crowdfunding paper
TRANSCRIPT
Research paper
Investor motivations behind startups crowdfunding
Comparative study donationbased & equitybased
Authors: Larry Mikano, Xiaofang Zhang, Tom
Vermeersch, Yong Wang
Course Leader: Lena Olaison
Examiner: Rana Mostaghel
Semester: VT16
Course:Managing Innovation and Entrepreneurship
Degree: Marketing Master Program
Course Code: 4FE125Final paper
Abstract
Crowdfunding can be seen as nascent and disruptive to traditional methods of raising finance.
Through platforms such as kickstarter, Indiegogo and Fundable, entrepreneurs, as well as
startups can solicit funds either large or small from an extensive network of individuals/
investors around the world. The purpose of this study is to examine the motivations behind
investors participating in crowdfunding for startup companies: comparative study of
equitycrowdfunding and donationbased crowdfunding. Motivation variables of altruism, fun &
enjoyment, tangible return, financial return & gain and subjective norm were explored to explain
behavioral intention of the "crowd. " The Theory of Reasoned Action was adapted as the
explanation for behavioral intention of investors participating in crowdfunding. These
motivations were tested in the frame of a quantitative study, through a webbased survey. Using
a sample of eightytwo respondents and testing eight hypotheses, the results for donationbased
crowdfunding show that both altruism and fun & enjoyment have a positive influence on
investors intention to participate. For equitybased the variables altruism, fun & enjoyment and
tangible return are proven to have a positive influence. This supports past and existing literature
that shows these variables as important motivators. Both results and literature offer additional
insights into existing crowdfunding research and can help explain important motivation
determinants that can potentially be applied to different crowdfunding methods. In addition, the
conclusion present practical implications for entrepreneurs and startups considering choosing
the crowdfunding alternative.
Keywords: Equitybased Crowdfunding, Donationbased Crowdfunding, Motivation, Startups,
1. Introduction
Entrepreneurs and startup companies face many challenges when it comes to raising capital in
the initial stage to fund new ventures. The emergence and new phenomenon of crowdfunding has
been able to circumvent the complexities involved to secure funds acting as a new source of
finance for individual founders (Belleflamme et al., 2012). Startup's no longer need to rely on
traditional private equity providers such as business angels or venture capitalists to back products
or service offerings. Crowdfunding is a nascent trend, changing how capital is allocated and
prevails as a viable alternative in streamlining external funds to entrepreneurial ventures
(Belleflamme et al., 2013). It has become instrumental in providing support for both commercial
and charitable purposes (Choy and Schlagwein, 2016).
Crowdfunding draws inspiration from concepts like microfinance (Morduch, 1999) and can be
seen as a form of crowdsourcing (Poetz and Schreier, 2012; Bretschneider et al., 2014) which
allows individuals or firms to obtain ideas, solutions or content of specific problems through
soliciting contributions from a large network of people (Howe, 2008; Kleeman et al., 2008).
Crowdsourcing also allows individuals to communicate and collaborate with each other through
social media platforms involving a product or solution development (Shen et al., 2014). This can
also be explained in the case of crowdfunding which is facilitated by a growing number of
internet sites such as kickstarter, Indiegogo, Fundable and Angelists dedicated to different
crowdfunding methods as well as initiatives such as business and entrepreneurship, social causes,
films and performing arts and other distinctive categories.
Schwienbacher and Larralde (2010) defines crowdfunding as “an open call, essentially through
the internet, for the provision of financial resources either in form of donation or in exchange for
some form of reward or voting rights in order to support initiatives for specific purposes"
(Mollic, 2013, pg.2). However, as crowdfunding continues to expand covering multiple facets a
broader definition is needed to include new disciplines. For the purpose of this paper with an
emphasis on entrepreneurs and startup companies, crowdfunding can be seen as the efforts by
entrepreneurial individuals and groupscultural, social, and forprofit to finance their ventures
through drawing on relatively small contributions from a large audience utilizing the reach of the
internet without standard financial intermediaries (Mollic, 2013). Griffin (2012) differentiates
between four different forms of crowdfunding: donationbased, rewardbased, lendingbased and
equitybased which offer opportunities for various projects and ventures to be seen and funded
by the online community.
Globally, crowdfunding has seen an accelerated growth in 2014, increasing by 167 percent to
achieve $16.2 billion raised altogether in contrast to figures of $6.1 billion in 2013
(Crowdsourcing, 2016). Growth can be attributed to Asia as a developing region with the
industry set to reach $3.4 billion in funds raised propelling the continent to second place ahead of
Europe (The Economist, 2015). Collectively, the global crowdfunding market is expected to
reach $34. 4 billion in 2015 with North America leading as the largest market (The Economist,
2015).
For startup companies, the solution of crowdfunding in tackling financial barriers in the early
stage also presents another dilemma that requires careful consideration and thought – the
different alternatives offered. Individual entrepreneurs are plagued with what method to use in
order to achieve a successful campaign which then presents the challenge of how to motivate
funders to invest in projects. Past scholars have addressed the issue to investigate crowd's
motivations behind campaigns (Lehner, 2012; Moritz and Block, 2013) since motives in startups
differ from motives within crowdsourcing schemes (Bretschneider et al., 2014). Subsequently,
this has led to triumphant commercial campaigns and motivations of donors receiving wide
attention in the following literature (Bradford, 2012; Bretschneider et al., 2014; Kuppuswamy
and Bayus, 2013; Rossi, 2014; Schenk and Guittard, 2011). Specific crowdfunding methods have
also been explored and researched such as rewardbased (Zheng et al., 2016) and equitybased
(Bretschneider et al., 2014; Mortiz et al., 2015). However Belleflamme et al. (2012) is one of the
few papers comparing two different forms of crowdfunding: preordering the product versus
advancing a fixed amount of money in exchange for a share in profits.
All crowdfunding methods have pros and cons which can affect project outcomes which this
paper seeks to address. Focusing on two specific methods – equitybased crowdfunding and
donationbased crowdfunding demonstrates both the advantages and disadvantages gained by
entrepreneurs. Equitybased crowdfunding has become increasingly popular with startup
companies and has the potential to raise large amounts (Bretschneider et al., 2014). Though its
relatively new and is subject to legal regulations it is gaining momentum especially with the
increase in entrepreneurship and business ventures within the global crowdfunding sector (The
Economist, 2016). However, donationbased crowdfunding differs with very limited regulatory
restrictions as entrepreneurs retain full ownership. Despite this, it can be less attractive for
investors as it’s more suited to causedbased projects (Josef and Merri, 2015) and barriers to
entry are extremely low making it difficult to distinguish products and services and gain attention
from potential investors (Return on Change Blog, 2014). In light of the limited research, the
purpose of this study is to examine the motivations behind investors participating in
crowdfunding for startup companies: comparative study of equitycrowdfunding and
donationbased crowdfunding.
In this study, the motivation theory focusing on intrinsic and extrinsic motivations (Ryan and
Deci, 2000b) will be employed as it is deemed as both relevant and helpful in understanding
crowdfunding literature and investor decisions primarily within equity and donationbased
crowdfunding. In addition, the Theory of Reasoned Action (TRA) will be adapted as it can be
used to explain the intention model (Fishbein and Ajzen, 1975) as well as exploring the
relationship between attitudes of the different motivations and behavioral intention to participate
in crowdfunding.
2. Literature Review
This section will first provide comparative literature on both equitybased crowdfunding and
donationbased crowdfunding. In addition, the TRA will be discussed to support the dependent
variable of “Intention to use” crowdfunding. Lastly, literature on the motivation theory will
precede which will cover intrinsic and extrinsic motivations as well as highlighting the five
independent motivation variables.
2.1 Equitybased Crowdfunding
Since 2010, equitybased crowdfunding has experienced rapid development (Tomczak and
Brem, 2013) in comparison to other forms of crowdfunding methods which have emerged as
early as 2000 (Mortiz et al, 2015). The market witnessed an increase of 182% to $1.1 billion in
2014 (Marketwire, 2016) and past research addressed the expected improvement when
regulations leave pending status (Bretschneider et al., 2014). The JOBS (Jumpstart Our Business
Startups, 2012) Act in the U.S. can also be explained as one of the drivers in facilitating the
increase in funds raised by startups within equity crowdfunding platforms (Ahlers et al., 2015)
as well as stimulating the industry’s growth (Jian and Shin, 2015). Equitybased crowdfunding
differs from other methods as it sees a group of small investors provide young startups with
funding via the internet in exchange for shares in the company which can be described as a new
promising way to increase startup financing (Ahlers et al., 2015). Bretschneider et al. (2014)
defines this method as involving financial returns that includes equity, equitylike shares or
dividends. The main benefit of equity crowdfunding is that investors have the opportunity to
share in the profitability of a new venture which makes it more attractive to a large number of
investors (Josef and Merri, 2015). However, Josef and Merri (2015) also highlights the
probability of a loss of the investment occurring in the aftermath which makes the risk higher in
comparison to donation or reward methods. Equitybased crowdfunding has been shown to be
prevalent within Europe in markets of Austria, Finland, Germany, The Netherlands, Sweden and
the UK (ECN, 2014). Factors that have contributed to the success of equitybased crowdfunding
campaigns for ventures in past research include having better networks, a clear exit strategy, the
existence of a financial plan and the age of the capitalseeking venture (Ahlers et al., 2013).
Equitybased crowdfunding also involves legal barriers and high levels of regulations
(Heminway and Hoffman, 2010), that affects both investors and entrepreneurs. Schwienbacher
and Larralde (2010) discuss the limits to how many investors a company can have in many
countries which creates significant legal limitations to crowdfunding initiatives (Belleflamme et
al.,2012). Despite legal limitations, Belleflamme et al. (2012) past research through examples
from Seedmatch (German equitybased platform) shows how several entrepreneurial companies
have been successful with crowdfunding campaigns raising up to one hundred thousand euro's.
This demonstrates the potential equitybased crowdfunding has in attracting the crowd as equity
investors and having the possibility to raise extensive capital propelling startups.
2.2 DonationBased Crowdfunding
In contrast to equitybased crowdfunding, donationbased differs due to the fact that donors do
not receive any explicit financial returns which can also explain different motivations behind
investors (Jian and Shin, 2015). Funders either donate to causes motivated by philanthropic
behaviour and sponsorship incentives (Ahlers et al., 2013) or based on supporting new startups
to help fund projects and new innovations. Figures from Massolution shows that donationbased
crowdfunding grew by 45% in 2014 (Marketwire, 2016). Despite equitybased crowdfunding
becoming more popular (Bretschneider et al., 2014) as well as important for startups financing
(Josef and Merri, 2015) and rewardbased being used more frequently (Mollic, 2013;
Belleflamme et al., 2012), donationbased crowdfunding means not having to give up partial
ownership for new ventures. Moreover, the degree of uncertainty is less influential in contrast to
other types of crowdfunding, due to the fact that donors presumably already have positive
opinions (Ahlers et al., 2013). As a potential method for startups in raising capital,
donationbased crowdfunding can be seen as less complex from a legal standpoint (Ahlers et al.,
2013). It offers very limited regulatory restrictions in comparison to equitycrowdfunding. Josef
and Merri (2015) also states that it is less risky, however it can be difficult to raise a lot capital
using this method as a result of the lack of return (World Bank, 2013).Though past research has
primarily shown donationbased to be typically linked to charitable crowdfunding (Choy and
Schlagwein, 2016). Mollick (2013) corroborates this, explaining how crowdfunding efforts such
as art or humanitarian projects are driven by a patronage model positioning investors as
philanthropists, who expect no monetary return for donations. Focusing on the donation model,
"such types of systems are usually studied by scholars under the framework of collective actions,
which, by definition, are ‘‘actions taken by two or more people in pursuit of the same collective
good’’ (Marwell and Oliver, 1993, pg.4; Jian and Shin, 2015, pg.168). Irrespective of the
different methods and in this case equity and donationbased, all forms of crowdfunding
maintain similar principles, in that funders are investing with the hopes of achieving a successful
outcome (Mollick, 2013). Though startups might find donationbased as more appealing in
preserving full control of the business trajectory.
2.3 Intention to use
Fishbein and Ajzen’s (1975) theory of reasoned Action (TRA) has been extensively researched
and recognized as an intention model to explain behavior across a wide spectrum (Davies et al.,
1989). It has been used to examine the relationship between individual attitudes and behavior
(Ajzen, 1988) and TRA has been shown to be a useful model to predict behavioral intentions or
behavior (Sheppard et al., 1988). According to TRA, “a person’s performance of a specified
behavior is determined by his or her behavioral intention to perform the behavior and is jointly
determined by the person’s attitude and subjective norm concerning the behavior in question”
(Davies et al., 1989, pg.983). Fishbein and Ajzen’s (1975) further describes attitudes as a
person's positive or negative feelings in regards to performing the identified behaviour. For this
paper we focus primarily on attitudes and not subjective norms. Davies et al. (1989) research
which employed the use of TRA and Technology Acceptance Model (TAM) showed the positive
affect attitude (part of the TRA construct) has on behavioral intention. This is also
corroborated in Bock et al. (2005) research with results showing that the more favorable the
attitude the greater the intention will be. Subsequently, TRA can be used as a determinant of
measuring behavioral intention to use crowdfunding which is represented as a dependent
variable. In this case, the positive attitudes experienced by investors from both extrinsic and
intrinsic motivations can ultimately influence the intention to participate in crowdfunding for
both equitybased and donationbased crowdfunding for startups.
2.4 Motivations Theory
Motives of crowd investors are determined by the particular crowdfunding model which results
in dissimilar information needs (Cholakova and Clarysse, 2014; Gerber et al., 2012; Ordanini et
al., 2011). This means for startups, that funders will experience different motivations to invest
with different crowdfunding methods offered. Bretschneider et al. (2014) states that it is crucial
to understand why funders invest in startups which seeks to explore the issue of motives behind
individual actions and behaviour. To better understand the interaction between humans and
technology based on IT charitable crowdfunding, Choy and Schlagwein (2016) also found the
use of implementing the motivation theory in order to understand investors drive behind
campaigns. Deci et al. (1991) defines motivations as the degree to which individuals are
encouraged to perform a particular action and it can be seen as highly valued because of its
consequences (Ryan and Deci, 2000a). It prevails as a concept that has been widely studied in
psychology and many other fields (Jost, 2000; Ryan and Deci, 2000a, Ryan and Deci, 2000b;
Chris Zhao and Zhu, 2014; Choy and Schlagwein, 2016).
For the purpose of this paper we will draw attention to the particular motivation theory from
Ryan and Deci (2000b)’s “intrinsic vs. extrinsic motivation” model as this model is a widely
accepted and can shed valuable insight behind decisions to invest. The SelfDetermination
Theory (Deci and Ryan, 1985) can be shown as a foundation and point of reference for the study
of human motivation, distinguishing between intrinsic and extrinsic motivations. Intrinsic
motivation relates to doing an activity for its inherent satisfactions that can be characterized as
fun and challenging (Ryan and Deci, 2000b). Whereas, extrinsic differs as a result of motivations
for actions based on a separable outcomesuch as rewards or instrumental value (Ryan and Deci,
2000b). In all, both motivations constructs will be adapted to specifically analyze equity and
donations types of crowdfunding with eight hypotheses developed represented by five relevant
independent variables (altruism, fun & enjoyment, tangible return, financial return & gain and
subjective norms).
3. Frame of reference
3.1 Hypothesis Development
Intrinsic Motivations Crowdfunding can be seen as both novel as well as disruptive to traditional funding methods
(Mollic, 2013) which makes understanding motivations behind it important. Individuals can be
motivated because they value an activity personally or as a result of a sense of personal
commitment which is characterized as internal motivations (Ryan and Deci, 2000a). Focusing on
equitycrowdfunding, the drivers of investment decisions can be different compared to other
crowdfunding models (Mortiz et al., 2014) as a result of monetary expectations. Despite this,
altruism is a motive that can also be instrumental in influencing people's decisions to invest in
startups. Ozinga (1999) defines altruism as a selfless act that involves doing something for
another at some cost to oneself. It involves thinking of others and putting their interests first. It is
a construct that "has been researched in the contexts of open source communities and business
angel research" (Bretschneider et al., 2014, pg.5). Previous research has also deemed it
significant as part of intrinsic in nature impacting individual participants motivations in equity
crowdfunding (Bretschneider et al., 2014) as well as crowdsourcing (Chris Zhao and Zhu, 2014).
In addition to contributing to investors within equitybased crowdfunding, the idea of altruism is
also comparable to donationbased crowdfunding, where donors want to help a cause or project
without expecting returns on their funds. Research from Jian and Shin (2015) on donationbased
crowdfunding showed altruism as emerging as one of the strongest selfreported motivations. As
mentioned earlier, the donation model can be considered as philanthropic in nature (Hemer, et
al., 2011) as it usually linked to charities. Though, this can be applied for people donating to
startups as crowdfundees behaviour motivated by altruism seeks to increase another person's
welfare and in this case help startups succeed.
Hence we propose the following motivation hypotheses:
H1: Altruism positively influences investors intention to fund startups in the context of
equitybased crowdfunding.
H2: Altruism positively influences investors intention to fund startups in the context of
donationbased crowdfunding.
Some scholars have characterized intrinsic motivation in terms of the task and activity being
interesting in relation to a person and the task (Ryan and Deci, 2000b). Deci (1971) looked at the
behavioral design of intrinsic motivation using two often used measures of free choice measure
and the use of selfreports of interest and enjoyment of an activity. Individuals that decide to
invest in equitybased crowdfunding can also do so as a result of personal enjoyment and
pleasure received. This is corroborated as fun and enjoyment of an activity have been mentioned
in the self determinationtheory as possible reasons of intrinsic motivation (Deci and Ryan
1993). Brabham (2008) and Stewart et al. (2010) both refer to perceived enjoyment and fun in
their research on crowdsourcing and more similar is Bretschneider et al. (2014) study on
equitycrowdfunding that applies both variables in the hypothesis. Therefore, fun and enjoyment
can be seen as a stimuli for individuals deciding to invest in startups throughout the process in
equitybased crowdfunding. In addition, Choy and Schlagwein (2016) research also found
intrinsic motivations (socialintrinsic) that includes enjoyment as leading to donors supporting
charitable crowdfunding campaigns. This can again be applied to donationbased in regards to
startups instead of charities. Consequently, despite differences behind equitybase (driven by
monetary return) and donationbased (dominated by philanthropic behaviour) the fun and
enjoyment investors experience throughout the crowdfunding process can also help increase their
decision to invest or donate in new ventures.
Hence we propose the following motivation hypotheses:
H3: Fun & enjoyment experienced when investing in startups has a direct positive influence
on investors intention to participate in the context of equitybased crowdfunding
H4: Fun & enjoyment experienced when donating to startups has a direct positive influence
on investors intention to participate in the context of donationbased crowdfunding
Extrinsic Motivations
External rewards received in extrinsic motivation can include nonmonetary incentives such as
the tangible product/service investors gain at the end of the crowdfunding process. Tangible
rewards are commonly offered to individuals as an incentive to take part in a behavior which the
individual may normally refuse to engage in (Deci et al., 2001). Bretschneider et al. (2014) states
that for equitybased crowdfunding, donors might invest so that the product or service of the
startup will subsequently both be adapted or developed according to the crowdfundees needs.
Where need is identified as the variable for motive, this paper identifies the tangible return as an
additional motive to monetary rewards in the case of equitycrowdfunding. In addition, the
donationmodel operates just like an ordinary donation and as mentioned earlier is altruistic in
nature by the investors (Hemer, et al., 2011). Despite this, extrinsic motive behind donors might
be based on contributing to causes that benefit their interests (Odendahl, 1990). Interests can also
include a crowdfundee desiring the product or services under development as an outcome after
contributing funds to startups. In contrast to charity crowdfunding, commercial crowdfunding in
startups differs as a reward is considered to be a major motivator and a necessity (Bretschneider
et al., 2014; Gerber and Hui, 2013). Following research from Choy and Schlagwein (2016) this
can be considered an individualextrinsic motive as investors are influenced by the tangible
return in the product/service at the end of the crowdfunding process. Therefore investors
underlying motives in expecting as well as desiring a new innovative product/service contributes
to their decisions to help startups in both equitybased and donation based crowdfunding.
Hence we propose the following motivation hypotheses:
H5: Tangible return in products/services from investing in startups has a positive influence
behind investor's intention to participate in equitybased crowdfunding
H6: Tangible return in products/services from donating to startups has a positive influence
behind investor's intention to participate in donationbased crowdfunding
Extrinsic motivation applies to actions that are influential which aims towards outcomes
extrinsic to the behaviour within itself (Deci and Ryan, 2000). As a sub theory to the Self
Determination Theory (SDT), Organismic Integration Theory (OIT) explains the distinct forms
extrinsically motivated behaviour is regulated (Ryan and Deci, 2000b). External regulation or
motivation is seen as the least autonomous and is based on reward contingency (Ryan and Deci,
2000a). Previous research discovered that financial rewards is instrumental in crowdsourcing and
prevails as one of the most important factors (Archak, 2010; Bayus, 2010; Brabham, 2010).
Bretschneider et al. 2014 also corroborated this by identifying obtaining a profit or capital gains
as an obvious motive for equitybased crowdfunding. In the case of equitybased crowdfunding,
individuals invest in startups primarily for monetary gains expected. Therefore the motivation is
inspired by the return on investment (financial return & gain).
Hence we propose the following motivation hypotheses:
H7: Financial return & gain has a positive influence on the investment intention in startups
related to equitybased crowdfunding.
Extrinsically motivated behaviors can be characterized as not being interesting which can mean
that the primary reason why people are likely to do a behavior is that they are valued by others
(family, a peer group, or a society) who are both important and a connection is shared between
the two (Ryan and Deci, 2000b). This leads us to the last antecedent explaining crowdfundees
behavioral intention which comes from subjective norms or social influence. Subjective norms
"are one’s perceptions or assumptions about others 'expectations of certain behaviors that one
will or will not perform" (Huda et al., 2012, pg.272). Chris Zhao and Zhu (2014) research on
crowdsoucring states that subjective norms play an important role in regulation of an individual’s
behaviour placing subjective norm under extrinsic motivation. In addition, Jian and Shin (2015)
research on donors motives behind crowdfunded journalism also identifies social influence
(friends and family) as contributing to the success potential of campaigns, which is also
consistent with findings from crowdfunding (Agrawal et al., 2011) and entrepreneurial finance
literature (Parker, 2009). The importance of subjective norms on behavioural intention is
transcendent across a wide scale of literature (Ajzen, 1991; Osman, 2014; Linden, 2011; Truong,
2009; Shien, 1998, Lim et al., 2011, Lee et al., 2010). Individuals can be influenced to donate to
startups as a result of their social networks, cultural norms and group beliefs which gives them a
sense of validation to make decisions. Socialextrinsic motivations have been used to explain
donor motivations in charitable crowdfunding (Choy and Schlagwein, 2016) which again can be
applied to donationbased that doesn't seek monetary rewards in comparison to equitybased
crowdfunding. Subsequently behaviour is affected by social influences.
Hence we propose the following motivation hypotheses:
H8: Subjective norms has a positive influence behind donor's investment intention related to
donationbased crowdfunding.
4. Methodology
4.1 Research approach & design
In this quantitative study, the researchers are aiming to examine the motivations behind investors
participating in crowdfunding for startup companies and testout hypotheses based on gathered
data. Therefore a deductive approach was used, since the main focus of deductive research is
testing the relationships between theory and research (Bryman, 2016). Research design can be
viewed as a map that links every aspect of the research direction to the research purpose (Aaker
et al., 2011). Fitting with the purpose of this study, a descriptive design was used, considering
the goal of this type of research is to give insights that are based on prior research into a
particular part of the research field (Malhotra, 2010).
4.2 Sample and Data collection
Sampling is the preferred method of obtaining information when it is prohibitive in terms of cost
and time to obtain such information from the population (Aaker et al. 2011). The target
population for this research was defined as: potential investors for startup crowdfunding
campaigns. The gathered data came from a mixed sample, containing two groups: potential but
inexperienced investors and potential investors with prior crowdfunding experience. Of the 82
respondents, 56 were inexperienced and the other 26 respondents had already invested a
minimum of once in a crowdfunding campaign in the past. The respondents were divided into
their subgroups by the use of two filter questions. They were asked what crowdfunding method
they had had experience with and how many times they had priorly participated in crowdfunding
campaigns.
Primary data was collected, using a webbased survey. Due to the limited timeframe and scope
of the research, the initial collection method for the data was convenience sampling, which lead
to further snowball sampling.
4.3 Questionnaire design
The questionnaire uses multiple choice questions for the questions regarding previous
experiences and for the basic personal information. For the testing of the dependent and
independent variables, the multipleitem measure, fivepoint Likert scale was used. The Likert
scale was chosen as its aim is to measure the respondent attitudes and feelings (Bryman, 2016).
Three statements for every research variable were created, with each respondent asked to give
his or her personal opinion towards every statement. Their opinions can be expressed from
‘strongly disagree’ (1) to ‘strongly agree’ (5).
For testing the one dependent variable, investment intention, there were three statements.
Considering this is a comparison study, the questionnaire was divided into two sections: one
section for donationbased crowdfunding and one for equitybased crowdfunding. These sections
consisted of 12 statements (questions) each, testing four independents variables with three
statements per variable. As the first three variables were applicable to both methods, both parts
had the same nine questions, allowing the researchers to do a direct comparison. Both sections
finished their part of the questionnaire by testing one crowdfunding methodspecific variable
with three statements, one specific for donationbased and one specific variable for equitybased.
Combining these questions for the variables, participant experiences and basic personal
information gives the questionnaire a total of 32 questions.
4.4 Instrument pretesting
Pretests are administered to ensure that the chosen instruments link together with the study
expectations (Aaker et al. 2011). Therefore, prior to the launch of the webbased survey, pilot
tests were conducted on six representatives of the research sample. Furthermore, the
questionnaire was evaluated by two experts from the research field. These pretestings were
conducted over a two day span. Based on their answers and responses, alterations were made for
the comprehensibility of the questions and to make improvements on the questionnaire design.
4.5 Operationalization
The use of operationalization is designing the measuring of the research concepts to link it with
the research operation (Bryman and Bell, 2015). The operationalization, which is presented
below in table 1, aims to guide what this research is measuring and how they will be measured.
Concept & Definition Variable Variable definition Item used Adapted from
Intention to use
(Theory of Reasoned
Action)
TRA, “a person’s
performance of a
specified behavior is
determined by his or
her behavioral
intention to perform
the behavior and is
jointly determined by
the person’s attitude
and subjective norm
concerning the
behavior in question”
(Davies et al., 1989,
pg.983).
Investment
Intention(II)
A person’s subjective
probability that he
will invest in
crowdfunding
II1 The intention to
participate
II2 The willingness to
participate
II3 The personal
importance of
participating
(Davies et al.,
1989)
Intrinsic Motivations
Intrinsic motivation
relates to doing an
activity for its
inherent satisfactions
that can be
characterized as fun
and challenging.
(Ryan and Deci,
2000b).
Altruism (A)
(donation &
equity based)
A selfless act that
involves doing
something for another
at some cost to
oneself
(Ozinga, 1999).
A1 Helping startups
achieve success
A2 Supporting
commercial startups
A3 The positive feeling
of investing
Clary et
al.,1998; Jian
and Shin, 2015
Fun &
enjoyment
(F&E)
(donation &
equity based)
Fun and enjoyment of
an activity are
mentioned in the self
determination
theory as possible
causes of intrinsic
motivation (Deci and
Ryan 1993).
F&E1 Having fun in
investing
F&E2 Enjoying the
process of investing
F&E3 Enjoyment of
participating
(Amabile et al,
1994; Zheng et
al., 2011)
Enjoyment;
(Nov,
2007;.Jian and
Shin, 2015)
Fun
Extrinsic Motivations
Extrinsic motivations
are based on a
separable
outcomesuch as
rewards or
instrumental value.
(Ryan and Deci,
2000b)
Tangible
return (TR)
(donation &
equity based)
“Frequently offered
to people as an
inducement to engage
in a behavior in
which they might not
otherwise engage.”
(Deci et. al, 2001,
pg.4)
TR1 Expectation of a
product or service
TR2 Benefiting of an
innovative product or
service
TR3 The importance of
receiving a new product
or service in the decision
process
(Deci et. al,
2001)
Subjective
norm (SN)
Donationbase
d
"One’s perceptions or
assumptions about
others 'expectations
of certain behaviors
that one will or will
SN1 Participating
because of social
networks
SN2 Participating
(Jian and Shin,
2015; Clary et
al.,1998)
not perform."
(Huda et al., 2012,
pg.272)
because of friends and
family
SN3 The importance of
friends and family or
social networks in the
decision process
Financial
return (FR)
Equitybased
Obtaining a profit
and/or capital gains
on the invested
capital has been
shown as a plausible
explanation behind
investments
(Bretschneider et
al.,2014).
FR1 The importance of
the financial nature of
startups
FR2 The expectation of
monetary returns
FR3 The opportunity to
receive monetary returns
(Amabile et al,
1994)
Table 1: Operationalization
4.6 Data analysis method
The gathered data from the survey was analyzed with the IBM SPSS software. With the aim of
understanding the participants intrinsic and extrinsic attitudes and the influence it has on the
investment intention, descriptive statistics were calculated. The research hypotheses were tested
by using: Multiple Regression, OneSample TTest and Variables Correlation Analysis
4.7 Validity and reliability
4.7.1 Validity
There are various different ways of testing the measurement validity. The term validity itself
refers to if the research concepts are actually measured by the measure of a concept (Bryman,
2016). Validity was maintained by developing the research measures and constructs from past
research and proven theoretical frameworks. The validity of the different survey variables of this
study were proven further by the valid results of the correlation coefficients tests. Furthermore,
validity was ensured through filter questions. In the beginning of the questionnaire, the
respondents were asked about their previous crowdfunding experiences. At the end of the
questionnaire, we asked how often they had participated in crowdfunding. If they had responded
no previous experience but later answered with one time, they would be excluded. Same
principle was applied if they had said they had prior experience, but would have answered never
participated at the end of questionnaire. Hereby, two participations were excluded from the total
end sample. Face validity for the questionnaire was established through the pretests with the
field experts and pilot tests.
4.7.2 Reliability
The main concern of reliability is dealing with the measures consistency (Bryman, 2016). By
testing the Cronbach Alpha’s for multiple multiitem measures of this research, the reliability
was checked. As the results of these tests passed the threshold guidelines of the Cronbach Alpha,
the results were deemed as reliable and approved for further analysis.
5. Results analysis
5.1 Reliability
The measurement model provides the quantitative measures of the validity and reliability for the
questionnaire. Using Cronbach’s α, internal consistency among the items was measured, the
score ranges from .86 to .96 in donationbased variables questions and from .91 to .96 in
equitybased variables questions which lies between the acceptable limit of .7 and higher
(Bryman, 2016). The detail of reliability is outlined in Table 2. In the regression analysis, the
derived goodness of fit (adjusted R2) for the regression model is 0.581 which is acceptable
(adjusted R2=0.581, F=29.05, P<0.01).
Table 2 Questionnaire reliability
Donationbased Equitybased
Motivation variable Cronbach's α Cronbach's α
Altruism 0.87 0.93
Fun & enjoyment 0.96 0.96
Tangible return 0.86 0.93
Subjective norms 0.90
Financial return & gain 0.91
5.2 Demographic characteristics of the sample
In the total 82 valid samples, 56 respondents have no crowdfunding investment experience which
accounts for 66.7%, and 26 respondents have participated at least one time. Nine respondents
have participated only one time, six respondents have participated two times, four respondents
have participated three times and seven respondents have participated more than three times.
Most respondents are young people in the sample, 1825 yearold group accounts for 67.1%,
2630 yearold group has 18.3% and 3140 yearold group accounts for 12.2%. Professions are
mainly students which comprised 67.1%, and followed by 19.5% employed. Selfemployed 11%
and other accounts 2.4%. The sample has an even coverage of gender (50% male, 50% female).
Looking at the demographic differences between experienced and inexperienced, both samples
who have done crowdfunding investment before mainly are young individuals ranging between
1830 yearold and a total of 84.6% combined (1825 yearsold plus 2630 yearsold), and their
professions are students and employed overall. Female samples have more investment
experience than male samples. For details of the demographic characteristics of the sample see
Table 3.
Table 3 Demographic variable
Total samples Samples with prior
crowdfunding experience
N % N %
Age
1825 yearold 55 67.1 16 61.
2630 yearold 15 18.3 6 23.1
3140 yearold 10 12.2 4 15.4
4150 yearold 2 2.4 0 0
Above 50 yearold 0 0 0 0
Profession
Student 55 67.1 17 65.4
Employed 16 19.5 7 26.9
Selfemployed 9 11 2 7.7
Retired 0 0 0 0
Other 2 2.4 0 0
Gender
Male 41 50 11 42.3
Female 41 50 15 57.7
Times
Never 56 68.3
1 time 9 11
2 times 6 7.3
3 times 4 4.9
More than 3 times 7 8.5
5.3 Motivation differences between experienced and nonexperienced
When comparing the mean scores of the motivation variables, the respondents were divided into
two groups. Based on whether they had prior investment experience or not, as shown in table 4.
In donationbased, the experienced give higher scores to all motivation variables than the
nonexperienced. The experienced give fairly close scores to all motivations, the mean scores
range from 3.10 to 3.26. Among the nonexperienced, they give the highest scores to tangible
return motivation (M=3.25), while the other motivations score lower than 3, the means scores are
range from 2.45 to 2.78. Ttests revealed a significant difference in the fun & enjoyment and
subjective norms motivations. Experienced respondents (M=3.28, SD= 1.01) give higher scores
to FE than nonexperienced respondents (M=2.45, SD=1.10), t=3.216, p<.01. Also to
subjectives norms, experienced respondents (M=3.10, SD= 1.16) give higher scores than
nonexperienced respondents (M=2.54, SD=1.10), t=2.113, p<.05. For the other two
motivations, the comparisons provided statistically insignificant results.
In Equitybased, the experienced investors also give fairly close scores for all the variables. They
give the highest scores with an equally high result to altruism and fun and enjoyments
motivations, both are M=3.36. The lowest score is given to the variable financial return & gain,
M=2.97. The nonexperienced give higher scores to tangible return and financial return & gain,
(MTR=3.13, MFR=3.04) and lower scores to altruism and fun & enjoyment (MA=2.84,
MFE=2.67). Ttests show a significant difference in fun & enjoyment but not in the other
motivations. Experienced respondents (M=3.36, SD= 1.20) give higher scores to FE than
nonexperienced respondents (M=2.67, SD=1.17), t=2.451, p<.05.
Therefore, fun & enjoyment is the significantly strongest motivation for experienced investors
who participate in both donationbased and equitybased crowdfunding. With donationbased
crowdfunding, subjective norms are significantly more motivating for the experienced investors
than the nonexperienced investors.
Table 4 Motivation difference between experiencers and nonexperiencers
Experiencers
(n=26)
Nonexperiencers
(n=56)
Motivation variables Mean SD Mean SD t
Donationbased
Altruism 3.26 0.96 2.78 1.07 1.941
Fun & enjoyment 3.28 1.01 2.45 1.10
3.216**
Tangible return 3.38 1.21 3.25 1.03 0.518
Subjective norms 3.10 1.16 2.54 1.10 2.113*
Equitybased
Altruism 3.36 1.10 2.84 1.18 1.897
Fun & enjoyment 3.36 1.20 2.67 1.17 2.451*
Tangible return 3.27 1.23 3.13 1.11 0.507
Financial return & gain 2.97 1.25 3.04 1.19 0.256
Note: *p<.05. **p<.01.
5.4 Regression and Hypothesis analysis
The research purpose of this paper is aimed at finding the significant motivations behind
investors participating in crowdfunding for startup companies with the comparison of
equitybased crowdfunding and donationbased crowdfunding.
Therefore, regression analysis was the used tool at the overall sample level to find out the
answer. The regression analysis (see Table 5) demonstrated that out of all five motivations only
altruism (Donationbased 62.7%, p<.01; Equitybased 40.2%, p<.01) represented as the intrinsic
motivation predictor, is positively associated with investors intention under both donationbased
and equitybased crowdfunding.
Hypothesis 1 & 2
The first hypothesis and the second were related to the altruism and positively influence
investors decisions to fund startups in the context of equitybased crowdfunding and
donationbased crowdfunding .The results of these hypotheses show that both of them are
statistically significant at p<0.01 (Table 5). Though, altruism more positively influenced
investor’s intention to participate in donationbased crowdfunding than equitybased
crowdfunding for startups.
Hypothesis 3 & 4
Although the theory showed that personal enjoyment and fun can be a stimuli for investors
participating in both equitybased and donationbased crowdfunding, the results of the regression
analysis show no significant influence on both methods of crowdfunding investment intention.
Therefore these two hypotheses are rejected
Hypothesis 5 & 6
Whereas, theory reveals that tangible returns can be an incentive for equitybased crowdfunding
and donationbased crowdfunding. The results of tangible return show no statistically significant
motivation predictor behind investor's intention to participate in both equitybased &
donationbased crowdfunding (Equitybased b=4.2%, p=0.712>0.05; Donationbased b=7.6%,
p=0.292>0.05). Therefore these two hypotheses are rejected.
Hypothesis 7
Financial return & gain has been proven to be an influential factor in previous research.
Nonetheless, the results of the regression analysis shows no significant positive relation between
financial return & gain and investment intention (b=2.7%, p=0.770>0.05). Therefore the
hypothesis is rejected.
Hypothesis 8
Subjective norms or social influence (e.g. friends, family, etc) have been used to explain donor
motivations in both crowdfunding and crowdsourcing. While this has been applied in
donationbased crowdfunding, the regression analysis, the result (b=3.5%, p=0.595>0.05)
concludes there is no significant positive relation between subjective norms and investment
intention for donationbased crowdfunding, therefore rejecting this hypothesis.
Table 5 Motivation variables relative importance
Donationbased Equitybased
Motivation variables %(β)
p
value
H
Label Decision %(β) pvalue
H
Label Decision
Altruism 62.7 0.000 H2 Accepted 40.2 0.001 H1 Accepted
Fun & enjoyment 5.2 0.546 H4 Rejected 13.2 0.225 H3 Rejected
Tangible return 7,6 0.292 H6 Rejected 4.2 0.712 H5 Rejected
Subjective norms 3.5 0.595 H8 Rejected
Financial return & gain 2.7 0.770 H7 Rejected
5.5 Correlation among motivations
In the regression analysis of all the motivation variables, only altruism as the intrinsic motivation
has been identified as having a positive influence on investor intention. Based on this result, an
independent variables correlation analysis has been done to check the rejected variables further.
Using the Pearson correlation coefficient (range from 1 to +1), measuring the strength and
direction of the linear relationships between each two variables (Bryman, 2016). This research
uses correlation coefficient >= 0.6 as an acceptable level. The results show that with
donationbased, fun & enjoyment has a strong positive relation with altruism. In equitybased,
both fun & enjoyment and tangible return are shown to have a strong positive relation with
altruism. These results mean that fun & enjoyment also influences the investor intention under
donationbased crowdfunding. Moreover, fun & enjoyment and tangible return both influence
the investor intention within equitybased crowdfunding. For details of the Correlations of
variables see Table 6.
Table 6 Correlations Among Motivations
Donationbased Equitybased
Motivation variables 1 2 3 4 1 2 3 4
Altruism 1 1
Fun & enjoyment 0.685** 1 0.802** 1
Tangible return 0.570** 0.500** 1 0.718** 0.633** 1
Subjective norms 0.318** 0.551** 0.329** 1
Financial return & gain
0.574** 0.586** 0.718** 1
Note: ** P<0.01.
6. Discussion and conclusions
Based on the results of the demographics, potential investors who intend to participate in
crowdfunding in startups are primarily younger people who tend to be students or are employed.
Assuming that profession is a positive indicator for crowdfunding investment, we might interpret
that crowdfunding investors are welleducated or have an income that allows them to participate
in startups crowdfunding. These results can partially be explained due to the fact that generally,
young people are more likely to adopt a new innovations than other age groups (Rogers and
Havens, 1962). The researchers also take the overrepresentation of students in the sample into
account. Therefore, to fully identify the motivations behind crowdfunding investment intention
which would be fully representative of the population, the respondents sample would need to
expand into older age groups and other profession demographics.
Based on the results of the tested motivations, for donationbased, the experienced potential
investors give higher scores to all motivation variables than the nonexperienced. Ttests
revealed a significant difference in the fun & enjoyment and subjective norms motivations
between the experienced, who rate them higher, and the nonexperienced. This result for fun &
enjoyment is also the case for equitybased, where ttests show a significant difference in fun &
enjoyment as the experienced respondents rate it more highly in importance. Hence, fun &
enjoyment can clearly be seen as a significantly strong motivation variable for experienced
investors who participate in both donationbased and equitybased crowdfunding. Also these
results show that the experienced investors are significantly more motivated by the subjective
norms when participating donationbased crowdfunding.
These results were surprising in several aspects as the researchers expected to see that subjective
norms were of a higher importance for nonexperienced. The most surprising result is that
financial return & gain is not the most important motivator for equitybased. Looking at the
obvious financial return which is gained as a result of investing, the researchers expected that
this would support the statements from past research that equitybased crowdfunding has become
increasingly popular with startup companies (Bretschneider et al., 2014) and has seen an
increase within the crowdfunding sector (Marketwire, 2016).
These surprising results can possibly be explained by the fact that this research focused on
startup companies. The expectations and motivations of potential investors are likely different
when investing in startups, in comparison to investing in established companies.
A different possible explanation can lie in the sample. The demographics of young investors and
students are overrepresented in the total sample, therefore their responses could have influenced
the results.
The results of the analysis of the hypotheses show that only hypothesis one and two are accepted,
concluding that altruism positively influences investors intention to fund startups in both
donation and equitybased crowdfunding. This corroborates research from Jian and Shin (2015)
that also shows altruism as positively influencing motivation behind donors intentions to
participate in crowdfunded journalism. The remaining six hypotheses were rejected, meaning
that fun & enjoyment, tangible return, financial return & gain and subjective norms do not have a
positive influence on the investor intention to participate in startups crowdfunding. This result
was unexpected for the researchers, who expected that these positive relationships would be
proven, based on previous research by (Deci and Ryan 1993; Deci et al., 2001; Bretschneider et
al., 2014; Archak, 2010; Bayus, 2010; Brabham, 2010; Agrawal et al., 2011; Chris Zhao and
Zhu, 2014) .
However, the results of the independent variables correlation analysis of all the motivation
variables shined a different light on the results of the hypotheses analysis. As the regression
analysis surprisingly identified altruism as the sole motivation which has a positive influence on
investor intention. The researchers decided to test these rejected variables further by conducting
an independent variables correlation analysis on them. These results show that in the case of
donationbased, fun & enjoyment has a strong positive relation with altruism. For equitybased,
both fun & enjoyment and tangible return are shown to have strong positive relations with
altruism. These results indicate that for donationbased, the researchers can conclude that fun &
enjoyment also positively influences the investor intention. For equitybased, the same
conclusions can be made that fun & enjoyment and tangible return both positively influence the
investor intention.
The results of both tests presents an interesting contradiction. Purely based on the hypotheses
regression analysis, only altruism is proven to have a positive influence on the investment
intention. However further independent variables correlation analysis proves that for
donationbased, both altruism and fun & enjoyment have a positive influence. For equitybased
altruism, fun & enjoyment and tangible return are proven to have a positive influence. Also,
contradicting the previous research of (Jian and Shin 2015; Bretschneider et al.,2014) both tests
surprisingly conclude that both subjective norm on donationbased and financial return & gain
on equitybased don’t have a positive influence in the investment intention.
Again, these surprising results can possibly be explained by the fact that this research focused on
startup companies and that the motivations of potential investors are likely different when
investing in startups. It could be very likely that some motivations have less of an impact in the
intention to crowdfund startups, but are still appealing motivations. Therefore, when these
motivations are combined with altruistic motivations, they still have a positive impact on the
intention. This can not be stated as the only possible reason for these results, as the sample was
not selected completely at random. It is likely that some groups are underrepresented in the
sample, which would have possibly had some different stronger motivations. This is a factor that
could have possibly affected the results of the conducted research.
7. Research limitations and future research
7.1 Limitations
This research paper contains some limitations. The first limitation is due to the research
approach. Quantitative research was done, using a webbased survey and opting for convenience
sampling which led to further snowball sampling. As this sample was not chosen completely at
random, it can not be viewed as completely statistical. Initial efforts to launch the survey on
professional platforms were unsuccessful and the timeframe for the research paper was limited.
Therefore, the researchers decided to send out requests to take part in the survey through
channels that were available for them: specific social media channels, mailings and personally on
the university campus. Although the data collection ended with 82 positive responses, the
researchers acknowledge that the participants demographics for professions show that most
participants are students. This leads to an overrepresentation of this demographic group and
underrepresentation of others. Hence, the research results are limited in information accuracy and
effectiveness and have a limited generalizability.
The second limitation of the research is due to the questionnaire, although the questionnaire was
pretested by experts and representatives of the sample and passed the necessary validity tests.
The researchers have received some feedback afterwards from participants who had difficulties
to comprehend every question, due to their limited preknowledge of the topic. Coinciding with
this, is the aspect that the survey was conducted in English and the sample is international.
Therefore, it can not be excluded that some participants may have misunderstood some
questions. These factors may have affected their responses and the results.
7.2 Future research
This study focused on two types of crowdfunding which are equitybased and donationbased
and examined the intrinsic and extrinsic motivations behind investors participating in
crowdfunding for startups. Further research can include or expand by using different variables
such as trust, recognition or reciprocity for motivation. In addition, different theories for
motivation can be adopted to explain behavioral intention behind investors.
Crowdfunding also offers four distinctive ways to raise funds. Lendingbased crowdfunding,
although similar to equitybased crowdfunding might offer interesting results behind donors
motives to invest. In addition, rewardbased crowdfunding can also be further researched or
included in a comparative study.
The results provided the research field with new possible insights that deviate from past research
through testing established theories in the new context of startups. The researchers acknowledge
that these results might have been affected due to the limited generalizability of the collected
sample. Nonetheless, these findings or the motivations of investors in startups should be
researched further in the future.
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