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Does Crowdfunding Benefit Entrepreneurs and Venture Capital Investors?

2020; Institute for Operations Research and the Management Sciences; Linguagem: Inglês

10.1287/msom.2019.0835

1526-5498

Volodymyr Babich, Simone Marinesi, Gerry Tsoukalas,

Microfinance and Financial Inclusion

AboutSectionsView PDF ToolsAdd to favoritesDownload CitationsTrack CitationsPermissionsReprints ShareShare onFacebookTwitterLinked InEmail Go to Section HomeManufacturing & Service Operations ManagementVol. 23, No. 2 Does Crowdfunding Benefit Entrepreneurs and Venture Capital Investors?Volodymyr Babich , Simone Marinesi , Gerry Tsoukalas Volodymyr Babich , Simone Marinesi , Gerry Tsoukalas Published Online:13 May 2020https://doi.org/10.1287/msom.2019.0835AbstractProblem definition: We study how a new development in entrepreneurship—crowdfunding—interacts with more traditional financing sources such as venture capital investors (VCs) and bank financing. Academic/practical relevance: Although extant literature has mainly focused on predicting crowdfunding campaign outcomes and optimal campaign design, the broader questions of how crowdfunding affects entrepreneurs and how crowdfunding platforms fit in with traditional startup financing sources, such as banks and VCs, have received relatively little attention. Methodology: We model a bargaining game with a moral-hazard problem between an entrepreneur and a bank, and a double-sided moral-hazard problem between the entrepreneur and a VC with respect to their noncontractible efforts. Results: We decompose the economic value of crowdfunding into cash gains or losses, costs of bad investments avoided, and project-payoff probability update. This economic value is generally shared between entrepreneurs and investors, benefiting both. Moreover, crowdfunding can help to overcome the agency problems. However, crowdfunding can also harm the entrepreneur and the VC. Competition from other investors reduces value to VCs, who may walk away from the deal entirely. This can hurt entrepreneurs who lose out on valuable VC operational expertise (operational support, access to supplier networks, etc.). Managerial implications: The model provides a theoretical underpinning for recent empirical observations that some projects lose VC financing after successful crowdfunding campaigns. Our results complement earlier studies in operations management by demonstrating that the entrepreneurs' objectives are more complex than simply maximizing the payoffs from crowdfunding campaigns. Previous Back to Top Next FiguresReferencesRelatedInformationCited byBlockchain technology empowers the crowdfunding decision-making of marine ranchingExpert Systems with Applications, Vol. 221Improving Dispute Resolution in Two-Sided Platforms: The Case of Review BlackmailYiangos Papanastasiou, S. Alex Yang, Angela Huyue Zhang23 January 2023 | Management Science, Vol. 0, No. 0Revenue Management in CrowdfundingJiding Zhang, Sergei Savin, Senthil Veeraraghavan14 October 2022 | Manufacturing & Service Operations Management, Vol. 25, No. 1Privacy-Preserving Network AnalyticsMarcella Hastings, Brett Hemenway Falk, Gerry Tsoukalas21 December 2022 | Management Science, Vol. 0, No. 0Mapping the venture capital and private equity research: a bibliometric review and future research agenda4 October 2022 | Small Business Economics, Vol. 43Commitment or not? Creator's quality strategies with uncertain market in reward-based crowdfunding22 July 2021 | International Journal of Production Research, Vol. 60, No. 17Efficient Resource Allocation Contracts to Reduce Adverse EventsYong Liang, Peng Sun, Runyu Tang, Chong Zhang1 July 2022 | Operations Research, Vol. 0, No. 0Interface of Operations and Finance: A Tutorial11 May 2021Crowdfunding for Independent Print Media: E-Commerce, Marketing, and Business Development8 October 2021 | Sustainability, Vol. 13, No. 19Kickstart my market: exploring an alternative method of raising capital in a new media sector6 August 2020 | Journal of Media Business Studies, Vol. 18, No. 3What leads to value co-creation in reward-based crowdfunding? A person-environment fit perspectiveTransportation Research Part E: Logistics and Transportation Review, Vol. 149Choice of pricing and marketing strategies in reward-based crowdfunding campaignsDecision Support Systems, Vol. 144Initial Coin Offerings, Speculation, and Asset TokenizationJingxing (Rowena) Gan, Gerry Tsoukalas, Serguei Netessine3 December 2020 | Management Science, Vol. 67, No. 2Crowdfunding: Definitions, Foundations and Framework27 July 2021Financing and coordinating the supply chain with a capital-constrained supplier under yield uncertaintyInternational Journal of Production Economics, Vol. 230Foundations and Trends at the Interface of Finance, Operations, and Risk ManagementSSRN Electronic Journal, Vol. 26Revenue Management in CrowdfundingSSRN Electronic Journal, Vol. 107Signaling to the Crowd: Private Quality Information and Rewards-Based CrowdfundingSSRN Electronic Journal, Vol. 84 Volume 23, Issue 2March–April 2021Pages 267-545, C2 Article Information Supplemental Materials Metrics Information Received:April 30, 2018Accepted:July 30, 2019Published Online:May 13, 2020 Copyright © 2020, INFORMSCite asVolodymyr Babich, Simone Marinesi, Gerry Tsoukalas (2020) Does Crowdfunding Benefit Entrepreneurs and Venture Capital Investors?. Manufacturing & Service Operations Management 23(2):508-524. https://doi.org/10.1287/msom.2019.0835 Keywordscrowdfundingentrepreneurshipventure capitaloperations and finance interfacedouble-sided moral hazardbargaining gamesPDF download