Solving the Puzzle of CrowdfundingWhen 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

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

Today’s presentation

Crowdfunding and our empirical puzzleTheoretical backgroundMethodologyInitial findingsQ&A

Worldwide 800+ platforms,$2.6bn raised

(Massolution, 2012)

Europe$945m raised

(Massolution, 2012)

Sweden $4m raised

(Sept 2013)

Image: Adapted from growvc.com

CrowdfundingAccumulation 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)

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

Success Story: Flippin’ Burgers on FundedByMe

Money raised: SEK 36,502 / €4,000

Number of Investors: 186

Date Funded: September 2011

Sector: Food

Flippin’ Burgers - ContinuedTop 5 Best American

Restaurants in Europe

http://travel.cnn.com/best-americana-restaurants-europe-023346

Sweden in top in ICT entrepreneurship and innovation

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?

Today’s presentation

Crowdfunding and our empirical puzzleTheoretical backgroundMethodologyInitial findingsQ&A

Institutional theory

Actors embedded in environment defined by cognitive, normative and structural considerationsPressure towards stasisLimited 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)

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 institutions2) Actively participate in implementation of changes

Technology affordances

Affordances Material 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)

Integrating theory

Platform affordances

and narratives

Institutional logics

Material Social

Crowdfunding actor, i.e., institutional

entrepreneur, designs platform

Startup funding ecosystem

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?

Today’s presentation

Crowdfunding and our empirical puzzleTheoretical backgroundMethodologyInitial findingsQ&A

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).

Today’s presentation

Crowdfunding and our empirical puzzleTheoretical backgroundMethodologyInitial findingsQ&A

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

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.

Colliding with funding logic

Big $$$

Startupfunding logic

Values

Platform features and narrative

X

Second attempt at Institutional Entrepreneurship

Little change in physical appearance of crowdfunding sitesBUT 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

Aligning with funding logic

Platform features and narrative

Big $$$

Startupfunding logic

Values

Change of strategy by FundedByMe

Initial success through crowd equity

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?

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/

Today’s presentation

Crowdfunding and our empirical puzzleTheoretical backgroundMethodologyInitial findingsQ&A

Q &A

Image: NewYorker.com

We would like to acknowledge .SE – The Internet Infrastructure

Foundation and VINNOVA for their generous funding

of our research.

Robin Teiglandrobin.teigland@hhs.se

www.knowledgenetworking.orgwww.slideshare.net/eteigland

www.nordicworlds.net RobinTeigland

Photo: Lindholm, Metro

Photo: Nordenskiöld

Photo: Lindqvist

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