Solving the Puzzle of Crowdfunding in Sweden_Teigland et al

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Presentation at Bocconi Univ in Milan, Italy in Oct 2013 of our research-in-progress on crowdfunding in Sweden. Paper here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2263965. and Report here: …

Presentation at Bocconi Univ in Milan, Italy in Oct 2013 of our research-in-progress on crowdfunding in Sweden. Paper here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2263965. and Report here: http://blog.fundedbyme.com/robin-teigland/.

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  • According to 2010 market data, Sweden’s venture capital firms made the highest value of investments relative to GDP in Europe and had the sixth highest investment value in the world (EVCA, 2012).There are no public statistics for crowdfunding for Sweden as a whole but, as of May 2013, and based on the publicly available numbers, we have estimated the amount raised in Sweden to be around USD 4 million, with 1 million of this through reward-based crowdfunding and 3 million through equity-based crowdfunding. The primary platform that deals with entrepreneurs, FundedByMe, raised around USD 3.8 million of that across 744 successful projects. Excluding FundedByMe itself, 25 of these successes were Technology or Internet related (by the platform’s definition), but only three have been entrepreneurial ICT projects as opposed to the more common social projects. Two raised USD 38 000 through reward-based crowdfunding while the third raised USD 150 000 through equity crowdfunding.
  • Through reward- and donation-based crowdfunding, since its inception in March 2011 until April 2013, around 7 million SEK has been raised – 5.5 million SEK through FundedByMe, fully funding more than 300 of a total of 689 projects. Five of FundedByMe’s successful projects raised more than 110 000 SEK each, with one raising 550 000 SEK. The additional 1.4 million SEK of the total raised in Sweden was raised on Crowdculture, a platform primarily for culture and films, with two smaller platforms comprising the difference.Through equity crowdfunding around 19 million SEK has been raised for over 8 projects, including equity crowdfunding for FundedByMe itself.
  • Thus, it should be expected that an ICT-enabled phenomenon such as crowdfunding would hold particular appeal for ICT entrepreneurs. However, while crowdfunding’s appeal has increased elsewhere in the world, many in Swedish entrepreneurial circles suggest that the phenomenon may not be gaining momentum in Sweden, and specifically among ICT entrepreneurs, despite its potential for them. This presents an empirical puzzle: given that crowdfunding holds potential benefits for entrepreneurs and that the phenomenon is growing elsewhere in the world, what is it about ICT entrepreneurs in Sweden that makes them not want to use local crowdfunding platforms?Having produced Internet and Communications Technology (ICT) start-ups like Skype, Spotify and Klarna, Sweden has a reputation for producing world-class ICT entrepreneurs. The country is considered by the Global Economic Forum to be the world’s second most entrepreneurial country [17] and it has an internet penetration of 89% [14].Excluding FundedByMe itself, 25 of these successes were Technology or Internet related (by the platform’s definition), but only three have been entrepreneurial ICT projects as opposed to the more common social projects. Two raised USD 38 000 through reward-based crowdfunding while the third raised USD 150 000 through equity crowdfunding.
  • Excluding FundedByMe itself, 25 of these successes were Technology or Internet related (by the platform’s definition), but only three have been entrepreneurial ICT projects as opposed to the more common social projects. Two raised USD 38 000 through reward-based crowdfunding while the third raised USD 150 000 through equity crowdfunding.
  • These logics can focus the attention of decision makers on a limited set of options (Ocasio, 1997) and lead to decisions that are both logically consistent with the existing status quo and reinforce organizational identities and strategies (Thornton, 2002). Like institutionalization in general, shifts in institutional logics have been explored in some detail in the past few decades, including competing intra-organization logics that result in the formation of hybrid models (Battilana and Dorado 2009) and variation in practice (Lounsbury 2001; Lounsbury 2007); however, less is known about the interplay between agency, institutional pressures, and changes in institutional logic (Greenwood and Hinings, 1996; Lounsbury 2007). Institutional logics provide broad sets of beliefs and norms that shape behavior, identities, practices and organizational forms in a given setting (see e.g., Thornton, Ocasio, & Lounsbury, forthcoming ).
  • Early studies tended to suggest that institutional entrepreneurs deliberately developed strategies aimed at changing the institutional environments within they were embedded (Colomy, 1998; Colomy and Rhoades, 1994). Other, more recent, studies have suggested that intentions and narratives evolve at different steps of the change process (Child, Lua, and Tsai, 2007). Institutional entrepreneurs are actors who leverage resources to create new or transform existing institutions (DiMaggio, 1988; Garud, Hardy, & Maguire,2007; Maguire, Hardy, & Lawrence, 2004). They can be organizations or groups of organizations (Garud, Jain, & Kumaraswamy, 2002; Greenwood,Suddaby, & Hinings, 2002), or individuals or groups of individuals (Fligstein, 1997; Maguire et al., 2004). Eisenstadt (1980, p. 848) proposed that institutionalentrepreneurs were one variable, among a “constellation” of others, that was relevant to the process of social change.
  • In the IS discipline, an affordance perspective has gained prominence as a useful analytical lens to studying the technology appropriation process and the intricate relationships between the technical and the social (e.g. [13] [22] [28] [39]). Technology affordances are “action possibilities and opportunities that emerge from actors engaging with a focal technology” [13 at 238] while technology constraints are the “ways in which an individual or organization can be held back from accomplishing a particular goal when using a technology or system” [27 at 1]. Affordances enable and constrain action with the technology [13], and they are relational, i.e., conceived “as potential interactions between people and technology, rather than as properties of either people or technology” [27 at 1]. One example is a computer game: for a student, the game may afford some fun, but due to a variety of social reasons such as the inappropriateness of playing games in class, the affordance may not be available [13]. By defining affordances and constraints as relational concepts, when investigating patterns of technology use, scholars can go beyond the sole investigation of human and organizational attributes or of the features of the technology to explore how the use of the technology differs between individuals due to the user’s relation with the technology [27]. While scholars may start by analyzing the features and functionalities of the technology or by analyzing the human and organizational purposes of using the technology, the investigation of the interactions among them underlies this approach [27]. One well-cited study is that by Leonardi [21] in which the twin notions of affordances and constraints were used to represent the twin dimensions of human and material agencies to study how routines and technology affect each other in automotive design. Leonardi used the concept of imbrication, i.e., the arrangement of distinct elements in overlapping patterns so that they function interdependently, to illustrate human and material agencies [13]. Most technology affordance studies are theoretical in nature and, although the field shows great promise in accounting for the socio-material interactions humans have with new technologies, few empirical studies have been conducted outside of an organizational context [27]. Moreover, it was recently noted that although there is a recognition that ICT-enabled change is a product of both social and material interactions [13] [34], the social interactions, particularly interactions between agency and institutional embeddedness, require further study.
  • In the IS discipline, an affordance perspective has gained prominence as a useful analytical lens to studying the technology appropriation process and the intricate relationships between the technical and the social (e.g. [13] [22] [28] [39]). Technology affordances are “action possibilities and opportunities that emerge from actors engaging with a focal technology” [13 at 238] while technology constraints are the “ways in which an individual or organization can be held back from accomplishing a particular goal when using a technology or system” [27 at 1]. Affordances enable and constrain action with the technology [13], and they are relational, i.e., conceived “as potential interactions between people and technology, rather than as properties of either people or technology” [27 at 1]. One example is a computer game: for a student, the game may afford some fun, but due to a variety of social reasons such as the inappropriateness of playing games in class, the affordance may not be available [13]. By defining affordances and constraints as relational concepts, when investigating patterns of technology use, scholars can go beyond the sole investigation of human and organizational attributes or of the features of the technology to explore how the use of the technology differs between individuals due to the user’s relation with the technology [27]. While scholars may start by analyzing the features and functionalities of the technology or by analyzing the human and organizational purposes of using the technology, the investigation of the interactions among them underlies this approach [27]. One well-cited study is that by Leonardi [21] in which the twin notions of affordances and constraints were used to represent the twin dimensions of human and material agencies to study how routines and technology affect each other in automotive design. Leonardi used the concept of imbrication, i.e., the arrangement of distinct elements in overlapping patterns so that they function interdependently, to illustrate human and material agencies [13]. Most technology affordance studies are theoretical in nature and, although the field shows great promise in accounting for the socio-material interactions humans have with new technologies, few empirical studies have been conducted outside of an organizational context [27]. Moreover, it was recently noted that although there is a recognition that ICT-enabled change is a product of both social and material interactions [13] [34], the social interactions, particularly interactions between agency and institutional embeddedness, require further study.
  • Integrating the above theoretical background with our empirical focus on crowdfunding, we arrive at the following research questions: How do the prevalent start-up funding institutional logics affect entrepreneurs’ perceptions of the affordances of crowdfunding platforms? Furthermore, what role do these institutional logics play in affecting the narratives of the institutional entrepreneur?Integration of technology affordance with institutional entrepreneurship as a promising angle to develop a more fine-grained understanding of an institutional change process, and in particular account for both agency and institutional embeddedness in assessing what is required for crowdfunding to become perceived as a viable funding model.
  • Firstly, investors should bring an appropriate amount of money to the table – enough that the start-up can afford to cover a significant amount of the venture’s existing costs, scale up the business by either hiring new employees, embark on a product expansion or pay for additional publicity. Secondly, the investor brings additional skills, experience and a professional network. Some entrepreneurs saw this as a key part of finding the “right” investor – they treated obtaining money from an investor, in exchange for equity, as standard; the thing that set investors apart was the network, skills and experience that they could add to the venture. Finally, entrepreneurs saw the relationship between an investor and start-up founders as being a partnership. Although some worried that an investor might expect to have more control over the venture than the founders, implicit in that was the idea that the investor would be involved in the running of the company, whether on a board level or an operational level, along with the existing members of the start-up team.
  • Interviewees mentioned venture capital, angel investment, state grants and so-called “soft loans” provided by state institutions as the primary sources of start-up funding. Although two entrepreneurs had actually tried crowdfunding, few volunteered it as a viable source of funding and when pressed expressed hesitancy to use the platforms.One entrepreneur explained his reluctance to go for crowdfunding as he viewed the funding options as a kind of hierarchy, with VC investment as the “cream of the crop” investment and crowdfunding at the bottom. Similarly, another entrepreneur noted that taking grants and soft loans did not give a business as much credibility as obtaining equity funding although she was not sure where crowdfunding fit into that assessment.
  • “…so it’s not always about the money, but I think for certain your money is a positive side effect, but there are certain other things that crowdfunding brings to the table, it could be crowdsourcing, it could be connecting with other people, it could be simple information – it’s basically feedback at an early stage that could make or break your idea.”[So you are seeing business angels with large amounts coming in and investing through crowdfunding platforms?] “Yes, you have innovative and early stage Business Angels who … want to invest 1 million in an early stage of this company, but [say] ‘if I do this, I want also to have a position at the table’, to have influence in the company.”
  • http://www.mynewsdesk.com/se/fundedbyme/pressreleases/fundedbyme-raises-sek10-million-to-help-swedish-smsgrupp-expand-to-the-developing-world-862689

Transcript

  • 1. Solving the Puzzle of Crowdfunding When institutional logics and affordances collide, (re-)design matters RESEARCH-IN-PROGRESS PRESENTED AT BOCCONI UNIVERSITY, MILAN, ITALY CLAIRE INGRAM, ROBIN TEIGLAND, EMMA VAAST OCTOBER 2013
  • 2. Project researchers Claire Ingram ◦ Research Assistant /PhD Student ◦ Stockholm School of Economics, Sweden Robin Teigland ◦ Associate Professor ◦ Stockholm School of Economics, Sweden Emmanuelle Vaast ◦ Associate Professor ◦ McGill University, Canada
  • 3. Today’s presentation Crowdfunding and our empirical puzzle Theoretical background Methodology Initial findings Q&A
  • 4. Worldwide 800+ platforms, $2.6bn raised (Massolution, 2012) Europe $945m raised (Massolution, 2012) Sweden $4m raised (Sept 2013) Image: Adapted from growvc.com Crowdfunding Accumulation of small investments in individual projects by large number of individuals (the “crowd”) via or with help of Internet and social networks (De Buysere et al., 2012)
  • 5. Crowdfunding taking off in Sweden March 2011-April 2013 • $1mln raised • Around 300 projects funded of over 700 total • Avg $3300 per project • Max raised $86 000
  • 6. Success Story: Flippin’ Burgers on FundedByMe Money raised: SEK 36,502 / €4,000 Number of Investors: 186 Date Funded: September 2011 Sector: Food
  • 7. Flippin’ Burgers - Continued http://travel.cnn.com/best-americana-restaurants-europe-023346
  • 8. Sweden in top in ICT entrepreneurship and innovation
  • 9. But here we found an interesting puzzle…. “We haven’t had that many projects, and the projects we’ve had haven’t really held the kind of quality we had hoped for...” - Institutional Actor “I don’t get the feeling that crowdfunding is the new thing and we can forget everything else.” - IT Entrepreneur Why are Swedish IT entrepreneurs not using local crowdfunding platforms?
  • 10. Today’s presentation Crowdfunding and our empirical puzzle Theoretical background Methodology Initial findings Q&A
  • 11. Institutional theory Actors embedded in environment defined by cognitive, normative and structural considerations Pressure towards stasis Limited human agency (Battilana et al. 2009) Focus on institutional logics, which are part of a broader, accepted belief system about what constitute legitimate expectations and goals within a shared field (Thornton, 2002)
  • 12. Role of Institutional Entrepreneur “Social contexts present entrepreneurs with many constraints, yet they also set the conditions that create windows of opportunity.” (Aldrich and Fiol, 1994: 649) Change agent/ Institutional entrepreneur Actors in institutional field being “changed” Institutional entrepreneur fulfills two conditions (Battilana et al. 2009) 1) Initiate divergent changes in institutions 2) Actively participate in implementation of changes
  • 13. Technology affordances AffordancesMaterial Social “Action possibilities and opportunities that emerge from actors engaging with a focal technology” (Faraj and Bijan, 2012: 238) “As potential interactions between people and technology, rather than as properties of either people or technology” ” (Majchzrak and Markus, 2012: 1)
  • 14. Integrating theory Platform affordances and narratives Institutional logics Material Social Crowdfunding actor, i.e., instituti onal entrepreneur, desi gns platform Startup funding ecosystem
  • 15. Research questions Actors [Crowdfunding platforms] behave not only as designers of technological system promoting technical features but also as institutional entrepreneurs who actively try to impact institutional logics to encourage emergence of affordances from system RQ1: How does the prevalent startup funding institutional logic affect entrepreneurs’ perceptions of the affordances of crowdfunding platforms? RQ2: What role does this institutional logic play in affecting the narratives of the institutional entrepreneur?
  • 16. Today’s presentation Crowdfunding and our empirical puzzle Theoretical background Methodology Initial findings Q&A
  • 17. Qualitative case study: Coding of 22 interviews Startup ecosystem in Sweden • 16 entrepreneurs • 2 institutional actors • 2 repeat funders • 2 platform creators Investigating entrepreneur and geographic communities and organizational fields within which entrepreneur is embedded (Marquis and Battilana, 2007). Enabling analysis of interplay between existing institutional logic and nascent, developing institutional logic (DiMaggio, 1988; Garud, Hardy, and Maguire, 2007; Maguire, Hardy, and Lawrence, 2004).
  • 18. Today’s presentation Crowdfunding and our empirical puzzle Theoretical background Methodology Initial findings Q&A
  • 19. Prevalent institutional logic regarding financing Money is only one of several reasons an entrepreneur goes for funding: “We were kind of in the mindset of getting like a good investor in; someone who could add something. And that’s still our perspective. The kind of guys who invested in us are really good investors, impressive investors and they add a lot to the company other than money.” - Entrepreneur
  • 20. First attempt at Institutional Entrepreneurship Crowdfunding platforms focus on disrupting this funding logic, i.e., as a substitute for existing sources of venture funding, e.g., bank, VC, angel. Physical design of crowdfunding site emphasizes this narrative – amount of money raised in large font with progress bar and percentage, emphasis on giving money and tracking how much has already been received.
  • 21. Colliding with funding logic Big $$$ Startup funding logic Values Platform features and narrative X
  • 22. Second attempt at Institutional Entrepreneurship Little change in physical appearance of crowdfunding sites BUT narrative around crowdfunding changed to be complementary to other forms of startup financing One platform argued crowdfunding could be used for publicity and to test market Another platform noted that its strategy was to involve large investors in crowdfunding, not just “ordinary people” Strategy shift: Introduction of and shifted focus from reward- based to crowd equity
  • 23. Aligning with funding logic Platform features and narrative Big $$$ Startup funding logic Values
  • 24. Change of strategy by FundedByMe
  • 25. Initial success through crowd equity
  • 26. Discussion ◦Institutional entrepreneur attempts to use technology affordances and accompanying narrative as tool to change institutional logic ◦But direct “attack” on institutional logic not successful ◦Changed to indirect attack through alignment of narrative and strategy with prevailing institutional logic ◦Research in progress - > outcome?
  • 27. Ongoing research – comments welcome! Next steps – Interviews to be conducted • Primary crowdfunding platforms • Platform technology providers • Other organizational field actors, eg traditional venture funders • Crowd equity entrepreneurs and investors Continued theoretical development More information online • Research Paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2263965 • Industry Report: http://blog.fundedbyme.com/robin-teigland/
  • 28. Today’s presentation Crowdfunding and our empirical puzzle Theoretical background Methodology Initial findings Q&A
  • 29. Q &A Image: NewYorker.com We would like to acknowledge .SE – The Internet Infrastructure Foundation and VINNOVA for their generous funding of our research.
  • 30. Robin Teigland robin.teigland@hhs.se www.knowledgenetworking.org www.slideshare.net/eteigland www.nordicworlds.net RobinTeigland Photo: Lindholm, Metro Photo: Nordenskiöld Photo: Lindqvist If you love knowledge, set it free…