Crowd Equity Investors: An Underutilized Asset for Open Innovation in Startups

Abstract

Collaborating with investor networks generated in the course of equity-based crowdfunding campaigns can contribute to the success of startup firms. Through a qualitative study of 60 European startups, this article identifies the type of inputs provided by equity investors, how these inputs are related to startups' and founders' characteristics, and startups' later performance. Startups exploiting crowd network are more likely to be successful two years later compared with startups that do not exploit the crowd, or acquire from the crowd product, strategy, or market knowledge. The findings extend existing research on the relationships between open innovation and startups by identifying the inputs provided by the crowd and how the use of crowd equity investors in open innovation platforms is related to later success.

Crowdfunding and Innovation

“…Mollick and Kuppuswamy (2016) reported survey evidence that reward-based crowdfunding helps to find business partners in the industry, recruit talented employees, and enhance the attention of the media/press to the firm. Di Pietro et al (2018) obtained similar survey-based results for equity crowdfunding. They argued that the development of partnerships with industry players, the increased awareness of the venture, and the capacity to attract new employees are all improved thanks to the crowd investors' network.…”

“…Di Pietro et al . () obtained similar survey‐based results for equity crowdfunding. They argued that the development of partnerships with industry players, the increased awareness of the venture, and the capacity to attract new employees are all improved thanks to the crowd investors’ network.…”

“…Another type of feedback provided by crowdfunders to entrepreneurs takes the form of ideas. Stanko and Henard (2017) and Di Pietro et al (2018) pointed out that the interaction with investors can contribute to the generation and development of new ideas and thus the innovation process. A larger number of backers brings more information, resources, and ideas to mobilize for the development of innovation.…”

Deciphering Crowdfunding

“…Looking at the post-equity funding performance of crowd-backed start-ups in the UK, Signori and Vismara (2018) found that 18% of them were not active anymore, whereas 35% raised further funding from either traditional investors (9%) or follow-on crowdfunding offering (25%). Lastly, taking a qualitative perspective, the study by Di Pietro et al (2018c) illustrates how entrepreneurs leveraging investor networks generated in the course of equity-based crowdfunding campaigns, contributes to the success of start-up firms. Crowd investors can provide firm founders with knowledge related to the product, strategy, and market as well as network ties with industry players and other stakeholders.…”

The Crowdfunding: A New Financial Instrument for the Start-Ups?

“…Crowdfunding is a topic abundantly dealt on an international scale: Schwienbacher and Larralde (2010), Agrawal et al (2011), Joachim (2011), Ley and Weaven (2011), Lawton and Marom (2013), Coocheo (2013), Kim et al (2013), Sannajust et al (2014), Borello et al (2014), Belleflamme et al (2014), Mollick (2014), Kuppuswamy and Bayus (2015), Massolution (2015), Costanza (2017), Paschen (2017), Di Pietro, Prencipe and Majchrzak (2018).…”