Reinvesting in equity crowdfunding: the case of digital workers.
| Autor | Makki, Rayan Faisal A. |
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Introduction
Internal financing and debts are pivotal for launching new ventures. However, when entrepreneurs lack access to funds to start their businesses (Walthoff-Borm et al., 2018) and external equity (Vismara, 2019), several issues tend to arise. For instance, banks would not grant loans to entrepreneurs whose projects are associated with high risks (Cancino et al., 2018). Therefore, equity crowdfunding becomes vital for entrepreneurs, as it can provide access to funds and allow entrepreneurs to proceed with their projects without the need for additional funding (Cumming et al, 2017; Mochkabadi and Volkmann, 2018; Signori and Vismara, 2018).
In recent years, the evolution of the internet and increasing varieties of financial products have allowed individuals seeking investment capital to combine crowdfunding, blockchain, cryptocurrencies and initial coin offerings (Beck et al, 2018). In a study that analysed over 197,000 online posts about blockchain and crowdfunding posted between May 2017 and July 2018, Bogusz et al (2020) found that, although people initially struggled to understand the role of these financial instruments, as time went by, they acquired a deeper understanding of how equity crowdfunding can help them to raise capital. This finding suggests that people using crowdfunding currently understand its meaning and function. Many scholars approached this subject by defining equity crowdfunding as an online platform to list entrepreneurs' projects where the public can view and invest in projects of their choice (Bernardino and Santos, 2020; Cholakova and Clarysse, 2015; Lee, 2019; Signori and Vismara, 2018).
Furthermore, the growing body of research on equity crowdfunding has started to more closely investigate the dynamics of equity crowdfunding and its stakeholders. Relevant studies explored how this process works, as well as what corresponding success factors are involved (Bapna, 2015; Collins and Pierrakis, 2012; Gleasure and Feller, 2016; Meric et al, 2016). Accordingly, many previous studies examined investors' behavioural intentions and their impact on the decisions to invest in equity crowdfunding (Al-Swidi et al, 2014; Liang etal, 2019; Ryu, 2018; Zhang et al, 2019). In addition, there has been considerable research on whether such motivations are intrinsic or extrinsic (Bretschneider et al, 2014; Cholakova and Clarysse, 2015; Li et al, 2018; Macht and Chapman, 2019; Vismara, 2019). However, none of the previous studies has addressed the question investigated in the present study, namely, "What motivates investors to reinvest in equity crowdfunding in both successful and unsuccessful scenarios?"
Previously, some evidence has been accumulated on different motives and personal attitudes that lead to the development of more start-up projects when they win or lose in their initial projects (Carbonara etal, 2020; Conway, 2013; Lafuente etal, 2019). Overall, this body of work established that some entrepreneurs are more resilient than others, which enables them to quickly adapt to new projects (e.g. Lafuente et al, 2019). For instance Sherman and Axelrad (2020) investigated serial investors' positive emotions, engagement, relationships, meaning and accomplishment scores, as well as how these factors influence investors' intentions to continue investing in equity crowdfunding. To expand available knowledge on serial investors, the present study first sought to determine investors' motivations to reinvest in equity crowdfunding, as well as the factors affecting those motivations.
From the theoretical perspective, the present study relies on the self-determination theory (SDT) (Miller et al, 1988), a macro theory of human motivations and personality that examines intrinsic and extrinsic motivations underlying certain decisions (Adams et al, 2017). Previously, this theory has been widely applied to study people's motivations that affect their decision to invest in equity crowdfunding (Allison et al, 2015; Bretschneider and Leimeister, 2017; Cholakova and Clarysse, 2015; Collins and Pierrakis, 2012; Medina-Molina et al, 2019; Zhang et al, 2019; Zhao et al, 2018).
Furthermore, there has been extensive research on motivations to invest in equity crowdfunding, including the financial return, fun, recognition, the prospect of helping others, excitement and helping the community. For instance, in an article discussing motivations for investors to switch from reward crowdfunding to equity crowdfunding, Cholakova and Clarysse (2015) found financial return and helping others to be strong motivators for such investors. Based on this evidence, this paper will use select intrinsic and extrinsic motivations from the literature to determine which of them influence the decision to reinvest in equity crowdfunding. Of note, this study was conducted considering both winning and losing scenarios.
Contributions of this study to the equity crowdfunding literature can be summarised as follows. While previous studies have mostly focused on initial motives that alter behavioural intentions to participate in equity crowdfunding, rather than reinvestors' intrinsic and extrinsic motives, this study focused on investigating the effects of intrinsic and extrinsic motivations to reinvest in equity crowdfunding among digital workers at Amazon Mechanical Turk (MTurk), one of the largest platforms for online commerce (Teschner and Gimpel, 2018). Accordingly, the present results can help to educate entrepreneurs, platform owners and scholars regarding reinvestors' motivations and present a useful solution for attracting more investors to a platform to increase opportunities for funding projects.
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Literature review
While banks are among the primary funding sources for entrepreneurial projects, their concerns about creditworthiness and risk measurements prevent them from financing many entrepreneurial ventures (Smallbone et al, 2012). Therefore, securing external funds has become vital for entrepreneurs to create their own start-ups without venture capital or angel investors, who often demand high growth rates to secure their investments. Accordingly, especially after the financial crisis of 2007-2009, equity crowdfunding has emerged as an alternative source of financing, thus becoming a popular funding alternative (Walthoff-Borm et al, 2018).
In response to this trend, a growing body of literature has sought to explain the mechanism, characteristics and benefits of using equity crowdfunding to generate funds for start-ups. For instance, in a systematic review of 113 papers on equity crowdfunding, Mochkabadi and Volkmann (2018) concluded that past studies on equity crowdfunding generally assumed one of the following five perspectives: capital market, entrepreneurs, institutional, platforms and investors' perspectives. The present study was conducted using the investors' perspective, which was previously investigated with the focus on investors' financial and non-financial motives (Cholakova and Clarysse, 2015), cognitive and affective factors (Moysidou and Spaeth, 2016), communication and information asymmetry and its impact on investors' decisions (Moritz etal, 2015) and citizenship behaviour and its effect on their decision (Zhang et al, 2019). Previous literature clearly focused on the reasons and motives for investing in equity crowdfunding platforms, and it organised those reasons into themes that could be studied independently.
However, while past studies closely analysed investors' reasons and motives to invest in equity crowdfunding platforms, classifying those reasons into themes for subsequent independent research, motivations to reinvest in equity crowdfunding have been largely overlooked. In one of the few relevant studies, Sherman and Axelrad (2020) explored the relationship between reinvestors and well-being. The present study builds on Sherman and Axelrad's (2020) findings on the relationship between these two variables to further explore reinvestors' intrinsic and extrinsic motivations. The present results can also pave the way for further research on serial investing in equity crowdfunding, which previously highlighted the relevance of repeating actions in equity crowdfunding (Buttice et al, 2017; Carbonara et al, 2020; Conway, 2013; Lafuente et al, 2019; Lee and Chiravuri, 2019; Skirnevskiy et al, 2017; Vaillant and Lafuente, 2019; Yang and Hahn, 2015).
Overall, the literature on equity crowdfunding closely analysed motivations for investors' participation. However, evidence on which of those motivations encourage investors to reinvest remains rather limited. Indeed, while investors' choice of projects for investment is underpinned by various reasons, some of these reasons drive investors' decision to invest only once, while others motivate investors to do so several times. This suggests the need to differentiate between "solo" (occasional) and "serial" investors and "syndicate serial investors" (Kelly et al, 1996). Accordingly, in this study, we selected a sample of investors from an equity crowdfunding platform to ascertain their motivations, noting how they compared to those from the relevant literature. Furthermore, as highlighted in previous research, there is a need to study each motivation separately to learn how entrepreneurs could differentiate and target their desired groups of investors.
The SDT, which lends the theoretical foundation for the present study, posits that investors can have both intrinsic and extrinsic motivations to invest in equity crowdfunding (Miller et al, 1988; Schwienbacher and Larralde, 2012). In this study, we assumed that investors would have the same types of motivations to reinvest in win-or-loss scenarios. Overall, the SDT is considered one of the principal theories in crowdfunding literature for its high relevance and usefulness in explaining investors' motivations (Choy and Schlagwein, 2016). Furthermore, SDT is useful also because it distinguishes...
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