User crowdfunders: insiders or idealists?

Abstract

Crowdfunding has attracted new types of investors into the innovation and entrepreneurial finance space, notably users/customers of ventures and investors with societal impact motivations. These new investors represent a promising additional source of finance for innovation, but their contribution to this investment space depends on the quality of their investment decision-making. We know little about how (differently motivated) users may overcome the high levels of informational asymmetry that characterizes innovation finance. By combining investment, user and survey data on a large, successful crowdfunding campaign of a sharing platform, we are able to differentiate between user and non-user crowdfunders and their investment motivation. We find evidence of lower information search effort for users, which we explain based on their access to local ‘sticky’ information about the venture as evidenced in the user innovation literature. Although both users and impact-motivated funders have less investment experience – and therefore are ‘new’ investors – we find no significantly lower financial literacy than non-user crowdfunders. This confirms evidence from the financial literacy literature that investors self-select based on their financial literacy. Financially motivated users show higher financially literate than both non-users and impact-motivated users, signaling that this group may represent a high quality additional source of innovation finance. Our results inform policy development for innovation finance and crowdfunding regulation.