Gender Differences in Dutch Crowdfund Investments and the Influence of Social Campaigns.
Executive Program in Management Studies Name Jacco van Huizen
Student Number 11176733
Thesis Supervisor Prof. em. dr. ir. Hans J. Oppelland Co Reader Prof. dr. Hans P. Borgman
Date of Submission 21st July 2020 Word Count 13.880
Statement of Originality
This document is written by Student Jacco van Huizen who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Table of Contents
Abstract ... 1
1. Introduction ... 2
1.1 Research Problem ... 2
1.2 Research Objective ... 3
1.3 Research Strategy ... 4
1.4 Thesis Structure ... 5
2. Literature Review ... 6
2.1 Crowdfunding... 6
2.1.1 Two-sided markets and network effects ... 8
2.1.2 Information Asymmetry ... 10
2.2 Types of Crowdfunding ... 11
2.3 Gender Differences in Crowdfunding ... 12
2.3.1 Risk Appetite ... 12
2.3.2 Social Campaigns ... 14
2.3.3 Herding ... 16
2.4 Role of Crowdfunding Platforms ... 17
2.5 Rules and Regulations ... 18
2.6 Criticism of Crowdfunding ... 19
3. Research Design ... 21
3.1 Research Philosophy ... 21
3.2 Theory Development ... 21
3.3 Research Strategy ... 22
3.4 Research Methods ... 23
3.5 Propositions ... 23
3.6 Conceptual Model ... 24
3.7 Sample Design ... 24
3.8 Design of Data Collection ... 25
3.8.1 Interviews ... 25
3.8.2 Pre-test ... 25
4. Data Collection ... 27
4.1 Data Collection Methods ... 27
4.2 Preparation ... 28
4.3 Reliability and Validity Measures ... 28
4.3.1 Reliability ... 28
4.3.2 Validity ... 29
126.96.36.199 Internal Validity ... 29
188.8.131.52 External Validity ... 30
4.3.3 Ethical Considerations ... 30
4.4 Case Study ... 31
5. Data Analysis ... 32
6. Research Results ... 33
6.1 Experience in Investing Prior to Crowdfunding ... 33
6.2 Risk Appetite ... 35
6.3 Rational vs Emotional ... 36
6.4 Influence of Social Campaign on Risk ... 38
6.5 Herding ... 40
6.6 Performance of the Platform ... 42
6.7 Additional Results ... 43
6.8 Summary of Research Results ... 45
7. Conclusion and Recommendations... 46
7.1 Conclusion ... 46
7.2 Recommendations ... 47
8. Limitations and Future Research ... 49
8.1 Limitations... 49
8.2 Future Research ... 50
9. Bibliography ... 51
10. Appendices ... 58
10.1 Appendix I ... 58
10.2 Appendix II ... 59
10.3 Appendix III ... 60
10.4 Appendix IV ... 62
10.5 Appendix V ... 71
List of Figures and Tables Figure 1. Conceptual Model ... 24
Table 1. Degree of Support per Proposition ... 33
Table 2. Legend of Table 1 ... 33
Table 3. Overview of Results and Questions Linked to the Propositions ... 45
Entrepreneurs have faced difficulties in raising funding for their companies since the economic crisis of 2008. Therefore, since then crowdfunding has risen in popularity. Crowdfunding is defined as the practice of funding a project or company by raising funds form a large group of people who each contribute a relatively small amount. Crowdfunders tend to be motivated more by the concept of a company than by its financials. The objective of this thesis is to investigate gender differences in loan-based crowdfund investments, as well as the influence of a social campaign. This research uses a conclusive approach and qualitative data to answer the research problem. A multiple case study is used to analyse the differences between men and women, whereby questions are answered via a semi-structured interview. The respondents are Dutch, live in an urban area, have invested in at least three campaigns, and made their investments via a well-known Dutch platform. Results show partial support for differences in risk appetite: men invest in riskier campaigns and are more rational. There is little support for differences in experience, the effect of a social campaign on risk, or the performance of the platform.
Additional results show that both men and women argue that there is a mismatch between supply and demand on crowdfunding platforms.
Key words: crowdfunding, gender differences, social campaign, trust, herding, risk appetite, crowdfunding platform
2 1. Introduction
With the rise of the internet and the economic recession in 2008, crowdfunding began to increase (Dushnitsky, Guerini, Piva, & Rossi-Lamastra, 2016, and Ryu & Kim, 2018). Because of the recession, the rules and regulation in the banking industry became stricter and therefore the access to capital for small and medium-sized entrepreneurs via banks decreased. The interest rates, which are controlled by the European Central Bank and in America by the Federal Reserve (FED), are set at a rate almost equal to zero. This signifies that the interest rate on saving accounts diminished, as well. Therefore, consumers started to look at other opportunities to get a return on their savings and found that in crowdfunding.
According to Mollick (2014), crowdfunding is ‘the efforts by entrepreneurial individuals and groups – cultural, social, and for profit – to fund their ventures by drawing on relatively small contributions from a relatively large number of individuals using the internet, without standard financial intermediaries’. Generally speaking, crowdfunding is implemented via online platforms. Crowdfunding platforms offer various campaigns for funders on their websites, and their objective is to maximise the number and size of successful projects while providing a safe platform and solid investment opportunities (Gera & Kaur, 2018).
1.1 Research Problem
This thesis focusses on Dutch crowdfunding. Currently, there are many crowdfunding platforms that basically target the same investors. In the Netherlands there are over 50 platforms1, some of which have a specific target group, like “ Voordekunst” which focusses on art projects or Horeca crowdfunding with a focus on the hospitality industry. However, most
1 https://www.crowdfundingcijfers.nl/crowdfunding-platforms/ (updated July 14, 2020)
3 of them do not have a specific target group; they target the same general group of people. In the Netherlands, 80% of the platforms based on investment capital do not have a specific target group. Hervé, Manthé, Sannajust, and Schwienbacher (2016) argued that crowdfunding platforms involve a higher number of male investors in comparison with female investors.
Some scholars (Zhang et al., 2017) have argued that with the rise of crowdfunding this gap diminishes. There is a knowledge gap between male and female crowdfund investors in the Netherlands. A group of female investors started their own crowdfunding site exclusively for female investors called ‘The Next Women’ to attract women to investing.
This thesis analyses the differences in motivations between male and female investors to better understand how to attract more women to crowdfunding. The research question is: “ What are the differences in motivations between male and female investors in crowdfund investments?”
By answering this question, the thesis investigates how a platform can attract new crowdfunders in a more effective and efficient way. This research is the first to analyse the relation between gender and risk while also taking the social aspect into account. As Kleppe and Nilsen (2017) argued, future research should include the funders’ perspectives to better understand of the choices made by investors, with a focus on sustainable (social) projects.
Additionally, this thesis examines multiple crowdfunding platforms in the Netherlands whereas the existing literature analyses a single platform.
1.2 Research Objective
The objective of this thesis is to present the differences between the motivations of male and female crowdfunding investors and the effects of a social campaign. Recent literature shows that men invest more in crowdfunding and take more risk (Mohammadi & Shafi 2015, Croson
& Gneezy 2009, and Bertrand 2011). Sustainable projects, which face difficulties in attracting
4 capital, are important to achieving sustainable development (Cohen & Winn, 2017). Lehner (2013) suggested that crowdfunding is the ideal solution for entrepreneurs working on sustainable development projects.
Crowdfunding, like other investment arenas, is seen as a man’s world (Hervé et al., 2016 and Huang & Kisgen, 2013). With the rise of crowdfunding platforms and therefore more social, likeable, and tangible projects, women have become more attracted to investing. There is a lack of knowledge of the differences in risk perception between male and female investors in crowdfunding and the influence of social aspects to be able to conclude that these differences exist. At the moment, crowdfunding platforms target a large audience which is not efficient or cost effective. This thesis intends to provide crowdfunding platforms with a better understanding of their target audience and how to attract them.
1.3 Research Strategy
This research is qualitative in nature and uses semi-structured interviews to collect data.
Therefore, the ontology is subjective as it relies on the opinions of the interviewees. A pragmatism philosophical stance is used. The data collection method used in this research is multiple case study via semi-structured interviews. It describes the existing theory and derives propositions from this theory, meaning deductive reasoning is used. The interviewees are all Dutch crowdfund investors. Interviews are held with male and female investors. In addition, public sources and interviews with founders and coaches of crowdfunding platforms are used in order to attain a better understanding of how they reach their target audience. The investors have invested via well-known Dutch platforms; the platforms used in this research must have crowdfunded at least 10 million euro.
5 1.4 Thesis Structure
The remainder of this thesis is structured as follows. The next chapter provides on overview of the current literature on crowdfunding. Chapter 3 describes the research design, Chapter 4 the data collection, and Chapter 5 the data analysis. Chapter 6 shows the research results, and Chapter 7 gives the conclusion and recommendations. The final chapter provides the limitations and suggestions for future research.
6 2. Literature Review
The purpose of the literature review is to provide insight into the existing literature of crowdfunding, which will help to identify a research gap as the starting point of this thesis. The literature explains what crowdfunding is and how it started, the different types of crowdfunding, the motivations of investors, the differences between men and women (risk appetite, projects, social campaigns, and herding effect), and the role of crowdfunding platforms. The literature review concludes with a section on the rules and regulations of crowdfunding in the Netherlands.
In recent years, crowdfunding has risen as a new phenomenon for small and medium enterprises to attract capital. Crowdfunding is a two-sided market (Appendix I, Kleppe &
Nilsen, 2017) with the entrepreneurs (mostly small and medium sized entrepreneurs) on one side and the ‘crowd’ on the other. The crowd are investors; these can be individuals as well as institutional investors. Forbes and Schaefer (2017) defined crowdfunding as the process of taking a project or business in need of investment and asking a large group of people to supply this investment. This generally happens via crowdfunding platforms. Where banks have to obey to stricter rules and are not able or not willing to provide a loan, the crowd might be. In Appendix II an overview of the characteristics of the different kinds of investors is provided.
With crowdfunding, the investors and entrepreneurs are brought together without a financial intermediary. Well-established firms are still able to attract financing via the traditional sources, because they can provide collateral, but younger companies face difficulties in attracting funding for their ideas (Central Bureau voor de Statistiek, 2019 and Ryu & Kim, 2018). Therefore, crowdfunding is the ideal solution. Not only does the company get access to
7 financing opportunities, but crowdfunding can also connect the entrepreneur with potential customers, test the product concepts, and promote product awareness. For this reason, well- established firms, like Philips, Gilette, Lego, and Canon have also raised money via crowdfunding (Beens, 2019). Therefore, crowdfunding can become a disruptive innovation (Smith & Hong, 2016). A disruptive innovation is an innovation that creates a new market and value network and eventually disrupts the existing market and value network, which can lead to a displacement of existing (market-leading) companies (Rahman, Hamid & Thoo, 2017).
Since the launch of the leading global crowdfunding platform Kickstarter in 2009, the site has raised over four billion euro for more than 166,000 projects.2 In the Netherlands, the largest platform, Collin Crowdfund, has raised over 200 million euro for over 1,500 projects. In the Netherlands, crowdfunding started in 2010 with a total investment of 0.5 million euro and grew rapidly to a total of 387 million euro in 2019.3 There was an average year-to-year growth of 163%. In 2018 and 2019, 90% of crowdfunding campaigns existed out of loan-based crowdfunding of which more than half was used for social entrepreneurs. Loan-based means that the investors provide a loan to the entrepreneur and have a repayment schedule; most of the time the loan is for a period of five years. In the last paragraph of this section, the different types of crowdfunding are explained.
With the rise of the investment capital, more crowdfunding platforms have emerged. The platforms act as a middlemen between the investors and the entrepreneurs. The business model and risks involved are explained in Chapter 4. As mentioned, the Netherlands has over 50 platforms. These platforms are mainly active in the Dutch market, but some are internationally active or are foreign platforms (e.g., Funding Circle). Platforms face difficulties in crossing the border, which is primarily due to regulations and the lack of trust and knowledge about foreign
2 https://www.kickstarter.com/help/stats (updated February 07, 2020)
3 https://www.crowdfundingcijfers.nl/ (updated February 07, 2020)
8 markets and international investment opportunities (Niemand, Angerer, Thies, Kraus, and Hebenstreit, 2018).
Crowdfunding has grown exponentially over the last decade and has therefore received a great deal of attention from researchers. In most research, data from one platform is used (generally Kickstarter, as they are the first and largest active platform).
Investing is seen as riskier than putting money in a savings account at a bank. Crowdfunding is a form of investment in which mostly young and innovative firms are funded. These types of firms face high uncertainty regarding their performance and value and are therefore classified as a risky investment. As mentioned, there are two parties in crowdfunding: the investor (the supplier of money) and the company in need of funding (the demand). A third party, the crowdfunding platform, is involved to do the due diligence, collect the money and provide it to the entrepreneur. Due Diligence is the process of analysing and researching the feasibility of a campaign. Platforms in the Netherlands work based on the ‘all or nothing’ (aon) model, meaning that the entrepreneur only receives the money when the target amount is reached. If the target amount is not reached, investors will get their investment back. The other model is ‘keep it all’ (kia), in which the entrepreneur can keep the funds collected regardless of whether they reach the target amount (Cumming, Leboeuf, & Schwienbacher, 2014).
2.1.1 Two-sided markets and network effects
Armstrong (2006) defined two-sided markets as ‘markets in which two or more groups interact via intermediaries or “ platforms” ’ (Armstong, 2006, p. 668). A two-sided market has two distinct classes of participants, both of which are needed to deliver value. Crowdfunding platforms act as intermediates between both parties. These platforms face network effects, which occur when the value of a product or service increases as more people use it (Katz &
9 Shapiro, 1994; Gallangher, 2018). Examples of services or products that face network effects are Facebook, Microsoft, and mobile phones.
Both parties (in the case of crowdfunding, the investors and the entrepreneur) gain from the number of participants of the other party; this is known as cross-side effects. However, they also gain from the number of participants in their own group, or same-side effects (Belleflamme et al., 2015). As one can imagine, the more attractive projects there are on the platform, the more investors will be active on the platform. The reverse also works; where there are more investors, the platform can complete projects more easily. Platforms have to ensure that they attract enough funders and projects (Wessel, 2016).
Although network effects are generally seen as positive, they can be negative as well, for example when equilibrium is reached. In crowdfunding, this can mean that there are more investors than projects. Sometimes, projects are funded within seconds of going live on the platform, meaning that the investment opportunity is not available for everyone. People could get bored and leave the platform or crowdfunding. Same-side effects can be negative for entrepreneurs; as the number of projects increase, the opportunities to reach the funding goal decrease (Belleflamme et al., 2015).
Most platforms do not focus on a specific type of project or entrepreneur. Therefore, funders are a heterogeneous group (Wessel, 2016). Every funder has a different interest in the entrepreneurs they want to invest in. There are several platforms with a focus on a certain market (e.g., Voordekunst, OnePlanetCrowd or HorecaCrowdfunding), but most platforms focus on a larger group of funders. Wessel (2016) stated that platforms should cooperate with funders in order to obtain the maximum benefit of the positive external effects that funders exert on entrepreneurs. As explained above, a platform should seek an optimal match between the funders and the projects. If this is not reached, funders’ search costs increase and the project
10 will not reach its target amount. Here lies an important task for the management and board of crowdfunding platforms (Belleflamme et al., 2015; Wessel, 2016).
2.1.2 Information Asymmetry
In every two-sided market, there is an information asymmetry which can lead to moral hazards and adverse selection problems. In crowdfunding, the decision-making processes of the two parties (entrepreneur and investor) are characterised by information asymmetries (Wessel, 2016). Therefore, it is seen as a key challenge in crowdfunding (Ahlers, Cumming, Günther,
& Schweizer, 2015; Mohameddi & Shafi, 2017). This means for crowdfunding that the entrepreneur looking for funding has more knowledge about the project than the investor does.
These asymmetries can make it difficult for entrepreneurs to get funding if the entrepreneurs cannot or will not provide the right information to the investor. Therefore, the investor cannot make a correct judgement and might not invest. Since the researcher investigates how funders make their investment decisions, it is important to address the information asymmetries that arise in crowdfunding.
For one group of crowdfund investors, the information asymmetry is seemingly not as large.
This group is family and friends who are familiar with the founders and can obtain more information about the company (Cumming & Johan, 2009). Most of the time, these social networks have a local character, meaning that the funders are geographically close to the entrepreneur. Because of this, the information asymmetry is smaller, which increases the probability of funding (Lin, Prabhala & Viswanathan, 2013). The closeness of investors is also seen in venture capital (VC) investments. These companies tend to invest in companies that are close to their firms. Sorenson and Stuart (2005) found that VC investments are conducted within a range of 70 miles on average. Online investing, like crowdfunding, is less sensitive to
11 geographical proximity and has therefore a higher information asymmetry, family and friends excluded. However, research by Crowdfundmarkt.nl (2017) found that 95% of investors in the Netherlands invested in their own province.
Most projects are from companies where there is a lack of publicly available information, which makes it difficult for investors to evaluate the feasibility of the project (Mollick, 2014).
This is mainly because the companies are relatively new and do not have a benchmark.
Entrepreneurs tend to be too optimistic about their own firms (Baron, 1998), or they may withhold important information. Normally, with online purchasing one can look at the reviews of the company; in crowdfunding, this is rather limited. For this reason, platforms can play an important role as a trustworthy intermediary. One could argue that the platform should be the gatekeeper for the quality of the projects. In Section 5 of this chapter, the role and responsibilities of the Dutch Autoriteit Financiële markten (AFM) and De Nederlandsche Bank (DNB) are described.
2.2 Types of Crowdfunding
There are four types of crowdfunding:4 donation, reward-based, lending, and equity model (Wati & Winarno, 2018, Belleflamme & Schwienbacher 2014). Donation, as its name implies, involves individuals donating money to the company. In reward-based crowdfunding, the investor usually provides a small amount of money to projects in return for some kind of reward. The size of this reward is a reflection of the amount provided and can include a simple thank-you card, a discount, putting the investor’s name on a ‘wall of fame’, or a produced version of the crowdfunded product. The lending model follows what banks do, which means that investors lend money with a repayment schedule and interest in return. The lending model
12 is the most commonly used in the Netherlands. With the equity model, the investor receives a stake or share in the company. Entrepreneurs who are looking for equity should be able to provide a proper business plan and willing to give up some of their voting rights. This thesis focusses exclusively on the loan-based model.
2.3 Gender Differences in Crowdfunding
Crowdfunding is online investing via a platform. Investing is seen as a man’s business and the internet is also seen as a men’s business. Therefore, most platforms face challenges in attracting female participants. In the beginning, the internet and online shopping was dominated by men.
Today, this is changing, and often more women than men engage in online activities. This is also due to the fact that there are several programs set up to attract women for tech jobs and online investing. This chapter describes the differences in risk appetite, the effects of a social campaign, and the influence of herding behaviour.
2.3.1 Risk Appetite
Hervé et al. (2016) investigated the motivations of (French) crowdfunders. They used data from a French platform (WiSEED) and found that (corporate) investing is dominated by men.
Ninety-three percent of the crowdfunders in their dataset are men. This is in line with previous research from Huang and Kisgen (2013), who reported that 94% of the CEOs in corporate investment firms were men. In the Netherlands, the same is true for angel investors, board members of private equity firms, and crowdfunding platforms. However, Johnson, Letwin, and Stevenson (2018) found evidence that women are more successful in crowdfunding projects because they are seen as more trustworthy. Hervé et al. (2016) investigated real estate and equity crowdfunding and argued that real estate crowdfunding is a less risky investment. They
13 concluded that women invest in less risky investments. Crowdfunding is seen as a risky activity, therefore women are less willing to take part in it. Cochrane (2001) stated that higher risk leads to higher interest rates. Real estate investment has, in general, a lower interest rate than an investment in a product or service with little to no collateral. Another characteristic is age; men tend to invest at a younger age then women do. According to Hervé et al. (2016), the average age of women crowdfunders is 47 and for men it is 42. This may be due to gender inequality in (full-time) jobs and salaries. There are more men who work in finance then women, and there are more women who work in cosmetics than men.
Mohammadi and Shafi (2018) found that women take less risks in their crowdfunding investments. Therefore, if platforms want to attract more women, they should take the risk component into account. Young firms (start-ups) have little to no history and therefore have a major asymmetry problem. Entrepreneurs tend to be too optimistic about their own company or present the value of the company as high and growing exponentially. This, in combination with the facts that there is limited information available and most crowdfund investors are not professionals like a venture capital or an angel investor, makes it difficult for crowdfund investors to make a valid judgement.
Previous literature discussed the proximity of (offline) investments in start-up ventures and argued that the investments tend be local due to the importance of reputation and trust. This is especially the case for investments where there are no regulatory disclosures and also because of distance‐sensitive costs associated with early‐stage investments (Sorenson & Stuart, 2001;
Seasholes & Zhu, 2005; Nieuwerburgh & Veldkamp, 2009). Agrawal, Catalini, and Goldfarb, (2015) argued that due to the rise of online investments (crowdfunding), distance is less important, although they argue that investments are still made close to home. This is also dependent on the information transfer from (offline) social networks to the online crowd.
14 Mollick (2014) found that network size, the location of the project, and quality signals positively affected a project's chance of success.
There is evidence of the benefits of a well-diversified portfolio to spread the risk among different sectors and countries (Grubel, 1968 and Solnik, 1974). They state that in international markets, one should diversify their portfolio to have better gains and a better diversified risk.
Entrepreneurs who look for capital via crowdfunding platforms tend to have multiple purposes.
They not only want to attract capital, but they also want to validate their product and see if there is a market fit. If the campaign, for whatever reason, does not reach the target amount there is probably no market fit. Most crowdfunding platforms active on the Dutch market are not internationally active, due to various rules and regulations. Therefore, for most investors it is hard to diversify the investment internationally. In order to diversify their portfolio, an investor can divide the investments over several sectors and via several platforms.
This leads to the following propositions:
P1. Male investors have more prior experience with investing than female investors.
P2. Male investors take more risk in investing in crowdfunding in comparison with women.
2.3.2 Social Campaigns
Women tend to make investment decisions based on emotions (Gorbatai and Nelson, 2015).
They score higher on tests related to the affective part of the brain such as emotion recognition, social sensitivity, empathy, and emotional intelligence (Adenzato et al., 2017). In crowdfunding, many projects have a social character5 where emotions about the product or
15 service are more important than the financial proposition. Crowdfunding projects cannot get their funding via regular channels. When projects have a social aspect, they are likeable, meaning investors want to invest in them. Investing via crowdfunding in relatively new companies is about the belief one has in a campaign or entrepreneur (Schonewille, 2019).
Additionally, women are willing to invest more in social campaigns, and in general, women are more easily influenced than men (Carli, 1989). Phillip and Suri (2004) found that women are more sensitive to social communication. This signifies that the entrepreneurs’ story on the crowdfunding site should make the proposition attractive to investors. Women think more about safety, liquidity, and profitability to earn a stable income, whereas men mainly think about profitability (Sellappan, Jamuna & Kavitha, 2013). Hence, to attract more female investors a viable marketing strategy is crucial. In addition, it is wise to attract female investors to the crowdfunding site because of the recent shifts in employment of women; more women now have jobs and earn their own money. They become financially independent and are willing to invest with their surplus money, in safe or likeable investments. This research investigates the effects of a social campaign and the perception of risk and tests if this holds true for Dutch investors.
In the Netherlands there are over 50 platforms, most of them see mainly men investing in crowdfunding (crowdfundmarkt, 2018). There is one Dutch platform that focusses on social campaigns, and it has a higher number of female investors. Currently, platforms have 80%
male investors and 20% female investors (F. van der Linden, personal communication, July 15, 2020), whereas the platform that focusses on social campaign has 60% of male investors and 40% of male investors (L. Rooseboom, personal communication, March 2, 2020).
Considering the risk and social aspects, the following propositions are developed.
16 P3. Male investors are rational (using the cognitive part of the brain) whereas female investors are emotional (using the affective part of the brain) when they invest.
P4. When there is a social campaign (based on social sensitivity and emotions), women look less at the risk component.
Herd behaviour means following others, in this case other investors. In this research, herding relates to how sensitive are investors towards the behaviour of other investors. When they invest, do the investors take the invested amount of the previous investor and the target amount into account. Previous research (Mohammadi & Shafi, 2018 and Astebro, Fernández Sierra, Lovo, & Vulkan, 2019) that investigated herd behaviour in crowdfunding found that in order to save time and resources, crowdfunders might rely on cues of the investment opportunities by observing other’s decisions. It concluded that female investors prefer following male investors because men are stereotypically seen as better investors and investing is a male- dominated field. They tested their model with data on investments made via a leading European crowdfunding platform. Another finding was that the amount invested depends on the previous invested amount and the time elapsed since the most recent pledge. According to Bandura (1977), it is unlikely that investors make decisions independently from others. Specifically in crowdfunding, investors follow funding decisions of other backers, as it is seen as a social process (Agrawal et al., 2015 and Mollick & Nanda, 2015).
Zhang and Liu (2012) found that herd behaviour in loan-based crowdfunding is increasing, meaning that from start there has been a somewhat linear increase in the invested amount.
Today crowdfunding is seen as a solid investment opportunity that is more accessible to a larger group. Therefore, for strong projects this linear increase can be quite steep, and the campaign
17 can be funded within a matter of days or even hours (AFM, 2017). This is in line with the findings of crowdfundmarkt (2017) who found that 42% of the investors decided to make their decision within 10 minutes. Female investors wait longer to invest, and men are more impulsive. Female investors prefer to invest closer to the end date of the campaign, mainly because women conduct more thorough research (Adenzato et al., 2017). This could also result from network effects when the critical mass is reached (Kemper, 2010), meaning that when the campaign is almost at the target amount, women perceive less risk and invest.
P5. Herding behaviour is stronger among female investors than male investors.
2.4 Role of Crowdfunding Platforms
Cumming and Zhang (2016) researched the role of crowdfunding platforms to determine whether they are active and effective intermediaries. They addressed what a platform does and whether that influences entrepreneurial outcomes and returns for funders. They found that the application of due diligence process has a strong positive influence on the success of fundraising and on the amount raised on the platform. This shows the value of the crowdfunding platforms as they make a distinction between stronger and weaker projects which can contribute to a positive, trustworthy reputation for the platform.
According to Belleflamme and Lambert (2014), crowdfunding platforms can better judge which projects are feasible for crowdfunding than individuals. Most of the time, the staff of the platforms have a background in finance and are able to mitigate the issues involved by information asymmetry. On the other hand, platforms can gain the trust of the crowd so they will be engaged in the campaign on the platform (Viotto, 2015). Platforms should act as trustworthy intermediates by carefully screening to ensure the quality and reliability of campaigns and entrepreneurs.
18 Not only can there be an adverse selection problem between the entrepreneur and the investor, but this can also arise between the platform and its investors or between the platform and its entrepreneurs. Although, mainly this will only count for the short term, as in the long term this problem will be solved. A problem can arise, for example, when the platform only charges a fee when they initially list a project. In this case, the platforms only has an incentive at the beginning of the campaign, and they do not have an incentive to make sure the entrepreneurs and the company do well.
As women are more risk averse, they need to be convinced that the platform is trustworthy in order to invest. When the online reviews of the platform are positive, one perceives less risk and is more likely to invest (Chatterjee, 2001). In general, there is a gender gap in the use of internet; this can be seen in online buying but also in online investing. This is mainly because women perceive more risk in buying or investing online (Bae and Lee, 2011). Women rely more on opinions of others and have a greater desire to be socially connected with others than men do (Garbarino & Strahilevitz, 2004). A crowdfunding platform can diminish the risk component with positive reviews and/or high-quality campaigns, and they should create a community feeling between the entrepreneur and the investors. This can be done by keeping investors informed on a regular basis, hosting events, providing discounted products, or giving goodie bags to the investors.
P6. Male investors care less via which platform they invest in than female investors do.
2.5 Rules and Regulations
Many countries are still struggling with the legislation of crowdfunding. This section provides a brief overview of the Dutch rules and regulations. The AFM provides platforms an exemption, so they do not need a license from the AFM or the DNB. They do check the board
19 of directors and verify that the governance is sufficient. Additionally, the platforms have to provide insight into their figures on a regular basis. In the future this may be stricter, but for the moment the AFM does not want to interfere with innovation in the financial sector (AFM, 2018).
The AFM (2016) researched how crowdfunders in the Netherlands perceive the risk of their investment. Their conclusion, based on preliminary outcomes, is that some investors underestimate the risk. The investors perceive the probability of default to be lower than 2.5%, in other words less than one out of 40. However, the risk is actually much higher. Furthermore, they found that 40% of respondents think that crowdfunding has a lower risk than the stock market and investment funds, which they argue to be doubtful as well.
2.6 Criticism of Crowdfunding
There is also criticism of crowdfunding platforms. Van Teeffelen (2019) argued that some platforms do not help the entrepreneurs when they provide a loan, because they charge excessively high interest rates to entrepreneurs who are technically bankrupt.6 For example, Funding Circle’s interest rates are over 15%, and companies are often unable to repay this.
Koren (2019) argued in the same article that the business model of some of the platforms is incorrect. The platform receives a commission when they launch a project. This commission is based on the amount of the loan; the higher the loan the higher the commission. Consequently, the platform cares less about the performance of the loan or the outcome for the company or investor. Some platforms have changed their business model to collect fees during the period
6 https://www.rtlz.nl/business/artikel/4735696/mkb-crowdfunding-funding-circle-colin-hoge-rente-schuld- failliet
20 of the loan. This is a more sustainable business model because the income of the platform is dependent on the performance of its crowdfunding campaigns.
21 3. Research Design
In this chapter, the methods of this research are explained. There has been a careful selection to make sure there is a fit between the method and the research question. This chapter also describes the research philosophy, propositions and conceptual model. Research design is the
‘general plan of how you will go about answering your research question’ (Saunders, Lewis &
Thornhill, 2016 p. 163). The research design uses a framework that contains methods of collecting and analysing the data that are derived from the research question.
3.1 Research Philosophy
Research philosophy refers to a system of beliefs and assumptions about the development of knowledge (Saunders et al., 2016). In writing a master thesis, the writer always makes assumptions about the realities in the research (ontological) and assumptions about the human knowledge (epistemological), whether they are aware of it or not. Mohammadi and Shafi (2018), using quantitative data, found gender differences in risk aversion and argued that future research should more thoroughly explore the motives of crowdfunders. Therefore, this research uses qualitative data to attain a better understanding of the respondents’ thoughts, feelings, and opinions. This leads to an ontology and epistemology that needs to be assessed from an interpretive philosophical stance. The truth depends upon meaning attached to it by ‘insiders’
or natives’ perspective of reality’ (Fetterman, 2010: p. 20). Ontology is analysing the essence of things to determine the meaning of a concept (Goertz & Mahoney, 2012).
3.2 Theory Development
This research is conclusive and uses a multiple case study to research the gender differences of crowdfund investors. To answer the research question, the researcher is interested in the
22 emotions, feelings, and opinions of the respondents; therefore, qualitative research is most applicable. As Saunders et al. (2016) stated, qualitative data can reveal the how and what but also emphasises the why. This aligns with the pragmatism ontological approach which is interested in feelings and emotions. The propositions derived from the literature review need to be tested, therefore interviews with male and female crowdfund investors are held in order to analyse gender differences. The study explores the differences between the two groups and takes the moderating role of social impact entrepreneurs into account. The thesis concludes with managerial recommendations for crowdfunding platforms.
3.3 Research Strategy
The research strategy is ‘a general plan of how the research will go about answering the research question’ (Saunders et al., 2016, p. 726). In this case, a multiple case study is used.
Using a multiple case study provides stronger and more reliable results (Saunders et al., 2016).
The data is collected through purposive sampling, and the technique relies on the judgement of the researcher when selecting participants. The investors must have used one of the top 10 crowdfunding platforms in the Netherlands, meaning that they have invested via a professional platform that has existed for at least five years and collected over 10 million euro in funding.7 Additionally, the investors must have invested in more than three projects, live in an urban area (Randstad), and have an income of over 50,000 euro. This ensures a reliable representation of the crowd and credible results.
7 https://www.crowdfundingcijfers.nl/crowdfunding-platforms/ (updated July 14, 2020)
23 3.4 Research Methods
Because this research is qualitative and conclusive in nature, semi-structured interviews are most suitable. They can help gather valid and reliable information that is relevant to the research question and objectives (Saunders et al, 2016). The researcher has a guideline for the questions, so each interview has the same structure. Not every respondent reacts or understands the question in the same way, therefore the researcher sometimes has to reformulate the question and ask for clarification as to what the respondent means by their answer. Semi- structured interviews are based on the respondents’ experiences and personal beliefs on the researched subject. This is seen by Yin (2014) as the main advantage, as the researcher can obtain more detailed information as compared to other methods.
The following propositions were distilled from the literature.
P1 Male investors have more prior experience with investing than female investors.
P2 Male investors take more risk in investing in crowdfunding in comparison with women.
P3 Male investors are rational (using the cognitive part of the brain) whereas female investors are emotional (using the affective part of the brain) when they invest.
P4 When there is a social campaign (based on social sensitivity and emotions), women look less at the risk component.
P5 Herding behaviour is stronger among female investors than among male investors.
P6 Male investors care less via which platform they invest than female investors do.
24 3.6 Conceptual Model
This paragraph describes the conceptual model, which is the backbone of the master thesis.
The phenomenon examined is the difference between men and women in loan-based crowdfunding and, in particular, the difference in risk perception and the influence of a social campaign. The thesis also investigates gender-based differences in herding behaviour and the influence of the platform in the investment decision. The conceptual model is presented in Figure 1. The model is based on the literature review and propositions.
Figure 1. Conceptual Model
3.7 Sample Design
Saunders et el. (2016) argued that the researcher has to select a sample of the population, because it is impossible to collect and analyse all available data due to restraints related to time, costs, and access to the population. Therefore, the researcher selected a sample of eight male and seven female investors who crowdfunded at least three companies in the Netherlands.
25 The respondents are strategically chosen. By using this heterogeneous sample, the researcher supposes that the saturation point is reached with the aforementioned number of interviewees.
According to Saunders et al. (2016), one can speak of a heterogeneous sample when the sample includes various characteristics that provide the maximum variation possible in the data collected.
3.8 Design of Data Collection
The researcher made a protocol to guide the interviews. The questions are conducted is such a way that the respondents have to use their imagination, for example: ‘What would your ideal project look like?’ Most of the questions are open-ended questions, while some are closed- ended questions to guide the respondents. The questions are interested in the feelings and emotions of the respondents. Fourteen of the 15 interviews were conducted in the office space of either the researcher or the respondent, and one interview was held by phone. Because most questions relate to the opinions and feelings of the respondents on a subject (crowdfunding) rather than on their work or manager, they could speak freely. All interviews were recorded with the Dictaphone app and transcribed with Amber Transcript. The transcriptions were sent to the respondents to check if the transcription gives a valid representation of the interview.
To make sure the interviewees understand the questions, a pre-test was held with three women and three men; this is required to achieve validity. Because the questionnaire had been tested
26 by a professional, the pre-test did not have a major impact on the questionnaire. Some minor changes were made and added to the interviews that were already held.
27 4. Data Collection
This research is conclusive in nature and uses qualitative data gathered in semi-structured interviews with crowdfunders, as well as documentation of crowdfunding sites and interviews with board members of crowdfunding platforms. ‘Qualitative research is an amorphous, multi- dimensional field which forbids any easy single definition or set of definitions’ (Morrison, 2014, p. 328). Saunders et al. (2016) argued that this method is preferred when the researcher wants to explore and gain a better understanding of the subject. Using multiple independent data sources is called triangulation (Saunders et al, 2016), and it is used to ensure different angles are taken into account.
4.1 Data Collection Methods
Semi-structured interviews have an open structure; there is a guideline, but the researcher can ask the interviewee more in-depth questions (Bartholomew, Henderson, & Marcia, 2000). The researcher chose semi-structured interviews because they provide insight into the respondents’
perspectives regarding an experience related to the research problem (McIntosh & Morse, 2015). These interviews help the researcher to obtain a broad understanding of why the respondents make their choices and what their ideas are (the ‘why’, ‘what’, and ‘how’). The interview questions are listed in Appendix III. They are constructed in such a way that the first questions give the respondent time to use their imagination, and this is narrowed down to the topics of interest. With the first question, the researcher can gain insight into the motives of the investors to invest in crowdfunding.
All respondents are contacted via email or via telephone, asking them to participate in this research. The researcher ensures that the interviewees are at ease, in their natural environment,
28 and can speak freely about their experiences of their investments. The interviewees cooperate voluntarily and are chosen by purposive selection, via the network of the researcher.
Possibly the most important element in conducting semi-structured interviews is preparation.
The researcher should know what they are talking about in order to get the right answers and more in-depth research (Saunders et al., 2016). The researcher read the literature on the research topic and contacted several professionals in crowdfunding. This includes founders of platforms, entrepreneurs who performed a successful campaign, employees of various platforms, regulatory offices such as the DNB and AFM, and news articles about crowdfunding. The researcher chose not to send any information to interviewees other than the aim of the research and the research problem. The researcher wants real answers from the respondents and not prepared, socially acceptable answers.
4.3 Reliability and Validity Measures
This paragraph evaluates the research method and provides an overview of the reliability and the validity of the research. In addition, the ethical concerns are described.
The reliability of the construct determines how consistent results are across measurement. The level of reliability depends on whether it is possible to obtain the same results by replicating this research (Saunders et al., 2016). A high level of reliability is preferred, as it shows the trustworthiness of the analysis. Because qualitative studies use a non-standardised method and a small sample, they are not necessarily generalisable. In this research semi-structured
29 interviews are used, the interviews are recorded, transcribed, and sent to the respondents to approve. This guarantees that the collected data is reliable.
The validity refers to the question: do your constructs indeed measure what they purport to measure? In other words, is the data collected relevant for answering the research problem? Is the analysis of this data accurate? Saunders et al. (2016) distinguished between internal and external validity.
184.108.40.206 Internal Validity
Internal validity refers to the degree to which a theoretical model captures actual cause and effect relationships. The setup of the interviews (semi-structured) leaves room for the interviewer to ask probing questions if the respondents’ answers are incomplete or not satisfactory to the interviewer; this strengthens the internal validity (Saunders et al., 2016).
This is also done to prevent the researcher from misinterpreting the answers. To support the confidence of this research, the researcher ensures that the results are the outcome of a legitimate process (Bauer & Gaskell, 2000). Another problem that can arise is the way respondents perceive the questions. Although the researcher checked the questions in advance with a professional and did a pre-test with several interviewees, still there is a possibility for the respondents to misunderstand or misinterpret a question. If this was the case, the researcher provided extra information about the question in order to get the right responses to the questions. The researcher also tries to improve the internal validity by phrasing each question similarly to each respondent. Lastly, the researcher tried to avoid leading and guiding questions to make sure the respondents are not influenced by the interviewer.
30 220.127.116.11 External Validity
External validity refers to the question of whether the results can be generalised. This research is conclusive and therefore qualitative of nature, meaning that it uses a relatively small sample, which makes it hard to generalise (Gehman et al., 2018). Generalisability determines the extent to which conclusions can be held valid across the population. The purpose is to explore this new phenomenon, gain insight into the differences between men and women concerning the phenomenon, and come to a conclusion as to how to deal with these differences.
To summarise, there might be issues in qualitative research which can decrease the reliability.
As mentioned above, these issues are difficult to solve and therefore it can be hard to measure the level of reliability. However, the researcher believes that the necessary work has been done to limit the issues concerning reliability.
4.3.3 Ethical Considerations
In research, there can be ethical challenges. The researcher had to ensure the interviewees were at ease; in doing so, the researcher choose to conduct the interviews on a location of the interviewee’s choice. At the beginning of each interview the researcher ensured the interviewees were aware that the interviews would be recorded, treated confidentially, and anonymized. Thereby, interviewees would feel at ease to speak freely about their experiences.
The interviewees cooperate voluntarily and are gathered by the network of the researcher. The first contact with the respondent is via mail or telephone. Here the researcher tells why the interviewee is selected and the reason of the research. At the beginning of each interview the researcher tells the interviewee (again) that the interview will be recorded and that the interview is anonymous.
31 4.4 Case Study
When conducting research, it is important to choose an appropriate strategy to achieve methodological coherence. This research uses a multiple case study in order to attain an in- depth understanding of the differences between male and female investors in crowdfunding.
Benefits of a multiple case study are that the researcher can analyse the data within and across the cases. This is done to gain a better understanding of the similarities and differences between the cases and therefore provides more compelling results (Yin, 2014). The evidence from a multiple case study is seen as strong and reliable, and the researcher can describe if the outcomes are valuable or not. The researcher believes a multiple case study is suitable for this research as there are two groups, men and women, under study. If the research only included one group, not all the elements are included, and one could not write a correct conclusion from the results. Yin (2014) distinguished case study designs in holistic and embedded case study designs. This research uses a holistic design.
This thesis uses qualitative data gathered via semi-structured interviews with crowdfunders.
There are interviews with eight male crowdfunders and seven female crowdfunders. Besides the crowdfunders, information about Dutch crowdfund platforms will be analysed. The information gathered from the platforms is used to check if they see the same characteristics as this research findings. Additionally, they can provide general information about the (crowdfunding) market and determine they decide which campaigns to accept.
32 5. Data Analysis
Each transcribed interview is approximately eight pages of text; an example of a transcription can be found in Appendix IV. All of the interviews, except for one, were held in person to make optimal use of verbal and nonverbal communication and in doing so to reduce biases.
One interviewee was not able to meet face-to-face, therefore a call was arranged. The transcriptions were carefully reviewed and, if necessary, the researcher contacted the interviewee for additional comments, which were then added to the interview. The full transcriptions were sent to the interviewee for a review. The researcher decided to use a thematic analysis to structure the data, which is one of the most commonly used in qualitative research (Saunders et al., 2016). Key themes were identified from the data, from which subthemes are derived which are used for further analysis.
In order to code the text, Nvivo was used. It is a software program that can help analyse the text and make nodes and word clouds. In Appendix V, the results of Nvivo are presented. Some interviewees named sustainability, doing good in the world, or setting up foster homes as examples of social entrepreneurship, these are clustered in Nvivo under the name “ Social campaign” .
As mentioned above, the data was collected through interviews, but the researcher also took into account publicly accessible interviews with entrepreneurs who crowdfunded their company, interviews with crowdfund coaches, and news articles. This was done to enrich the outcomes of the interviews, reinforce the storyline, and enrich the research (Campbell & Fiske, 1959).
33 6. Research Results
This chapter presents the findings of the interviews and provides an overview of the responses given. There is a distinction between the two groups (men and women) to identify the similarities and differences between the two groups. This is done for each proposition. The six propositions in this research are presented below in Table 1 with the degree of support. In the subsequent paragraphs, they are described in greater detail.
P no. Proposition Degree of support
P1 Male investors have more prior experience with investing than female investors.
Poorly supported P2 Male investors take more risk in investing in crowdfunding in
comparison with women.
Partly supported P3 Male investors are rational (using the cognitive part of the
brain) whereas female investors are emotional (using the affective part of the brain) when they invest.
P4 When there is a social campaign (based on social sensitivity and emotions), women look less at the risk component.
Poorly supported P5 Herding behaviour is stronger among female investors than
among male investors.
No support P6 Male investors care less via which platform they invest in than
female investors do.
Table 1. Degree of Support per Proposition
Degree of support Percentage of respondents Iconic
Strong support > 75% ++
Supported >50% - <=75% +
Partly supported >25% - <=50% +/- Poorly supported >0% - <= 25% -
No support 0% --
Table 2. Legend of Table 1
6.1 Experience in Investing Prior to Crowdfunding
Most of the respondents had investment experience previous to crowdfunding investments, aside from two female investors who did not have any experience at all. The experience prior to investing in crowdfunding differs in the fact that male investors invested in more products
34 and generally made riskier investments. Three male investors stated that the first investments they made were in products such as turbos, options, exchange-traded funds (ETF), or futures.
These are generally seen as risky investments. All of them said they lost money in these products and are now investing in less risky investments. None of the female investors reported having made any risky investments.
‘I invest in shares, turbos, options, and ETFs. Actually, I have had all of the most common products. But I stopped with most of them, as I have noticed that when you are young and naïve you want to take more risk. But in the end that is definitely going wrong’ (R male 6).
‘I have an investment portfolio with four stocks but more the regular and reliable ones like Shell, Heineken, and Ahold. These are more the established companies and therefore to me not very exciting’ (R female 2).
‘I have zero experience; I have never invested before’ (R female 1).
Three of the interviewees (two men and one woman) reported that they trust a third party to invest their money (i.e., a fund manager who controls the fund). The investors can choose a sector, and the fund manager buys and sells the funds.
‘I try to avoid having too much money in a savings account. Most of the investments are in a fund, which is managed by a fund manager’ (R male 2).
‘I have an account with the bank, but I actually left it there and got advice of the asset manager. So I do not have to pay a lot attention to it’ (R female 4).
There is poor support for Proposition 1, but there is a gender-based difference in investment strategy. The first investments of male investors are generally riskier with turbos, ETFs and options, whereas female investors invest via a fund manager or in more reliable and stable stocks. Three male respondents stated that they lost money with their risky investments and looked for a safer investment opportunity. At the beginning of crowdfunding in 2009, most investors were male. This is still the case where Collin Crowdfund and CrowdAboutNow have approximately 80% male investors and OnePlanetcrowd, which is focussed on social
35 entrepreneurs, approximately 60%. Most entrepreneurs are also male. This differs per platform, but on average the divide is 80% male and 20% female based on the answers of the respondents.
This is in line with the findings of Hervé et al. (2016) and Huang and Kisgen (2013) who found that the investor field is dominated by men and that male investors start at a younger age. This is also in line with the findings of Mohammadi and Shafi (2018) who concluded that women opt for less risky investments.
6.2 Risk Appetite
Taking the risk component into account, there is a difference between male and female responses. This can be mainly seen in which sector they invest, where start-ups and IT companies are characterised as riskier investments than companies with a track record or companies in real estate. Of the eight male investors, five said that they also invest in start-ups, and of the seven female investors, one invested in start-ups.
‘I also look at the collateral that is given by the entrepreneurs, so I want to make sure that I will get my money back in case of a bankruptcy. One way or the other’ (R male 1).
‘The companies I invest in are often start-ups, in fact all of them. [… ] For me it is important that the product is very clear and that I understand what they are doing. An IT campaign is not something I would invest in, for me these types of companies are harder to understand and therefore too risky. [… ] another important aspect of investing is that you should spread your risk, not only in different campaigns but also via several platforms’ (R male 4).
‘Taking the risk component into account, I mainly look at the external risk score (Dun
& Bradstreet) that the platforms gives; this gives me some comfort. I have a preference for start-ups as you can use your imagination to where the company might end [… ] I mainly look at higher returns, which automatically have more risk’ (R male 5).
‘In the beginning I invested in more tech-oriented campaigns, but I changed my strategy because in my opinion those are too risky for loan-based crowdfunding. These are better suited for equity investments’ (R male 6).
‘I would not invest in start-up companies; they are too risky. [… ] Another important aspect concerning risk is how many other investors already invested and how fast the campaign goes’ (R female 4).
‘I am looking for low risk investment, Collin provides an external credit score (Dun &
Bradstreet) and only if this is acceptable for me I’ll consider investing. Therefore, I would not say I fully trust on the platform, because I also take external validity measures into account’
(R female 5).
‘Based on the experience of the entrepreneur(s) and the company, I make a judgement whether the risk is acceptable for me. The narrative has to be very clear to me and I have to understand what they are doing. I would not invest in start-ups’ (R female 2).
Male investors take more risk in investing. The answers given in the first proposition show that male investors invest in more risky investments (e.g., futures, options and turbos). As Hervé et al. (2016) argued, investments in start-up companies are high risk investments, and five of the male respondents invested in start-ups versus one female.
Grubel (1968) and Solnik (1974) argued that an investor should diversify their portfolio in order to have a better spread of risk. Six male investors versus three female investors explicitly diversified their portfolio via investments in several industries rather than over different platforms. This could be because the research participants invested via well-known platforms.
Sorenson and Stuart (2001) claimed that the distance between the crowdfunder and the company is key due to the importance of reputation and trust. The results do not show a difference in gender; three male and four female investors took distance into consideration.
6.3 Rational vs Emotional
All of the respondents felt that the entrepreneurs and their story are the most important aspect of crowdfunding campaigns (i.e., the previous experience of the entrepreneur, as well as the marketing story of the product or service). However, there are differences. Six of the eight male respondents took the financials and the collateral of the company into account, versus two and four of the female respondents, respectively. Additionally, women look more to the type of product and the marketing of the campaign (six of the seven female respondents versus four male investors).