Crowdfunding: a substitute for, and complement to traditional seed financing?
Independent thesis Advanced level (professional degree), 20 credits / 30 HE creditsStudent thesis
Starting a business typically takes a lot of time and effort, and the entrepreneur oftentimes find him/herself lacking the financial capital needed to develop their ideas into viable business ideas. Apart from friends and family, one rather common way for entrepreneurs to get financial capital in these early stages is to ask for seed investments from wealthy individuals called business angels. The sources of seed finances are rather limited for an entrepreneur and many projects do not survive the very first stage of its existence. In recent years, a new online trend has formed where entrepreneurs post their project on an online platform, and ask for smaller financial contributions, they focus on getting as many people as possible interested enough to contribute by small amounts. In return the ones backing the project gets rewards, which typically range from a simple ‘thank you’, to a copy of the finished product. Crowdfunding is a way to ask your fans for financial contributions to fulfill entrepreneurial dreams and goals. There are several online platforms to post your project and ask for financial contributions, a cheap and easy way to raise money and spread the word about your idea. Some projects raise amounts of 10 million USD, others may not be equally successful in the amount raised, but can perhaps find other values in crowdfunding. The current literature and academic research around crowdfunding is, perhaps due to its recency, very scarce and researchers are still aiming towards creation of proper theory regarding crowdfunding. In this study we aim to explore the elements of crowdfunding in Sweden and how it relates to traditional seed financing. Is crowdfunding a substitute to traditional seed financing or does it merely possess components that complement said sources of financial capital and expertise. A partial aim of this study is to provide an understanding why some Swedish entrepreneurs choose crowdfunding instead of traditional seed financing. We have performed a qualitative study by interviewing five Swedish entrepreneurs who have completed a crowdfunding campaign. The projects are different in nature and include product development, opening a fast food restaurant, preserving a local culture and writing a book. The theoretical framework is mainly built on theories from the field of entrepreneurship, including the successful venture life cycle, financial bootstrapping, angel investments. Apart from these we have also used previous research in our theoretical framework. The results of the study are presented according to project situation before crowdfunding, preparation before crowdfunding campaign, risk analysis of crowdfunding, the strengths and weaknesses of crowdfunding, things the entrepreneurs would have done differently and additional factors brought up during the interviews. Our study concludes that crowdfunding in its current form is not a substitute for traditional seed financing. We also found that crowdfunding does not seem to fulfill the supplementary roles of business angels in terms of business expertise, it can however be used as a strong proof of concept and marketing tool. This also appears to be the main reason why entrepreneurs choose crowdfunding.
Place, publisher, year, edition, pages
2014. , 76 p.
IdentifiersURN: urn:nbn:se:umu:diva-104228OAI: oai:DiVA.org:umu-104228DiVA: diva2:818446
International Business Program
Lindbergh, Lars, Universitetslektor