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How do investors decide? An interdisciplinary review of decision-making in crowdfunding

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Abstract

Crowdfunding is on the rise: its volume grew 1000% in only three years and is about to outpace worldwide venture capital spending. A quickly growing body of research is exploring the emerging crowdfunding phenomenon. While the literature offers a detailed and comprehensive picture of decision-making for traditional startup financing or bank loans, it does not provide a holistic understanding of decisions to invest in crowdfunded ventures. Many individual studies investigate isolated factors that influence investor decision-making in crowdfunding campaigns without integrating the findings regarding those influences. A comprehensive view of the relevant decision-making factors is necessary to build future research on and for practitioners to gain a better understanding of how investors choose. We conduct an interdisciplinary literature review to examine which factors influence the investment decisions in crowdfunding. From an analysis of 68 articles, we construct a comprehensive framework of relevant influence factors. Even though prior research covers many factors, others have received scant attention. Especially investors’ cognitive features and the context in which the investment decision is made seem to strongly influence decisions but are scarcely researched. In addition, most reviewed studies focus more on individual factors and campaign success than underlying decision processes. To highlight novel factors of crowdfunding investment decisions, we compare decision-making in traditional investments, such as venture capital and bank loans, to crowdfunding. Our findings offer new avenues for research toward understanding how the shift induced by crowdfunding changes our choices and actions. The analysis should support the endeavor to build better theories and provide a basis for further social and technological development.

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Notes

  1. Venture capitalists and business angels both provide capital to young startups in exchange for shares of the venture. They are a major foundation of venture financing taking high risks and, in turn, demanding a larger share of the profit in case of success (Mason and Stark 2004). Business angels are usually wealthy and knowledgeable individuals, often founders themselves that provide money in early seed stages and also bring their experience, contacts, and close involvement to the table (Brettel 2003; Mason and Stark 2004). VCs are often organized more institutionalized, e.g., in funds, invest in larger scale, and usually enter in a later and less risky (growth-)stage, providing more capital but less personal involvement than BAs (Mason and Harrison 2002).

  2. Current regulation of equity crowdfunding varies by country and regulation is ongoing in many geographies (Borello et al. 2015; Cumming and Johan 2013; Levin et al. 2013).

  3. For simplicity, we refer to founding entrepreneurs, borrowers, fundraisers and everyone else requesting funding in a crowdfunding campaign as “founders” (for similar use see Beaulieu et al. 2015). We title everyone giving money to the founder “investors.”

  4. We use the terms “campaign success” to address different dependent variables (DV). Due to the heterogeneity of the analyzed research, different measures are used throughout the literature. The most frequently used DVs are funding success (dummy variable indicating if a campaign reached the desired funding goal), number of investors, total funds raised, investment decision of individual investors (dummy coded), or height of an individual’s contribution. For lending-based campaigns a lower interest rate is also used as indicator for campaign success. All these DVs are also indicators for each funder’s “funding decision”, as referred to in later sections. It is common practice in IS literature reviews to cover a diverse set of dependent variables for a specific topic (Bélanger and Crossler 2011; Smith et al. 2011). See Appendix for an overview of the DVs in the reviewed articles.

  5. As some studies cover several types of crowdfunding or different decision-making factors, the figures in the overview tables do not always add up to the 68 analyzed studies.

  6. “Other Management & Economics” includes any management discipline besides entrepreneurship and information systems (e.g., organization, marketing, or finance).

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  1. Faculty of Business and Economics, University of Augsburg, Universitaetsstrasse 16, 86135, Augsburg, Germany

    Andreas Hoegen, Dennis M. Steininger & Daniel Veit

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Hoegen, A., Steininger, D.M. & Veit, D. How do investors decide? An interdisciplinary review of decision-making in crowdfunding. Electron Markets 28, 339–365 (2018). https://doi.org/10.1007/s12525-017-0269-y

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