. This could enable the initial start of a firm or be likely to further support business processes such as, e.g., expansion.

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2.6 Competitive advantages

Competitive advantages (CAs) are advantages that are perceivably owned by a company, and that the public views as preferable. They relate to tangible or intangible assets, which allow firms to be competitive. CAs manifest in higher productivity of tangible and/or intangible comparable assets in comparison to competitors (Caves, 1996). The owner of the advantage is protected for a certain period of time since imitation of CAs by the competition entails understanding, costs and risks. Barney (1991) argues that such competitive advantages are bound to be derived from the resources and capabilities a firm controls.

If resources are (1) valuable, (2) rare, (3) imitable, and (4) non-substitutable (VRIN), the resources can be viewed as tangible or intangible assets of a company. They include a firm’s organizational processes, its management skills, and the information and knowledge it controls or has access to. Especially the information and knowledge a firm controls or has access to forms the actual core of the possible linkage between the benefits that crowdfunding could pose to a firm, and its unique resources that could lead to perceived CAs. It is expected that financing a firm through the crowd alone would not lead to competitive advantages because it is non-exclusive. Meaning that all companies can relatively easy launch a crowdfunding campaign. However, the way in which companies experience additional benefits that this financing method brings on, could differ. Crowdfunding could serve as a complementary resource or lead to improved access to resources, which in their turn could then lead to VRIN resources that, in their turn, do pose competitive advantages. These principles will be further elaborated on in chapter 3, the theoretical framework.

This symbolizes the Resource-Based View (RBV) of the firm. The impact of the RBV can be measured in five different subject areas (Barney, 1991):

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1. Human resource management 4. Marketing

2. Economics and finance 5. International business 3. Entrepreneurship

Alternately, Feenstra (1998) states most crucial competitive advantages are intangible. They, amongst others, include knowledge, network and relationships. They are mobile within the firm at low marginal costs but are hard to imitate by the competition because of their complexity and high costs. This supports the aforementioned principle that some firms can benefit from crowdfunding more than others. Hence, approaching the internal exploitation of advantage as value-adding activities within the firm is an optimal strategy (Feenstra, 1998).

This research will contribute to the development of a framework that determines dimensions of crowdfunding that can lead to improved performance for Dutch SMEs. Crowdfunding offers a potential set of resources that go beyond capital which can be beneficial to founders (Mollick, 2014). In American business magazine Forbes, Hendricks (2014) shows that entrepreneurs identify five main reasons to make use of crowdfunding. It is perceived to be 1) convenient, 2) validate their concept, 3) reduce risk, 4) provides feedback, and 5) serve as marketing tool. This paper will focus on the areas of entrepreneurship and marketing, as these are relevant and significant fields for SMEs, and these are dimensions that have already partly emerged from academic theory. The driving mechanism in this thesis is the applicability of entrepreneurial and marketing purposes for the Dutch SME. These two dimensions will be explored in an empirical way. Alvarez and Busenitz (2001) argue that the RBV can inform and theoretically extend existing academic literature on entrepreneurship. They suggest that it is through the entrepreneurial process of cognition, coordinated knowledge, discovery and understanding market opportunities that make a company’s input become unique and differentiated outputs. Entrepreneurial opportunities emerge when certain individuals have insights into the value of resources that others do not. Companies can launch

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a crowdfunding campaign relatively easy. This is why crowdfunding itself could not serve as an exclusive resource for a firm. Through this reasoning, it proves not to be rare enough to alone lead to competitive advantages for a firm when VRIN resources, as mentioned by Barney (1991), are kept in mind. However, the way in which companies experience additional benefits that crowdfunding could imply differ. Crowdfunding could provide a firm with complementary resources or lead to improved access to resources. These principles do in their turn lead to resources that are perceived to be valuable, rare, imitable, and non-substitutable through which a firm does obtain competitive advantages.

2.6.1 Entrepreneurship

Entrepreneurial alertness, knowledge and the ability to coordinate and align resources are viewed as a firm’s resources. Inimitability is seen as the core of entrepreneurship because the entrepreneur is expanding his or her knowledge base. Experience and learning are key elements when it comes to achieving a competitive advantage. Alvarez and Busenitz (2001) also suggest that social complexity is central to entrepreneurship as it may be crucial to the exploitation of complex processes and exclusive to certain types of entrepreneurs, hence it is difficult to imitate. From the firm perspective, they suggest that an entrepreneur fulfills a compelling role in recognizing the value and opportunities presented by specific knowledge and exploiting it to create revenues. When entrepreneurs have increased access to capital via crowdfunding, it would be interesting to explicitly research if this could impact starting or expanding their firms in more pervious ways.

2.6.2 Marketing

Srivastava, Fahey and Christensen (2001) suggest that research around the RBV needs to identify precisely how customer value in the form of specific attributes, benefits, attitudes and network effects is intended, generated, and sustained. Secondly, research that approaches marketing capabilities as a firm’s resource must address how change in marketing assets and

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capabilities contribute to value creation or deprecation for the customer. Srivastava, Fahey and Christensen (2001) speak to the issue of the implementation and creation of competitive advantages by identifying how marketing can shed light on the nature of certain resources. For example, marketing can help understand the need for rare resources to be seen in terms of customer needs while inimitability can be assessed in terms of imitation of capacities by the competition. Also, the firm’s ability to enhance inimitability through cross-selling and bundling are mentioned. It suggests that further work is required to identify and document how particular resources and capabilities contribute to generating and sustaining specific forms of added value. They also suggest the need for the RBV and marketing to directly describe changes in customer needs and elaborate on the need for changes in availability of resources (Srivastava, Fahey and Christensen, 2001).

2.7 Linkage between the components

Following up on Barney’s resource-based view (1991), this research assesses if funding a

business via a crowdfunding campaign could be exploited as a firm’s valuable, rare, inimitable and non-transferable resource. This could be possible because the funding is provided to just one entrepreneur and there is a possibility of receiving more than just capital. It offers a unique proposition to both the investors and the firm receiving the funding, whereas conditions arise in mutual consent. Capital is a resource that is relatively easy to obtain. Besides, capital is a highly imitable resource. In the light of the RBV, capital itself would not be able to lead to a competitive advantage. However, capital that is raised via crowdfunding could be classified as ‘more than just money,’ thus funding businesses and subsequently constituting other possibilities that an entrepreneur might benefit from (Mollick, 2014).

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The benefits that could form when crowdfunding is used to raise funding can be viewed in the format of a framework. This framework supports fund-seeking entrepreneurs in their decision to consider whether crowdfunding could be an option for them. Macht and Robinson (2009) created a framework of investor benefits in the context of business angels (Exhibit 2). Apart from the fact that amount raised is often similar between business angels and crowdfunding (Wiley, 2014), business angels and VCs also bring a company more than just capital funding. However, oftentimes this also comes with loss of equity, and subsequently control, for an entrepreneur (De Haan & Vinig, 2005). It focuses on the entrepreneurial side of a firm as well as additional marketing value. Because this model thus appears to have some relevance in the case of crowdfunding, it could be used as a guide to explore the relevance and applicability of entrepreneurship and marketing as benefits for a firm in the context of crowdfunding.

Exhibit 2: Framework of business angel benefits (Macht & Robinson, 2009)

The box stating: Helping to Overcome Funding Difficulties is in this thesis regarded to as entrepreneurship. It helps an entrepreneur to start or expand its business. As it’s the case with

business angels, crowdfunding is likely to overcome the potential funding gap an entrepreneur faces but does not do so per definition, especially when he or she can’t get access to funding via formal, external financiers. Besides, the firm could have other objectives than just filling the funding gap. Looking for validation or improving recognition

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might also be goals that a company aims for when engaging in a crowdfunding campaign. Moreover, anyone with internet access and €10 to spare could be a crowdfunder. The pool of potential crowdfunders is large (Belleflamme et al., 2012; Hurley, 2012; Wiley, 2014). As, for the entrepreneur, it is now easier to obtain access to funding, this will imply that more business will be enacted because of the increased availability and access to funding. Given that there are around 600 online crowdfunding platforms in the world at the moment, businesses looking for financing have a large choice of intermediaries (Avery, 2012). This can be seen as a benefit, as it will further increase the pool of potential investors with easy and affordable access to the capital provision market, and its convenience will further increase by offering a suitable platform for different kinds of investors.

Marketing and promotional purposes are determinants to be explored in this thesis and emerge in this framework, when looking at Provision of Contacts. Since crowdfunding is not constrained by investors’ geographic location, the pool of possible investors and their social

network could be far-reaching. If a large group of people is interested in a business, they will be able to create awareness and promotion around it and increase exposure for the business and its products/services (Belleflamme et al., 2012; Lambert & Schwienbacher, 2010). This does not imply that investors directly introduce the company they invested in to contacts of their social networks; they, whether or not subconsciously, quasi-recommend the business by investing in it. Having multiple, mostly private, investors may increase public exposure or raise awareness of its existence with a bigger audience (Wiley, 2014). Expanded public exposure via media or word-of-mouth promotion will benefit the business, especially if a firm is still young and does not yet have a large marketing budget.

Causal ambiguity is one of the concerns that could arise when accessing firm’s resources as

leading towards a competitive advantage. Causal ambiguity occurs if the source, from which a firm's competitive advantage stems, is unknown to its owner (Peteraf, 1993; Lippman and

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Rumelt, 1982). In this specific context, this could mean that an entrepreneur does not have a comprehensive understanding of the possible side-benefits that funding their business through the crowd might bring on. Or, that the entrepreneur is not able to link experienced perks to the fact that he financed the start or expansion of the business through crowdfunding. As touched upon in the above sections, the extent to which companies experience additional benefits that this financing method brings on, could differ. Crowdfunding could serve as a complementary resource or lead to improved access to resources, which in their turn could then lead to VRIN resources that, in their turn, do pose competitive advantages. Unique resources, which a firm controls or has access to, thus form the actual core of the possible linkage between the benefits that crowdfunding could pose to a firm. Subsequently these unique resources could lead towards competitive advantages.

2.8 Research gap

A research gap implies a remaining research problem that has not yet been explored or answered appropriately in a field of study. This research contributes to filling the gap that exists in the current literature in a way that the applicability of the profound dimensions of crowdfunding, which could potentially lead to competitive advantages for a firm, is assessed in the context of the Dutch SME. The need to fill in this literature gap is especially interesting because, as seen before, crowdfunding is an exponentially fast developing funding method. Besides its provision of generic funding, previous research claims that companies could profit from other emerging benefits when engaging in crowdfunding. It could provide more than just capital. Moreover, a practical approach to explore the linkage between crowdfunding and CAs it might pose, has not been conducted before. Accordingly, the scope of this paper is to explore the possibility of funding a business through the crowd, and possible competitive advantages this could deliver to a company.

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3. Theoretical framework

This thesis will contribute to the development of a framework that determines dimensions of crowdfunding that can lead to competitive advantages for Dutch SMEs. Crowdfunding alone will not lead a firm to valuable, rare, imitable, and non-substitutable (VRIN, Barney, 1991) resources because it alone is easily accessible for almost every company in the market. Yet, crowdfunding can serve as a complementary resource to other resources a firm possesses and therefore contributes to the value, rareness, imitability and/or non-substitutability of other resources. Where crowdfunding typically involves a numerous amount of investors (Lambert & Schwienbacher, 2010), it could lead to improved access to potential VRIN resources as well. An introduction to the theoretical framework that will serve as a guide throughout the following chapters is presented in exhibit 3.

Exhibit 3: Introduction to the theoretical framework

This chapter establishes the theoretical framework for the exploration of the research question on how making use of crowdfunding could lead to competitive advantages for the SME. In Exhibit 4, the general comparative framework is displayed. It stipulates the relation between dimensions of crowdfunding that emerged from the literature, which can be plotted in the empty fields within the dotted lines. This thesis explores if entrepreneurs underwrite experiencing entrepreneurship and marketing as beneficial. These dimensions of crowdfunding were derived from literature (Mollick, 2014; Hendricks, 2014) and from the conducted interviews. The interviews will provide empirical support for the predicted relations. In the practical application of this context, a case of a firm that is financed via a

- Complementary resource(s) - Improved access to resource(s)

Competitive advantage

Crowdfunding Firm’s resources (VRIN)

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conventional bank loan (case B) is compared to a case in which a company is financed through crowdfunding (case A).

To label a dimension as a possible performance indicator, literal quotes as stated by the ten interviewees will be provided. The theoretical framework is best visualized as follows:

Exhibit 4: Theoretical Framework

The applicability of both marketing and entrepreneurship, which were, as aforementioned, derived from former research by Mollick (2014) and Hendricks (2014), will be assessed in the Dutch SME context.

To briefly repeat the relevant existing literature: Mollick (2014) conducted an exploratory study that found that funding a business through the crowd could lead to more than just capital resources. After analyzing a comprehensive dataset of more than 48,500 projects, with combined funding over $237 million, his article offered a description of the underlying dynamics of success among crowdfunded ventures. These results offer insight into the emerging phenomenon of crowdfunding and also shed light more generally on the ways that the actions of founders may affect their ability to enjoy additional benefits that a crowdfunding campaign might bring along (Mollick, 2014).

Possible benefits Complementary resource(s)

Improved access to resource(s)

Crowdfunding

1

Bank loan

Case A

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Empirical evidence with regard to the advantageous factors that might come with crowdfunding is used to ultimately answer the research question. Following the literature review, the possibility of entrepreneurial and marketing benefits that crowdfunding could pose for a firm towards obtaining improved access to resources or crowdfunding serving as a complementary resource is sought for. Exhibit 5 shows the implied relations.

Exhibit 5: Explorative model

The solid arrows point out a possible relationship between a dimension that has been endorsed in the academic literature, and a perceived benefit. These benefits could in their turn lead to CAs as it gives the firm a more unique position relative to their competitors who do not experience these benefits.

This model is partially split up when looking at and providing quotes for specific dimensions. Per possible determinant a separate model could be constructed. Exhibit 6 displays a visual representation of the model this thesis deploys, as a whole.

Exhibit 6: Total proposed model

Improved access to resource(s)

Complementary resource(s) Crowdfunding Marketing Entrepreneurship Crowdfunding Competitive advantage R e s o u r c e

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3.1 Working propositions

The working propositions that will follow are possible outcomes of this study as implied by the researcher on basis of the reviewed literature and functional expectations. The propositions are provisionally accepted as a basis for future research and give guidance in the transcript coding process (Yin, 2003). Like hypotheses, working propositions are constructed as a statement of expectations and can therefore be linked to exploratory research (Shields & Rangarjan, 2013). The purpose of these working propositions is to asses a conceptual framework with qualitative research.

Before stating the relevant working propositions, taken as preliminary assumptions this thesis will access, it is important to clearly explain the mechanisms behind the working propositions. The driving mechanism behind this research implies that the RBV prevail an extension to existing academic literature on entrepreneurship (Alvarez and Busenitz, 2001). The authors suggest that the entrepreneurial processes of cognition, coordinated knowledge, discovery, and understanding the market opportunities, a company’s input can become rare

and differentiated outputs. Thus, when crowdfunding is approached as a discovery of coordinated knowledge that arises from new opportunities in the market, a firm might obtain valuable insights into resources that competitors might not benefit from or even be aware of at all. Crowdfunding could be seen as a firm’s resource when it poses both opportunities and benefits a firm might otherwise have not experienced

Below, the main working proposition (WP) and its sub working propositions (SWP) are laid out. In the results section of this thesis, empirical proof will be listed to find support for the provided propositions:

WP1: Crowdfunding provides the Dutch SME with additional specific resources through

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This working proposition (WP1) assesses if funding obtained through crowdfunding leads to resources of a more valuable, rare, inimitable, and non-substitutable nature than capital provided by a bank. When plotted into the presented framework, WP1 links crowdfunding to a firm’s perceived competitive advantages and so contributes to answering the main research

question.

Exhibit 7: Applied model when testing WP1

Building upon the previously discussed RBV, this second working proposition assesses if funding obtained through crowdfunding indicates the complementarity of resources or if a firms experiences improved access to resources through its network of funders.

WP2: Dimensions of crowdfunding lead to resource complementarity and improved access to

resources for the Dutch SME

Exhibit 8: Applied model when testing WP2

Crowdfunding R e s o u r c e Competitive advantage WP1 WP1 Crowdfunding Complementary resource(s)

Improved access to resource(s) WP2

WP2

WP2 WP2

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The sub working propositions especially explore the possible effects that crowdfunding could have on the creation of firms and benefits a firm could experience of marketing effects that a crowdfunding campaign could lead to.

SWP1a: Entrepreneurial purpose is a relevant and strongly present dimension crowdfunding

implies

Entrepreneurial purpose indicates the opportunity accompany obtains or creates to start or expand the business when making use of crowdfunding. As stated in previous paragraphs, acquiring bank loans could be a challenge for entrepreneurs. By engaging in crowdfunding, they cope with a non-conventional financing method, which will give them the opportunity to execute plans that were unavailable before.

SWP1b: Marketing purpose is a relevant and strongly present dimension crowdfunding

implies

Marketing purposes refer to the effects of improved attention and (brand-) recognition a company could experience when engaging in crowdfunding. The dimension emerged from previous research by Mollick (2014) and Hendricks (2014).

3.2 Research design

A deductive approach of building upon existing theory is used to apply established understandings to reality (Saunders, Lewis and Thornhill, 2009). In this light, semi-structured interviews are conducted as applied research. The dimensions of entrepreneurial- and marketing purposes, as mentioned in the RBV (Barney, 1991) and by Mollick (2014), together form the theoretical pillars. After this, the design of the research strategy needs to be established. The empirical results section of this thesis provides quotes which coin a possible match between empirical experiences in reality that interviewees provide and the theoretical

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pillars of entrepreneurial- and marketing purposes as derived from the literature (Barney, 1991; Mollick, 2014). The advantage of a case study is that it is a valuable way of exploring the existing theories. According to Sekaran (2003), multiple case studies are useful in understanding certain phenomena by analyzing similar situations in multiple organizations. This research design is chosen to try to find out whether findings of a particular entrepreneur also occur with others. Yin (2003) argues that the recognition of phenomena with multiple entrepreneurs (cases) is the main reason to do a multiple case study, as opposed to a single case study. Besides, he highlights that the context of a case study is important because the boundaries between the researched phenomenon and the context of the case are not evident (Yin, 2003). Questions starting with why, what and how are appropriate questions for this type of study. The time horizon of this research is cross-sectional as data is collected over a limited period in time (Sekaran, 2003). In the practical application of this context, a case of a firm that is financed via a conventional bank loan is compared to a case in which a company is financed through crowdfunding.

4. Methods

The qualitative approach this research exploits combines interview data and existing literature to build a framework to explore the possible linkage between crowdfunding and CAs. Crowdfunding could be used for multiple purposes (Edmondson, 1999). This thesis, as mentioned, takes on a dedicated focus towards the entrepreneurial and marketing related benefits a campaign could bring along.

Qualitative data, which was taken from interview transcript using selective coding, will be used to address the research question and evaluate the working propositions. Selective coding, in theory, is described as ‘the process of selecting the central or core category,

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categories that need further refinement and development’ (Strauss and Corbin, 1990, p. 116).

A deductive theoretical approach is adopted to explore the application of entrepreneurial and marketing related benefits in relation to a company’s funding method and its perceived CAs.

Interview participants were selected through convenience and snowball sampling. Although convenience sampling could influence the sample, it is by far the fastest sampling selection method. Therefore, this sampling method is thought to be sufficient (Saunders, 2012, p. 233). All interviewed entrepreneurs (partly) funded their ventures making use of the crowd. Some built it ground-up by making use of crowdfunding. Others launched a campaign to further expand their business or improve business processes. The companies owned by the interviewees are, to date, still operational. Their campaigns finished up until maximum three years ago. Interviewees offer either physical products or services in the, amongst others, following branches: media, public relations, wholesale, retail, hospitality and finance. Their companies employ between two and 150 people and are all based in the Netherlands. Contact had first been established via email, after which the researcher and interviewee agreed to either meet at the interviewee’s office or plan an appointment to ask and answer the interview

questions in a telephone interview. The interview schedule is shown in Table 1 and gives a clear overview of the sample used for this study together with more essential background.

In order to recognize the connectedness of entrepreneurial effects and marketing purposes in the interviewees’ perspective, quotes relating to the dimensions were taken into consideration

when applying selective coding (Strauss and Corbin, 1990) to the literally transcribed interviews. Following other researchers in the field of crowdfunding, ten interviews were conducted over a period of three months (Ley & Weaven, 2011; Vinig & De Haan, 2005). By virtue of using theories from the past (Mollick, 2014; Hendricks, 2014) in combination with empirical evidence which can be derived from the interviews, data triangulation is

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established. The triangulation technique facilitates the validity of presented data by verifying it through two or more sources.

Interviewee Age Sector

Start or expand company Size of organization (employees) Type of CF engaged in

Total amount raised (EUR)

1. 61 Wholesale Expand > 100 Loan > €400.000 2. 29 Hospitality Expand 30 - 40 Loan _{€25.000 - €50.000} 3. 39 Fashion Start 0 - 5 Loan €15.000 - €25.000 4. 30 Retail Start 0 - 5 Loan _{€100.000 - €150.000} 5. 25 Creative Start 0 - 5 Reward < €10.000

6. 53 Manufacturing Expand 15 - 20 Loan _{€50.000 - €75.000} 7. 61 Finance Start 10 - 15 Reward €50.000 - €75.000 8. 25 Retail Start 5 - 10 Loan _{€25.000 - €50.000} 9. 50 Communication Start 0-5 Loan €25.000 - €50.000 10. 31 Public relations Start 5 - 10 Reward _{€10.000 - €15.000} Table 1: Interview schedule

Using semi-structured interviews assured that certain theoretical themes were addressed, while allowing other topics to be explored as they emerged. Interviews lasted between approximately 30 and 45 minutes. They were conducted in person or via the telephone due to the geographically distributed nature of the interviewees throughout the Netherlands. The interviews were recorded and subsequently transcribed in Dutch and summarized in English. 364 minutes of audio-recorded interviews were analyzed using selective coding (Strauss and Corbin, 1990). This process identified core concepts in data and substantiates exciting understandings. The semi-structured interviews covered a list of themes and key questions. All participants were briefed on a commitment to anonymity in data collection by the researcher. This was done to assure confidentiality of information they gave in regard to their competitiveness, resources and position within the market. The interview framework was the same for all categories of respondents. To determine whether a dimension was strongly present or less often mentioned, the indication that if a dimension is mentioned by 5 or 6

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interviewees (>50%) this points to a strong presence of the dimension. If only 3 or 4 interviewees (<50%) mentioned a dimension, this would point to less strong presence of the concept (Miles et al., 2014).

The following thematic codes, as presented in Table 2, were the main themes that emerged whilst coding interview transcripts. The selective coding process resulted in dimensions that corresponded with the determined ones of entrepreneurship and marketing purposes (Hendricks, 2014). There were 6 main themes to which many other themes were consolidated. The following themes were identified as relevant for analyzing the additional effects that could lead to competitive advantages for companies that were financed through crowdfunding in the Dutch SME context:

Emerged themes used for coding transcripts - Accessibility - Opportunity - Network - Attention - Convenience - (Brand-) Recognition

Table 2: Themes emerged from selective coding

The transcribed interviews are used to explore empirical experiences of interviewees with entrepreneurial- and marketing purposes that financing a business through crowdfunding might pose. Subsequently, multiple case studies are used to understand these phenomena by analyzing similar situations in multiple organizations. This research design is chosen to try to find out whether findings of a particular entrepreneur also occur with others.

In order to ensure validity of the presented data, interview participants who have participated in crowdfunding themselves were selected. Conducting a semi-structured interview could lead to biased output. (1) Interviewer bias is where the comments, tone or non-verbal behavior of the interviewer creates bias in the way the interviewee responds to the questions being asked. The interviews were conducted by three different interviewers, which could also

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lead to interviewer bias. To prevent this, a semi-structured interview was developed. (2) Interviewee bias is a type of bias that may be caused by perception about the interviewer, as referred to, or in relation to perceived bias. (3) Participation bias may result from the nature of the individuals or organizational participants who agree to be interviewed. The time-consuming requirements of the interview process may result in a reduction in willingness to take part. This was addressed using Haphazard sampling method (Westfall, 2008). Haphazard sampling is a non-statistical technique used by auditors to simulate random sampling when testing the error status of accounting populations. Our study compared the properties of Haphazardsamples selected from control listings with the properties of random samples (Hall, 2013).

The sample only consisted of ten interviewees. This is too small to be generalizable for the population, but it does give sufficient insight in the possible presence of additional benefits that might lead to competitive advantages, which a firm could experience when financing the firm though crowdfunding (Flind, Woodruff and Gerdial, 2002).

Interviewed respondents were first asked about their crowdfunding project, its status and their expected effects on their business. Participants were then asked to describe their motivations for choosing crowdfunding and to elaborate on other financing methods they considered. Participants using crowdfunding besides more conventional ways of financing (bank loans) were asked to describe the major differences between the two, as well as the reasons why they are using both. As theoretical categories emerged, the questions asked focused more on verification and expansion on these emergent themes. The third and last phase of the interview focused on future expectations. The nature of the questions and the ensuing discussion mean that the data was captured audio-recording the conversation and note-taking. Apart from the list of themes and questions to be covered, the interview schedule also contained some comments to trigger a discussion, a possible list of prompts to promote and