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Entrepreneur fund-seeking: toward a theory of funding fit in the era of equity crowdfunding

Why do entrepreneurs prefer to seek one equity form of funding over another? To address this question, we develop a contingency-based model of perceived funding fit that delineates several factors that influence strategic fund-seeking decisions by entrepreneurs. In prior research, entrepreneur fund-...

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Detalles Bibliográficos
Autores principales: Stevenson, Regan, McMahon, Sean R., Letwin, Chaim, Ciuchta, Michael P.
Formato: Online Artículo Texto
Lenguaje:English
Publicado: Springer US 2021
Materias:
Acceso en línea:https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8114971/
http://dx.doi.org/10.1007/s11187-021-00499-0
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author Stevenson, Regan
McMahon, Sean R.
Letwin, Chaim
Ciuchta, Michael P.
author_facet Stevenson, Regan
McMahon, Sean R.
Letwin, Chaim
Ciuchta, Michael P.
author_sort Stevenson, Regan
collection PubMed
description Why do entrepreneurs prefer to seek one equity form of funding over another? To address this question, we develop a contingency-based model of perceived funding fit that delineates several factors that influence strategic fund-seeking decisions by entrepreneurs. In prior research, entrepreneur fund-seeking has largely been explained using models that rely on rule-based approaches (e.g., the pecking order assumption) or value capture considerations. In contrast, we propose a dynamic contingency-based model that delineates several factors that influence entrepreneur perceptions of funding fit over and above transactional efficiency, including atypical value creation from the fundraising process itself and external stakeholder values. We inductively assess our model in the context of equity crowdfunding (ECF) and find that perceived funding fit can motivate some strategic fund-seekers to opt to pursue ECF, even when they have a reasonable opportunity to obtain other more established sources of funding such as angel or seed-stage venture capital. This indicates that ECF in several cases is not a funding mode of last resort as proposed in prior literature. Plain English Summary Raising capital is a complex and dynamic process. Strategic entrepreneurs seek “funding fit” for their particular ventures leading some to opt for less established forms of funding such as equity crowdfunding for a variety of reasons beyond efficiency. Prior venture funding research has largely taken the view of the investor, emphasizing what entrepreneurs must do to win the favor of angel investors and other seed funders, and deeming equity crowdfunding (ECF) a funding mode of last resort for discouraged entrepreneurs. Inductively analyzing hundreds of regulatory filings, entrepreneur interviews, public information, and media pieces about ECF-funded firms, we find evidence that in several cases, strategic entrepreneurs may prefer to opt for ECF if they perceive it to be a better fit due to novel forms of nonfinancial value. We explain our findings by proposing an emergent contingency-based model of “funding fit.”
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spelling pubmed-81149712021-05-13 Entrepreneur fund-seeking: toward a theory of funding fit in the era of equity crowdfunding Stevenson, Regan McMahon, Sean R. Letwin, Chaim Ciuchta, Michael P. Small Bus Econ Article Why do entrepreneurs prefer to seek one equity form of funding over another? To address this question, we develop a contingency-based model of perceived funding fit that delineates several factors that influence strategic fund-seeking decisions by entrepreneurs. In prior research, entrepreneur fund-seeking has largely been explained using models that rely on rule-based approaches (e.g., the pecking order assumption) or value capture considerations. In contrast, we propose a dynamic contingency-based model that delineates several factors that influence entrepreneur perceptions of funding fit over and above transactional efficiency, including atypical value creation from the fundraising process itself and external stakeholder values. We inductively assess our model in the context of equity crowdfunding (ECF) and find that perceived funding fit can motivate some strategic fund-seekers to opt to pursue ECF, even when they have a reasonable opportunity to obtain other more established sources of funding such as angel or seed-stage venture capital. This indicates that ECF in several cases is not a funding mode of last resort as proposed in prior literature. Plain English Summary Raising capital is a complex and dynamic process. Strategic entrepreneurs seek “funding fit” for their particular ventures leading some to opt for less established forms of funding such as equity crowdfunding for a variety of reasons beyond efficiency. Prior venture funding research has largely taken the view of the investor, emphasizing what entrepreneurs must do to win the favor of angel investors and other seed funders, and deeming equity crowdfunding (ECF) a funding mode of last resort for discouraged entrepreneurs. Inductively analyzing hundreds of regulatory filings, entrepreneur interviews, public information, and media pieces about ECF-funded firms, we find evidence that in several cases, strategic entrepreneurs may prefer to opt for ECF if they perceive it to be a better fit due to novel forms of nonfinancial value. We explain our findings by proposing an emergent contingency-based model of “funding fit.” Springer US 2021-05-12 2022 /pmc/articles/PMC8114971/ http://dx.doi.org/10.1007/s11187-021-00499-0 Text en © The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature 2021 This article is made available via the PMC Open Access Subset for unrestricted research re-use and secondary analysis in any form or by any means with acknowledgement of the original source. These permissions are granted for the duration of the World Health Organization (WHO) declaration of COVID-19 as a global pandemic.
spellingShingle Article
Stevenson, Regan
McMahon, Sean R.
Letwin, Chaim
Ciuchta, Michael P.
Entrepreneur fund-seeking: toward a theory of funding fit in the era of equity crowdfunding
title Entrepreneur fund-seeking: toward a theory of funding fit in the era of equity crowdfunding
title_full Entrepreneur fund-seeking: toward a theory of funding fit in the era of equity crowdfunding
title_fullStr Entrepreneur fund-seeking: toward a theory of funding fit in the era of equity crowdfunding
title_full_unstemmed Entrepreneur fund-seeking: toward a theory of funding fit in the era of equity crowdfunding
title_short Entrepreneur fund-seeking: toward a theory of funding fit in the era of equity crowdfunding
title_sort entrepreneur fund-seeking: toward a theory of funding fit in the era of equity crowdfunding
topic Article
url https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8114971/
http://dx.doi.org/10.1007/s11187-021-00499-0
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