Understanding The Crowd : A quantitative study on investor motivation in equity crowdfunding

(1)

Understanding

The Crowd

A quantitative study on investor motivation in equity crowdfunding

Bachelor Thesis within Business Administration

Number of credits 15 ECTS

Programme of study International Management

Authors Alex Pearson

John Johdet Mikael Näselius

Tutor Ayesha Manzoor

(2)

i

Acknowledgements

This thesis was written during spring 2016 and marks the end of our three years studying International Management at Jönköping International Business School (JIBS). Writing this thesis and sailing the undiscovered waters of crowdfunding has been challenging, yet a very rewarding project. There are a few people who have helped us throughout the journey, who we would like to acknowledge.

First, we want to express our gratitude towards our tutor Ayesha Manzoor. Her research experience and feedback has been valuable and much appreciated. We would also like to acknowledge Adele Berndt for sharing her expertise within crowdfunding, and Kristofer Månsson for his statistical advice.

Furthermore, we want to thank Henning Ivarson, Petter Warnhammar and Erik Svensson, our opponents, for all discussions on the crowdfunding topic and for their valuable feedback.

Last but not least, we want to acknowledge Eggs Inc, Mormor Magda, Virtuous Vodka and Isbjörn of Sweden for helping us reach their investors and thereby making this study possible. And of course, to all the 142 investors who participated in our survey, we would like to thank you for taking the time to share your thoughts and experiences.

(3)

ii

Abstract

Background - Equity-based crowdfunding is rapidly emerging as a source of funding, as a way

for ventures to overcome financial obstacles. It is based on a large number of investors, the crowd, who contributes with smaller investments that together helps fund the venture, where the investor in return receives equity in the venture. In order for the entrepreneur to successfully fund their ventures, it is important to understand what motivates the investors to invest.

Problem: The theoretical framework Motivation in Equity-Based Crowdfunding has been

developed to understand what drives the investors. However, this framework has mainly been developed on crowdsourcing and general crowdfunding, which is significantly different from equity crowdfunding. Therefore, further research has been suggested by other authors on the topic, to specifically investigate investor motivation in equity crowdfunding. Furthermore, existing research has only studied investors as one group of people and not divided them into smaller segments.

Purpose: The aim of this descriptive study is to understand what motivational factors drives

investors to invest in equity-based crowdfunding, and how the motivations to invest is different between the demographic characteristics within age, gender, location, income and investor experience.

Method: With a deductive research approach, four hypotheses were developed based on the

literature review. Using the framework Motivation in Equity-Based Crowdfunding as a basis for the research, the investor motivation was studied on 142 equity crowdfunding investors using a quantitative online survey. The results were then analyzed using frequency analysis, descriptive statistics, t-statistics and multiple regression analysis.

Conclusion: Based on the findings, a revision of the framework Motivation in Equity-Based

Crowdfunding have been suggested. Furthermore, it was found that investors were primarily driven by enjoyment, philanthropic and financial payoffs in their decision to invest. There were also significant differences found in investor motivation between the demographics age, gender and investor experience, whilst the location or income of the investor did not have any effect on investor motivation.

Contribution: By understanding what investors are motivated by, the entrepreneurs can

promote these factors in their crowdfunding campaign, which may increase their chances of getting successfully funded. Furthermore, if the entrepreneur wants to bring in a certain type of investor, they can adjust their promotion after the factors that motivates a certain demographic characteristic.

Keywords: Crowdfunding, Investment Motivation, Motivational Factors, Demographic

(4)

iii

2.6.1 Enjoyment Motivation ... 10 2.6.2 Community Motivation ... 10 2.6.3 Philanthropic Motivation... 11 2.6.4 Relationship Motivation... 11 2.7EXTRINSIC MOTIVATION ... 11 2.7.1 Immediate Payoff ... 11 2.7.2 Delayed Payoff ... 12 2.7.3 Social Motivation ... 12 2.7.4 Personal Need ... 12 2.8DEVELOPMENT OF HYPOTHESES ... 13 2.8.1 Hypothesis 1 ... 13 2.8.2 Hypothesis 2 ... 13 2.8.3 Hypothesis 3 ... 14 2.8.4 Hypotheses 4a-4e ... 14

3 METHODOLOGY & METHOD ... 16

3.1METHODOLOGY ... 16 3.1.1 Research Purpose ... 16 3.1.2 Research Philosophy ... 16 3.1.3 Research Approach ... 17 3.1.4 Research Strategy ... 17 3.2METHOD ... 18 3.2.1 Data Collection ... 18 3.2.2 Secondary Data ... 18 3.2.3 Primary Data ... 18 3.2.4 Survey Design ... 18

3.2.5 Population & Sampling ... 20

3.2.6 Research Ethics ... 21

3.2.7 Data Analysis ... 22

4 RESULTS ... 24

4.1FREQUENCY ANALYSIS ... 24

4.2DESCRIPTIVE STATISTICS ... 26

4.3PAIRED SAMPLES T-TEST ... 27

4.4ONE-WAY ANOVAANALYSIS ... 28

4.5INDEPENDENT SAMPLES T-TEST ... 29

4.6MULTIPLE REGRESSION ANALYSIS ... 30

4.7HYPOTHESES RESULTS ... 31

(5)

iv

4.7.2 Hypotheses 4a-4e ... 32

5 ANALYSIS ... 35

5.1RESEARCH QUESTION 1 ... 35

5.1.1 Removing Immediate Payoff ... 35

5.1.2 Addition of Financial & Non-Financial Payoff ... 36

5.1.3 Importance of Motivational Factors in Equity Crowdfunding ... 37

5.2RESEARCH QUESTION 2 ... 39 5.2.1 Age ... 39 5.2.2 Gender ... 40 5.2.3 Location ... 41 5.2.4 Income ... 41 5.2.5 Investor Experience ... 41 6 DISCUSSION ... 42 6.1CONCLUSION ... 42

6.2THEORETICAL &EMPIRICAL CONTRIBUTIONS ... 42

6.3IMPLICATIONS ... 43

6.4LIMITATIONS ... 44

6.5FURTHER RESEARCH ... 45

REFERENCES ... 47

APPENDICES APPENDIX A: SURVEY STATEMENTS - SOURCES APPENDIX B: SURVEY STATEMENTS – DESCRIPTIVE STATISTICS APPENDIX C: SURVEY APPENDIX D: MULTIPLE REGRESSION ANALYSIS TABLES APPENDIX E: INDEPENDENT SAMPLES T-TEST TABLES TABLE OF FIGURES FIGURE 1: MOTIVATION IN EQUITY-BASED CROWDFUNDING………. 9

FIGURE 2: CONFIDENCE INTERVAL: IMMEDIATE PAYOFF………... 25

FIGURE 3: SUGGESTED CHANGES FOR MOTIVATION IN EQUITY-BASED CROWDFUNDING... .37

TABLE OF TABLES TABLE 1: DISTRIBUTION OF DEMOGRAPHIC CHARACTERISTICS……….… 19

TABLE 2: SURVEY OVERVIEW………...21

TABLE 3: FREQUENCY ANALYSIS: DEMOGRAPHIC CHARACTERISTICS ………. …24

TABLE 4: FREQUENCY ANALYSIS: IMMEDIATE PAYOFF……….. …25

TABLE 5: DESCRIPTIVE STATISTICS………... …26

TABLE 6: CRONBACH’S ALPHA………26

TABLE 7: PAIRED SAMPLES T-TEST………27

TABLE 8: ANOVA-TABLE………...28

TABLE 9: INDEPENDENT SAMPLES T-TEST SUMMARY……….29

TABLE 10: MULTIPLE REGRESSION ANALYSIS SUMMARY………..30

TABLE 11: IMPORTANCE OF MOTIVATIONAL FACTORS……….. 38

(6)

1

Definitions

Crowdsourcing: An online community where a large number of individuals, the crowd,

contribute and obtain feedback, ideas and solutions.

Crowdfunding:A form of online fundraising, where a large number of individuals, the crowd, makes investments that together funds a project or venture.

Equity Crowdfunding: A crowdfunding form in which a large number of individuals, the crowd, raise funds to a venture, and in return receives equity in the company.

Entrepreneur: The creator or founder of a project or venture, who uses crowdfunding as a

financing source.

Investment: A financial contribution to a crowdfunding campaign, in which the investor receives some form of value in return.

Investor: An individual making an investment in a crowdfunding campaign, and thereby becoming part of the project or venture.

Investor Motivation:The factors determining an investor's willingness to make an investment.

Motivational Factors:The different factors in investor motivation, developed in the theoretical framework Motivation in Equity-Based Crowdfunding.

Demographic Characteristics: Categorizing people into different groups of measure, in this

paper, referring to groups within age, gender, location, income and investor experience.

Crowdfunding Campaign: The marketing and information of a crowdfunding project or venture, which potential investors can find on the online crowdfunding-platform.

Venture:A company or project created by an entrepreneur.

Investor Experience:Based on the number of equity crowdfunding investments performed by an investor, dividing investors into experienced and inexperienced.

(7)

2

1 Introduction

This introductory chapter introduces the existing research on equity-based crowdfunding in the background, followed by the problem formulation and research purpose. Thereafter, the expected empirical contributions of the study are presented, and finally the delimitations of the paper.

1.1 Background

The creation of new ventures play an important role in the development of innovation, improving the employment rate and in the long run having great impact on economic growth (Cassar, 2004). In the early stages of new venture development, a vital success factor is raising sufficient capital to pursue and develop the business idea (Cassar, 2004; Cosh, Cumming & Hughes, 2009; Mollick, 2014). However, raising capital through traditional financing sources such as venture capitalists, business angels or bank loans is well recognized as a difficult challenge for many ventures (Belleflamme, Lambert & Schwienbacher 2014; Cosh et al., 2009). Hence, insufficient capital is a large barrier to entry for new ventures and a common reason for failure (Cassar, 2004).

In recent years, in order to overcome the financing obstacle for ventures, a new alternative of financing called crowdfunding has emerged and grown in popularity. The concept of crowdfunding is based on reaching out to a large audience, the crowd, in order to bring in a large quantity of smaller investments to fund a venture (Lehner, 2013; Mollick, 2014). What differentiates crowdfunding from other types of financing methods is that the venture is not dependent on one specific institution or person, but instead reaches out to a large crowd of investors (Mollick, 2014). By sharing and promoting the business idea, most often through an intermediary online crowdfunding-platform, the investors can raise capital and in return receive some form of value from the venture (Belleflamme et al., 2014). The value that the investor receives in return can vary. Hence, crowdfunding can be divided into four different categories depending on what the venture offers its investors in return, namely reward-, donation-, lending- and equity-based crowdfunding (Belleflamme et al., 2014; Mollick, 2014). In the latter, equity-based crowdfunding, the investor raises capital and in return receives value in form of shares and ownership of the venture. Although equity crowdfunding is currently one of the smallest crowdfunding types, it is rapidly growing (Bretschneider, Knaub & Wieck, 2014; Mollick 2014).

The emergence of equity crowdfunding depends on a number of factors. Firstly, the general phenomenon of crowdfunding has received a lot of attention lately and is becoming increasingly popular to the public (Carmichael, 2013). Secondly, technological advances and particularly the development of Web 2.0 does not only allow the entrepreneurs to share their ideas through crowdfunding sites, but also makes it easy for the crowd to access and invest in ventures (Belleflamme et al., 2014; Kim & Hann, 2013; Kleemann, Voß & Rieder, 2008). Lastly, since equity crowdfunding involves shares and ownership of enterprises, it is often subject to

(8)

3

securities and financial regulations that vary between countries. However, with the increasing demand of equity crowdfunding and the benefits it brings to a country in terms of employment, economic growth and innovation, regulation has been eased by a number of countries including China, United States, United Kingdom and other countries within the European Union (Stemler, 2013; Hornuf & Schwienbacher, 2014). Moreover, equity-based crowdfunding indicated the largest growth rate after lending-based crowdfunding with a growth rate of 182% in 2014, increasing from $400m in 2013 to $1.1b in 2014 (Massolution 2015). With the major developed countries becoming more welcoming towards equity crowdfunding and investors, the phenomenon is expected to continue growing even further in the near future (Wilson & Testoni, 2014; Hornuf & Schwienbacher, 2014).

Equity crowdfunding investors are rather different from investors of traditional financing sources (Pierrakis & Collins, 2013). Other investors, such as banks, stock investors and venture capitalists are widely recognized to mainly be driven by financial motives (Wilson & Testoni, 2014). Often, their motivation to invest is entirely based on return on investment opportunities with high potential. However, unlike investors in traditional financing forms, research indicates that equity crowdfunding investors are not only driven by financial motivators, but also many non-financial (Schwienbacher & Larralde, 2010). Hence, the reasons to invest are not solely for potential financial payoffs, but also for reasons that are internally rewarding to the investors.

1.2 Problem

In line with the rapid growth and increased interest in the crowdfunding phenomenon, the subject area has become increasingly researched in recent years (Belleflamme et al., 2014; Mollick, 2014). One area that has received increasing attention lately, although still limitedly researched, is the investor's motivations to invest in crowdfunding ventures (Wechsler, 2013; Gerber, Hui & Kuo, 2012; Harms, 2007; Van Wingerden & Ryan, 2011). Since the people, and thereby each individual investor, decides what ventures receive their capital, the investors indirectly control the market offering. Hence, as the investors decide which ventures get funded, they also determine what products and services will become available (Mollick, 2014). Therefore it is vital for entrepreneurs who use crowdfunding as a financing source to understand what the investors are motivated by, in order to successfully fund their own ventures (Bretschneider et al., 2014; Eriksson & Göransson, 2015; Huynh & Ugander, 2015).

Existing research tends to investigate investor motivation on crowdfunding in general, and does not differentiate between the different crowdfunding types, being reward-, donation-, lending- and equity-based crowdfunding. Since these crowdfunding types are rather different in terms of business ideas and outcome goals, naturally also the investor's motivation to invest is different. Therefore, existing research on investor motivation has expressed a need for further research on specific crowdfunding types (Cholakova & Clarysse, 2014; Lehner, 2013). Considering the rapid growth of equity crowdfunding, and the expected future growth due to ongoing legislative changes, this is a crowdfunding type that is particularly important to study (Bretschneider et al., 2014; Eriksson & Göransson, 2015; Huynh & Ugander, 2015). Since most research on investor motivation has been performed on general crowdfunding, authors in this

(9)

4

area have suggested further research to investigate what motivations are relevant specifically for equity crowdfunding (Bretschneider et al., 2014; Cholakova & Clarysse, 2014; Eriksson & Göransson, 2015; Huynh & Ugander, 2015). Furthermore, since existing research has studied investors as one group of people, further research has been suggested to divide investors into smaller segments and investigate if the investor motivation is different between these segments (Eriksson & Göransson, 2015)

1.3 Purpose

Considering the importance of understanding investors in the rapidly growing equity-based crowdfunding, along with the research gaps discussed above, this paper will study investor motivation in equity crowdfunding. More specifically, the study aims to investigate what the key motivational factors are in equity crowdfunding, and further study how important these factors are to investors among different demographic characteristics. This leads to the following research questions:

RQ 1: What are the key motivational factors behind an investor’s decision to make an equity

crowdfunding investment?

RQ 2: Is there a difference in investor motivation between demographic characteristics (age,

gender, location, income and investor experience)? 1.4 Expected Empirical Contribution

Apart from the theoretical contributions this paper intends to fulfill by investigating the research gaps discussed in section 1.2 Problem, this paper furthermore aims to provide empirical contributions. This paper and its empirical contributions are mainly aimed for entrepreneurs using equity-based crowdfunding to fund their venture. By understanding the different motivational factors and how important these are to the investor's in their decision to invest, the entrepreneur will be able to adjust their crowdfunding campaign and focus on promoting these factors. The outcome goal from this strategy would be to attract a higher number of investors, and thereby increase their chances of successfully funding their ventures.

Furthermore, if the entrepreneur wants to attract a certain type of investor, the findings on differences in investor motivation between demographic characteristics would be useful. Apart from financial support, the investor brings a number of non-financial contributions to the venture including competence, becoming customers, brand ambassadorship and providing valuable feedback (Schwienbacher & Larralde, 2010; Wilson & Testoni, 2014; Collins & Pierrakis, 2012). Therefore, the entrepreneur may want to bring in a certain type of investor to contribute with these non-financial benefits, for instance, attracting investors that belong to the customer target group of the venture. In this case, the entrepreneur would again adjust their crowdfunding campaign, but instead promote the factors that the specific demographic characteristics are driven by.

(10)

5

1.5 Delimitations

Due to constraints in terms of time, space and resources, the research is subject to a number of delimitations. The empirical study was based on a Swedish equity crowdfunding platform, and therefore, the study may not be applicable on international investors. Moreover, within research on investment motivation, it is common to use the demographics age, gender, educational level, occupation, location, family status and income when dividing a population into smaller segments (Aren & Aydemir, 2015; Kaufmann, Schulze & Veit, 2011; Sulaiman, 2012). However, due to limited time, space and resources, not all demographics could be investigated. Furthermore, since the number of survey respondents was expected to be relatively small, only demographics that could be divided into two groups were chosen. Therefore, age, gender, income and location was considered the more suitable to investigate compared to education, occupation and family status that would need to be categorized into more groups (Aren & Aydemir, 2015; Kaufmann, Schulze & Veit, 2011; Sulaiman, 2012). Previous research has investigated differences in investor motivation depending on the investor experience in equity crowdfunding, therefore, this demographic was also investigated in the study (Eriksson & Göransson, 2015; Huynh & Ugander, 2015). Limitations and their implications on the research are further discussed in section 6.4 Limitations.

(11)

6

2 Literature Review

This chapter discusses the existing research on the subject. The first part of this chapter covers the crowdfunding phenomenon in general, defines the different crowdfunding types and provides a deeper explanation of equity crowdfunding. The second part covers the existing research on investor motivation and presents the theoretical framework Motivation in Equity-Based Crowdfunding.

2.1 Crowdfunding

The phenomenon of crowdfunding has emerged from the wider concept of crowdsourcing, which refers to the idea of using the crowd to obtain feedback, ideas and solutions to develop corporate activities (Belleflamme et al., 2014). In crowdsourcing, members of a community share their ideas to solve particular problems. By merging their efforts, the members create favorable exchange conditions to benefit the community (Ordanini, Miceli & Pizzetti, 2011).

Crowdfunding is a form of fundraising, usually taking place online, where a large group of people invest for the purpose of supporting particular goals and efforts initiated by an entrepreneur or organisation (Ahlers, Cumming, Günther & Schweizer, 2015). Instead of collecting large capital from a small group of traditional investors such as venture capitalists or business angels, crowdfunding helps ventures obtain funding from a larger audience. The audience, also known as the crowd, consists of a large number of individual investors who invests smaller amounts of money that together ads up to fund the venture (Belleflamme et al., 2014).

Crowdfunding allows entrepreneurs of profit-driven ventures, but also cultural and social projects, to collect capital from individuals, often in return for some kind of value to the investor (Mollick, 2014; Ordanini et al., 2011). According to Ordanini et al. (2011) there are three different players involved in the crowdfunding process. Firstly, the entrepreneurs promoting their ventures in order to raise capital. Secondly, the crowd, being individual people who decide if they want to financially support the venture. Finally, the online crowdfunding platform that allows the entrepreneur to create, promote and seek funding for their venture. Moreover, the crowdfunding platform connects the investors and entrepreneurs with each other.

2.2 Types of Crowdfunding

There are four main ways to crowdfund a project or venture, being lending-, donation-, reward- or equity-based crowdfunding (Frydrych, Bock, Kinder & Koeck, 2014; Mollick 2014). The use of different crowdfunding methods can vary depending on the venture and its purpose. Each crowdfunding type attracts certain types of ventures, which in turn attracts certain types of investors. Moreover, the difference between the crowdfunding methods lies in the goals of the entrepreneur and investor, and the value the investor receives in return for their investment (Mollick, 2014).

(12)

7

Lending-based crowdfunding can be compared to the traditional debtor and lender relationship,

similar to borrowing money from a bank. The entrepreneur borrows money from the investor who in turn expects a rate of return on the invested capital (Frydrych et al., 2014). The method is associated with traditional micro loans, where the entrepreneur offers the funders lending opportunities in exchange for financial returns on their loans (Mollick, 2014).

Donation-based crowdfunding can be seen as a philanthropic contribution. The investor does

not expect any return on their investments and the founders are generally social entrepreneurs (Frydrych et al., 2014; Lehner & Nicholls, 2014). Moreover, the entrepreneurs seek donations without being required to provide any personal value to the investor, instead, their objective is to serve social causes and charities (Fundable, 2016).

Reward-based crowdfunding involves setting varying levels of returns to the investor, also

called rewards, based on the amount of money the investor contributes with (Fundable, 2016). This type of crowdfunding is commonly used for ventures developing a new product, since the crowdfunding campaign helps build sufficient capital to produce the product, and at the same time attracts customers since the investor reward is generally based around the product itself. The investor may get the opportunity to access the product at an early stage, at a better price, be part of the production process or receive the product when it has been finalized (Mollick, 2014). In this type of crowdfunding, the entrepreneur could be seen as the creator or founder, and the investor as an early customer and co-creator rather than a traditional investor (Frydrych et al., 2014).

Equity-based crowdfunding can be seen as the exchange of actual shares in a private company

in exchange for capital (Fundable, 2016). In equity crowdfunding, the entrepreneur offers a specified amount of equity in the company to a group of investors through an open call on a crowdfunding platform (Ahlers et al., 2015). The process could be compared to the traditional investment mechanism, where the entrepreneur values the venture and offers potential investors shares for a certain price based on the valuation (Frydrych et al., 2014). The concept of equity crowdfunding can also take place in other forms, such as royalties, returns on future acquisitions or an initial public offering, in exchange for capital (Mollick, 2014).

In the equity crowdfunding process, the entrepreneur creates a crowdfunding campaign on an online crowdfunding-platform, where the venture is promoted in order to attract potential investors. The crowdfunding platform operates as an advisor and intermediate between the entrepreneurs and the investors and takes a commission for each crowdfunding campaign (Wilson & Testoni, 2014). The entrepreneur decides upon the terms and conditions for the campaign, such as time frame, the minimum required capital and number of investors. If the campaign achieves the set terms and conditions it will be closed successfully, meaning that the venture receives the capital and in exchange the investors receives shares in the venture (FundedbyMe, 2016).

(13)

8

2.3 Investors in Equity Crowdfunding

The investors within equity crowdfunding can be divided into active or passive investors. In a passive investment, the investors are solely interested in receiving financial returns on their investment without being involved in the actual process. In an active investment, the investors are active in the development process by taking different initiatives to support the entrepreneurial effort (Schwienbacher & Larralde, 2010).

Equity crowdfunding investors can be compared to traditional angel investors since they usually contribute with support and knowledge during the development process of a venture (Wilson & Testoni, 2014). According to a survey made by The UK Alternative Finance Industry Report (Baeck, Collins & Zhang, 2015), entrepreneurs found that investors within equity crowdfunding added value beyond their financial contributions by providing valuable connections to people in their contact networks, but also valuable feedback and validation of the ventures business ideas. Furthermore, the entrepreneurs can benefit from their investors becoming customers, brand ambassadors, provide early advertisement of the venture and give information on the potential market demand and product preferences (Wilson & Testoni, 2014). Since investor’s within crowdfunding may receive non-financial benefits, apart from potential financial returns, they are willing to accept higher risks and lower return on their investments, compared to traditional investors who generally seek profit-maximization (Collins & Pierrakis, 2012).

2.4 Investor Motivation

Investor motivations are the factors determining an investor's willingness to make an investment. According to The Self-Determination Theory, motivation can be divided into intrinsic and extrinsic motivations (Deci & Ryan, 1985). Intrinsic motivation is an internally created motivation to perform an action that matches the individual's own interests. The opposite of intrinsic motivation is extrinsic motivation, which is an externally created motivation. When driven by extrinsic motivation, the investor strives to achieve goals that will bring external rewards. However, neither intrinsic nor extrinsic motivation necessarily excludes the other, meaning, a person can be driven by both intrinsic and extrinsic motivations (Hermer, 2011).

The Self-Determination Theory has commonly been used as a template for research on motivation. From the basis of intrinsic and extrinsic motivation, developments have been made through research on investor motivation in crowdsourcing, general crowdfunding and most recently been applied on equity-based crowdfunding. The developments have resulted in the theoretical framework Motivation in Equity-Based Crowdfunding (Figure 1). This theoretical framework forms the basis of the research carried out in the paper.

(14)

9

Figure 1. Motivation in Equity-Based Crowdfunding (Huynh & Ugander, 2015). 2.5 Developments of Motivation in Equity-Based Crowdfunding

The theoretical framework has been developed from the basis of Deci and Ryan's (1985) Self-Determination Theory. Being categorized into intrinsic and extrinsic motivations, eight subcategories of motivational factors have been identified to drive investors to invest in equity crowdfunding. Although the framework is applied on equity crowdfunding, most motivational factors were developed on crowdsourcing and general crowdfunding.

In their study on crowdsourcing, Lakhani and Wolf (2005) made the first development of the Self-Determination Theory after their results showed support for enjoyment motivation and

community motivation as subcategories to intrinsic motivation. They also investigated extrinsic

motivation and found strong support for this factor in crowdsourcing, however, they did not develop any specific motivational factors to extrinsic motivation. Kaufmann et al. (2011) investigated the theory on crowdsourcing projects and with support from the previous study by Lakhani and Wolf (2005), suggested the addition of immediate payoff and delayed payoff to the framework. Furthermore, social motivation was added as an extrinsic subcategory by Kaufmann et al. (2011) with support from previous research on investor motivation (Deci & Ryan, 1985; Ryan & Deci, 2000).

Wechsler (2013) applied the theoretical framework on general crowdfunding by investigating what motivational factors were important to investors in successfully completed crowdfunding campaigns. According to the suggested findings, philanthropic motivation was added among the intrinsic motivations as an altruistic factor of investor motivation (Wechsler, 2013). Building on Wechsler’s (2013) framework, Eriksson and Göransson (2015) were the first to perform a study on investor motivation in equity-based crowdfunding by specifically focusing on athletes in their study. They introduced relationship motivation as a fourth subcategory of intrinsic motivation.

The latest development came from Huynh and Ugander (2015), who researched investor motivation in equity-based crowdfunding in the Swedish market. Their findings found support for the extrinsic motivational factor personal need. Thus, the theoretical framework Motivation in Equity-based Crowdfunding is presented (see Figure 1), as a summary representing all of the developed motivational factors.

(15)

10

2.6 Intrinsic Motivational Factors

Intrinsic motivation is a driver and desire that comes from the individual themselves, unaffected by its surroundings. Achieving such goals is therefore strongly connected to strengthening personal wealth as it develops the individual and the individual's own desire (Deci & Ryan, 2000). The four existing types of intrinsic motivations are the motivational factors enjoyment, community, relationship and philanthropic.

2.6.1 Enjoyment Motivation

Brabham (2008) conducted a study on crowdsourcing and found that investors commonly invested for the creativeness and the fun of it. This was later confirmed to be an important motivational factor for general crowdfunding as well (Bretschneider et al., 2014; Van Wingerden & Ryan, 2011). This was further supported by Harms (2007), who investigated why people chose to contribute financially to crowdfunding ventures, finding that the sense of satisfaction and enjoyment are factors that motivates the investor. Enjoyment was furthermore found to be the most influential intrinsic motivational factor for investors in equity crowdfunding (Eriksson & Göransson, 2015; Huynh & Ugander, 2015).

The investor may find investing in crowdfunding to be self-motivating, where the investment can help to get rid of boredom (Organisciak, 2008). To obtain a sensation of curiosity, pleasure and thrill can also be seen as enjoyment factors (Kaufmann et al., 2011). Gerber et al. (2012) performed a study on general crowdfunding and suggested that investors may feel enjoyment from social interaction within the venture. Ordanini et al. (2011) further claims that there is a strong wish for crowdfunding investors to adapt a creative and innovative mindset. Therefore, being involved in the actual process is of high importance for many investors (Van Wingerden & Ryan, 2011).

2.6.2 Community Motivation

When being driven by community factors, the investor invests in a crowdfunding venture with the purpose of creating a better society in the nearby environment (Wechsler, 2013). A strong emotional connection to the community is also found to affect the investor's level of involvement in the ventures (Brabham, 2008; Wechsler, 2013). Furthermore, being around people with similar interests also drives investments (Van Wingerden & Ryan, 2011; Organisciak, 2008). This is confirmed by Gerber et al. (2012), who further added that being part of a local change may be important to the investor. Emotions to the community, meeting people with similar interests and being part of change can create a sense of belongingness, which may also increase the likelihood for investing in local ventures (Wechsler, 2013). Hence, a close geographical distance between the entrepreneur and investor may increase the investor's emotions for the venture, thus, the willingness to invest (Bretschneider et al., 2014; Lin & Viswanathan, 2013). Crowdfunding is a way to promote regional ventures that otherwise may have been unsuccessful due to insufficient funding, since funding through traditional financing sources is hard to obtain (Dapp & Laskawi, 2014).

(16)

11

2.6.3 Philanthropic Motivation

Philanthropy reflects a person acting from goodwill, by making a contribution in terms of financial resources, time or effort. It is not an act that is forced upon, or even expected by anyone (Bretschneider et al., 2014). Not expecting anything in return for an investment, but rather the feeling of helping someone could itself be a motivation to invest. Hence philanthropic factors mean giving away something for someone else’s benefit (Organisciak, 2008; Wechsler, 2013). Hermer (2011) further claims that active participation within socially beneficial ventures is a strong motivation to invest. This is confirmed by Gerber et al. (2012), who further suggests that supporting a venture may create a feeling of meaningfulness and generosity. Eriksson and Göransson (2015) found strong support when testing philanthropic motivation in equity crowdfunding, finding it to be one of the most important factors in the investor's decision to make an investment. Philanthropic factors were found to be rather important in general crowdfunding as well (Gerber et al., 2012; Bretschneider et al., 2014).

2.6.4 Relationship Motivation

When a potential investor has a personal relationship with the entrepreneur, the chance of an investment being made is larger than without such relationship (Bretschneider et al., 2014; Hermer, 2011). Family and friends are an important investor segment in the early stages of a crowdfunding campaign (Bretschneider et al., 2014; Hermer, 2011; Dapp & Laskawi, 2014; Wechsler, 2013). When investigating the framework on equity crowdfunding, it was found that admiration for the entrepreneur, or the venture itself, was an important factor for investing (Eriksson & Göransson, 2015). Hence, the investor may choose to invest as a feeling of compassion or sympathy for the entrepreneur (Gerber et al., 2012; Hermer, 2011).

2.7 Extrinsic Motivation

In the context of investor motivation, extrinsic motivation mainly concerns financial rewards, although extrinsic motivation may also refer to various non-financial motivators such as recognition or feeling of success (Deci & Ryan, 2000). Extrinsic motivation has its origin from the surroundings, meaning that the investor has been externally influenced towards a goal (Deci & Ryan, 1985; Kaufmann et al., 2011; Lakhani & Wolf, 2005). The four existing types of extrinsic motivational factors are immediate payoff, delayed payoff, social motivation and personal need

2.7.1 Immediate Payoff

Immediate payoffs are returns the investor receives immediately after making the investment. Researchers within reward-based crowdfunding argue that the most common immediate payoff is the product return the investor receives after making the investment (Leimeister, Huber, Bretschneider & Krcmar, 2009; Gerber, et al., 2012). Such compensation can be tangible or intangible, for example a product, or the value of being mentioned on a crowdfunding ventures website or event (Gerber et al., 2012; Wechsler, 2013). Investing in an equity-crowdfunding venture may give access to other investors within the venture (Eriksson & Göransson, 2015; Gerber et al., 2012). This could be an important motivation to invest, since it can help develop

(17)

12

the investors contact network for future businesses opportunities (Gerber et al., 2012). However, Eriksson and Göransson (2015) found that building a strong contact network instead belongs to delayed payoffs, since the benefits are enjoyed after the investment is made. They argue that building a contact network takes time and is done throughout the process rather than immediately when making the investment.

2.7.2 Delayed Payoff

According to Kaufmann et al. (2011), delayed payoffs may refer to anything gained throughout the process that can have future value for the investor. Thus, the value of these factors takes time to receive, as opposed to immediate payoffs. Within equity-based crowdfunding, financial return is one of the most important motivational factors to investors (Eriksson & Göransson, 2015; Huynh & Ugander, 2015). Financial returns may be received in different ways, either through dividends (Cholakova & Clarysse, 2014; Pierrakis & Collins, 2013) or by selling the shares with future profit (Eriksson & Göransson, 2015).

Delayed payoffs may also be non-financial, for example the learning experiences gained throughout the investment and project process (Leimeister et al., 2009; Brabham, 2008). Investors may invest to improve their creativity skills by being involved in the crowdfunding ventures (Schwienbacher & Larralde, 2010; Gerber et al., 2012). As an entrepreneur, it could be a tactical decision to invest in other ventures, in order to receive investments in return from other entrepreneurs (Hermer, 2011). Furthermore, due diligence may be important for the investor, and thus, getting access to information may be an important aspect of delayed payoffs (Wilson & Testoni, 2014; Wiltbank & Boeker, 2007).

2.7.3 Social Motivation

Kaufmann et al. (2011) added social motivation in crowdsourcing as a subcategory that is expressional towards the investor’s environment. They argue that in order to fit into a certain social group, the investor may follow specific social norms and fulfill obligations expected by other individuals in a social group. Another social motivation factor may be the investor’s willingness to express themselves to the society, either by making a stand, or as a result from pressure by the social environment surrounding the investor (Harms, 2007). Deci and Ryan (2000) strengthen these claims by stating that social motivation is when an individual adapts to a third party's rules in order to avoid sanctions. Hence, social motivation may be a motive to invest, since it is a way to present one’s identity to the society, or to get recognition from others (Kaufmann et al., 2011).

2.7.4 Personal Need

Huynh and Ugander (2015) identified personal need as a motivational factor to invest in equity crowdfunding, building on the suggestion by Bretschneider et al. (2014). They identified a need for a motivational factor where the function of the product itself is in focus. Hence, to see a product be developed and become available in the market is an incentive to invest, as it may fulfill an individual's personal need. Products that can be used to save money or increase

(18)

13

profitability is a target for many investors, thereby encouraging them to invest (Fuller, 2006). Huynh and Ugander (2015) furthermore suggested that if a product provide a high level of personal utility, it is more likely to fulfill an investor's personal need. Meaning, if the need for a certain product is high, it will increase the investor's motivation to invest in the venture (Harms, 2007; Huynh & Ugander, 2015).

2.8 Development of Hypotheses

Four hypotheses have been developed to answer the research questions of this paper. Hypotheses 1-3 intends to answer the first research question by finding the key motivational factors in equity crowdfunding, whilst hypotheses 4a-4e answers the second research question by investigating investor motivations between demographic characteristics. The hypotheses are based on existing research and identified gaps that have been discussed in the introduction and literature review.

2.8.1 Hypothesis 1

Immediate payoff was introduced as a motivational factor in crowdsourcing and later applied in general crowdfunding (Kaufmann et al., 2011; Wechsler, 2013), and can be described as a payoff that the investor receives immediately when making the investment. In reward-based crowdfunding, an immediate payoff could be the product or service the investor receives when making the investment, or in donation-based crowdfunding it may be the recognition received from supporting a project (Gerber et al., 2012; Wechsler, 2013). However, such examples of immediate payoffs do not apply to equity crowdfunding. What is more, there are no clear examples of immediate payoffs that are relevant to equity crowdfunding, instead, existing research indicates that all payoffs are delayed payoffs (Bretschneider et al., 2014; Eriksson & Göransson, 2015; Huynh & Ugander, 2015). For instance, the increase in share value or dividends are not immediate payoffs, but rather a future financial return. Furthermore, building a contact network or investing as a learning experience may be payoffs, but these are also received at later stages (Bretschneider et al., 2014). To answer the first research question, and considering the lack of support for immediate payoff in existing literature, hypothesis 1 is developed to test if immediate payoff is a relevant motivational factor in equity crowdfunding.

H1: “Immediate payoff is a relevant motivational factor in equity crowdfunding.”

2.8.2 Hypothesis 2

As opposed to immediate payoff, existing research show strong support for delayed payoffs in equity crowdfunding, as it was ranked as the most important extrinsic motivator for equity crowdfunding investors (Eriksson & Göransson, 2015; Huynh & Ugander, 2015). Delayed payoffs are compensations that the investor receives at any future point after making the investment (Kaufmann et al., 2011). Existing research suggests delayed payoffs can be financial, in terms of dividends payments or increasing value of the shares, but also non-financial with factors such as building a stronger contact network, increased knowledge and investment experience (Brabham, 2008; Huynh & Ugander, 2015). Considering the rather

(19)

14

broad category of delayed payoff, it would be relevant to test if investors value financial payoffs and non-financial payoffs equally, or if they are significantly different from each other. If found to be significantly different, delayed payoffs may instead be divided into financial- and non-financial, and thereby provide more accurate motivational factors in equity crowdfunding. Therefore, in order to answer the first research question, hypothesis 2 is developed to test if delayed payoffs can be divided into financial- and non-financial payoffs.

H2: “There is no significant difference between the motivational factors financial payoff and

non-financial payoff.” 2.8.3 Hypothesis 3

The two first hypotheses focus on finding the most relevant motivational factors to investors in equity crowdfunding. However, to further answer the first research question, it is also important to investigate how important each motivational factor is to the investors in their decision to invest. As previously discussed, most developments of the framework has been made on crowdsourcing and general crowdfunding, therefore it is important to test their relevance in equity crowdfunding specifically (Cholakova & Clarysse, 2014; Lehner, 2013). In existing research this has only been limitedly tested, and these papers have expressed a need for further research to test and validate the current motivational factors (Eriksson & Göransson, 2015; Huynh & Ugander, 2015). Furthermore, since the framework Motivation in Equity-Based Crowdfunding has been adjusted and updated, it is also important to measure if the newly added motivational factors are important to investors (Eriksson & Göransson, 2015; Huynh & Ugander, 2015). Hence, in order to further answer the first research question, hypothesis 3 is developed to test if there is any significant difference in importance between the motivational factors.

H3: “All motivational factors are equally important to equity crowdfunding investors in their

decision to invest.” 2.8.4 Hypotheses 4a-4e

Whereas research on investor motivation in equity crowdfunding is limited, there is to the author's greatest knowledge, no previous research on investor motivation between different demographic characteristics. Eriksson and Göransson (2015) suggests there is a gap in existing research, expressing a need to divide investors into smaller segments and investigate if there is a difference in investor motivation, rather than studying investors as one group of people. Apart from financial contributions, investors may bring many other benefits to the venture. Since the investors become shareholders, they can contribute with missing competence, knowledge, valuable feedback, brand ambassadorship and becoming customers themselves (Schwienbacher & Larralde, 2010; Wilson & Testoni, 2014; Collins & Pierrakis, 2012). Therefore, by finding what motivates different demographic characteristics to invest, the entrepreneur will be able to attract a certain type of investor by focusing on promoting the motivational factors that the desired group is specifically driven by.

(20)

15

Hence, in order to answer the second research question and to fill the gap identified in existing literature, hypotheses H4a-H4e have been developed to investigate differences in investor motivation within the demographics age, gender, location, income and investor experience.

H4a: “There is no significant difference in investor motivation between young and old

investors.”

H4b: “There is no significant difference in investor motivation between male and female investors.”

H4c: “There is no significant difference in investor motivation between investors who live in urban cities and those living in smaller cities.”

H4d: “There is no significant difference in investor motivation between low- and high-income investors.”

H4e: “There is no significant difference in investor motivation between experienced and inexperienced investors.”

(21)

16

3 Methodology & Method

The first part of this chapter will discuss the methodology, being the purpose, philosophy, approach and strategy of the research. In the second part, the method is discussed, covering the data collection, survey design, sampling method and research ethics. In the final part of this chapter, the data analysis will be discussed.

3.1 Methodology 3.1.1 Research Purpose

The purpose of this paper was to use a theoretical framework, being Motivation in Equity-Based Crowdfunding, to investigate investor motivation in equity crowdfunding. Since the purpose is to use an existing theory to deepen the knowledge within investor motivation, this research paper can be seen as an extension of an earlier exploratory research and thereby be classified as descriptive (Saunders, Lewis & Thornhill, 2012). Descriptive research aims to understand the characteristics of a population, which is the purpose of this paper since it investigates what motivational factors drives the investors to make investments. Furthermore, rather than examining how, when and why the investors are motivated by a certain factor, which is an explanatory type of research, the research purpose is more descriptive since it aims to understand what drives the investors to invest in equity crowdfunding (Saunders et al., 2012).

3.1.2 Research Philosophy

The research philosophy explains what assumptions the authors make about how the world is perceived and what the researcher views as acceptable in the development of new knowledge (Bryman & Bell, 2011; Saunders et al., 2012). Within social sciences and business management, positivism and interpretivism are the dominant research philosophies, but also the two most extreme and contradicting philosophies (Bryman & Bell, 2011). Positivism aims at producing scientific research, where objectivism is highly emphasized in order to produce reliable and unbiased findings. Interpretivism instead involves a lot of emotions and feelings to understand human behavior and feelings. Although the research philosophy of this paper is close to positivism, all principles of the philosophy are not agreed upon by the authors. Instead, a pragmatic philosophy will be held in this research, which is a combination of multiple philosophies. In this paper, a pragmatic philosophy that is significantly closer to positivism than interpretivism (Saunders et al., 2012).

As characterized by positivism, the findings of this paper will be entirely based on statistical data, and thereby avoid involving personal judgements. This will reduce bias and make the findings more reliable and representative for the population, which is suitable for a descriptive research (Saunders et al., 2012). However, although the aim is to arrive at objective and accurate findings, the purpose is not to produce a scientific law which is commonly the purpose of a fully positivistic approach. Furthermore, positivists believe humans only react to external power, as opposed to interpretivists, who argue that people may have different views of reality

(22)

17

(Bryman & Bell, 2011). Since this paper studies human behavior and investor motivation, which includes intrinsic motivation, the interpretivist philosophy is more suitable in that aspect.

3.1.3 Research Approach

Research approach concerns the relationship between theory and research. The approach can either be deductive if the research is guided by existing theory, or inductive if theory is an outcome of research (Bryman & Bell, 2011). This study has a deductive research approach, since the hypotheses are based on existing research. The aim of a deductive approach is to find relationships between variables in an objective way, which is also in line with the positivistic research philosophy (Saunders et al., 2012). In this study, the existing theoretical framework Motivation in Equity-Based Crowdfunding is used to find relationships between the variables motivational factors and the demographic characteristics.

To ensure reliable data and reducing the risk of bias, the deductive approach means results will be independent of the author’s personal values as the findings will be solely based on statistical data and the acceptance or rejection of hypotheses (Bryman & Bell, 2011). Furthermore, deductive research aims to make generalizations about the population, which is in line with the research purpose by investigating what the population and demographic characteristics are motivated by (Saunders et al., 2012).

3.1.4 Research Strategy

To fulfill the research purpose, a quantitative research is chosen as the most appropriate method. Quantitative research aims to quantify variables, being the motivational factors in this study, to generalize results from larger population groups – which are the investors and different demographic characteristics in this case (Saunders et al., 2012). Whilst qualitative research is primarily used in exploratory research to understand underlying reasons, a quantitative method is generally preferred for descriptive researches (Bryman & Bell, 2011).

Compared to qualitative research, quantitative research is associated with a high number of participants. Since the research purpose aims to find correlations and patterns between variables, higher number of respondents will result in more reliable data and more credible findings (Saunders et al., 2012). As previously discussed, the findings are purely based on the quantitative statistics and the acceptance or rejection of hypotheses, and thereby not involving any personal values in the analysis. If a qualitative research had been chosen instead, it would be hard to handle and analyze the data objectively, which would contradict to the chosen research philosophy and research approach (Bryman & Bell, 2011). Instead by choosing a quantitative research, it provides objectivity, larger sample sizes, hypotheses built on theory as well as statistically based findings – all in line with the chosen philosophy and research approach (Saunders et al., 2012).

(23)

18

3.2 Method

3.2.1 Data Collection

The data used in this paper is partly secondary from the literature review, but also primary from the quantitative empirical study. As mentioned in the methodology section, by following a deductive research approach, the hypotheses are based on existing theory from the introduction and literature review. The second stage of a deductive research is to design and implement a research strategy to test the hypotheses (Gill & Johnson, 2010).

3.2.2 Secondary Data

A literature review was carried out to evaluate the existing research of secondary data to generate an overall view of current research, thus, also being the sources of the identified research gaps (Saunders et al., 2012). When collecting peer-reviewed articles, Web of Science and Scopus were the most used databases. To find relevant articles and journals of the research area, the main keywords used were: Crowdfunding, Investment Motivation, Equity Crowdfunding, Crowdfunding Investor and Investor Motivation. Articles with a high number of citations were chosen over those with less, in order to increase the credibility of the data. Furthermore, recent articles were chosen above older articles to the greatest extent, in order to reduce the risk of outdated data.

Since the phenomenon of investor motivation within equity crowdfunding is limitedly researched, articles on crowdsourcing and general crowdfunding were used to complement the secondary data on investor motivation. Furthermore, due to the limited research in the subject area, the peer-reviewed articles have been complemented with a number of conference papers, theses, industry reports and websites to provide sufficient data for the research.

3.2.3 Primary Data

Surveys are recognized to be the most appropriate primary data method when using standardized questions to study all respondents in the same way (Saunders et al., 2012; Robson, 2002). The chosen survey approach is a self-administered quantitative online survey, which is the most commonly used method in business and economics research, and is furthermore suitable for investigating patterns of different variables (Saunders et al., 2012). The tool used for the online survey was Google Questionnaire.

3.2.4 Survey Design

The survey was made as clearly worded as possible in order to avoid misinterpretation, and thereby receiving more credible answers (Saunders et al., 2012). The length of a survey plays a vital role in the respondent’s willingness to complete it, therefore, only the most important elements of the research was implemented in the survey, in order to keep it short and concise (Saunders et al., 2012).

(24)

19

The survey was offered to the respondents in both Swedish and English, which is a clarifying adjustment to remove possible language barriers for answering the survey (Buglear, 2012; Usunier, 1998). Components from the theoretical framework therefore had to be translated from English to Swedish when developing the survey. Possible errors that can occur from language adjustments have been minimized by translating the meaning of a sentence, rather than word-specific (Usunier, 1998). The survey was pilot-tested by ten respondents of the sample before being sent to all investors to make sure that the survey questions were understood correctly. This was done to avoid potential misinterpretations and thereby increase the data reliability (Saunders et al., 2012; Fink, 2003).

The first part of the survey asked the respondent for demographic characteristics, more specifically their age, gender, location, income and investor experience. By asking the respondents about their number of equity crowdfunding investments it also ensures that the respondent had invested in equity crowdfunding and thereby fulfilled the criteria to participate in the study. The demographic characteristics of the respondents were categorized in the following way:

Demographics Characteristics

Age Young, Older

Gender Male, Female

Location Urban City, Smaller City

Income Low-Income, High-Income

Investor Experience Inexperienced, Experienced

Table 1. Distribution of Demographic Characteristics.

Young investors are 0-38 years old, whilst older investors are 39 and above. The two age groups were divided by the average mean of the sample size, being 38.86 rounded to the closest full number in order to get two equally sized groups. Urban city is defined as cities with a population of 200,000 or more and smaller cities as less than 200,000 inhabitants (SKL, 2016). The two income groups were divided according to Swedish tax brackets (Skatteverket, 2016), where low-income investors are those with an annual income of SEK 0-430,200 and high-income investors with SEK 430,201 and above. Inexperienced investors are defined as those who have performed one or two equity crowdfunding investments, whilst experienced investors are those who have made three or more equity crowdfunding investments.

After the demographic questions, the respondents were asked to answer how well they agreed with 17 different statements regarding their motivations to invest in equity crowdfunding. These statements were put on a Likert scale from 1-6, where 1 represents “Not at all” and 6 as “Fully” agreeing with the statement. By using a scale with even numbers it forces the investor to make an active standpoint on each question, since there is no middle or neutral alternative (Saunders et al., 2012). The statements were standardized and developed from previous studies on investor motivation in crowdsourcing, general crowdfunding and equity crowdfunding (Deci & Ryan, 1985; Lakhani & Wolf, 2005; Kaufmann, Schulze & Veit, 2011; Wechsler, 2013;

(25)

20

Eriksson & Göransson, 2015; Huynh & Ugander, 2015). Since there were 17 statements, each motivational factor was represented by either two or three statements. Information on the categorization of each statement, and sources of each standardized statement can be found in Appendix A. Finally, in order to answer hypothesis 1, the respondents were asked if they received any immediate payoffs when making the equity crowdfunding investment, with the options yes or no. The full survey design can be found in Appendix C.

3.2.5 Population & Sampling

There are two main methods when collecting the sample of a population, namely probability and non-probability sampling. In this study, a probability sampling method was selected in order to collect data from the population. This sampling technique allows the authors to make statistical conclusions and generalizations of the population, which is the most appropriate technique for a descriptive research approach (Saunders et al., 2012; Easterby-Smith, Thorpe & Jackson, 2015; Buglear, 2012). Compared to non-probability sampling, this sampling method also reduces bias by not involving personal judgement in the selection of the sample (Saunders et al., 2012; Easterby-Smith et al., 2015). Furthermore, as opposed to non-probability, probability sampling is widely recognized to produce more accurate and credible findings (Saunders et al., 2012).

The first stage was to decide on the sampling frame, also called population. Since the study aims to investigate what motivates investors to invest in equity crowdfunding, the population was selected from the largest crowdfunding platform in Sweden focusing on equity-based crowdfunding, FundedByMe (Realtid, 2016; Dagens Industri, 2016). Furthermore, the following requirements were considered to find a suitable population for the study; investors have invested in a Swedish equity crowdfunding venture, the venture was successfully funded and the campaign took place no longer than three years ago. Based on those requirements, a total number of 24 ventures were identified, with a total of 2840 equity crowdfunding investors (FundedByMe, 2016).

The next stage in the sampling process was to decide on a suitable sampling size and sampling technique. Since the population is appropriately measurable in size and available to reach through the entrepreneurs, it was decided to target the entire sampling frame instead of selecting a specific sampling size. Thereby minimizing bias and increasing the chance of getting in contact with all active investors in the limited time frame (Buglear, 2012). Since the investors could not be directly accessed, the process of collecting the sample was divided into two stages. Firstly, to give the whole population an equal chance to participate in the survey, all founders of the 24 ventures that together formed the sampling frame was contacted through a standardized email with a request to contact their investors (Saunders et al., 2012). If the company had not responded to the email within four days, a follow-up email was sent as a reminder, in order to increase the sampling size. The same standardized approach was applied when contacting all companies to reduce bias (Saunders et al., 2012). Four ventures with a total of 1026 investors decided to participate in the research, which was considered to be a representative size of the sampling frame for general interpretation of the entire population

(26)

21

(Saunders et al., 2012). Considering the time limitations, the authors were satisfied with the obtained sampling size. The second step of collecting the sample was sending out the survey, via the entrepreneurs, to all 1026 investors. This was either done through email or internal Facebook groups, depending on what forum was the most frequently used communication channel between the entrepreneur and their investors.

Of the 1026 investors that got the opportunity to answer the survey, there were 142 respondents, resulting in an active response rate of 13.8 %. According to Saunders et al. (2012), a response rate of at least 11% is recommended for online surveys in order to be considered reliable. Therefore, with a response rate of 13.8%, an acceptable response rate and reliable data is achieved. Several measurements were taken to increase the response rate, such as motivating the respondents to answer by donating 10 SEK to the Young Cancer Foundation for each completed survey. Furthermore, the survey was efficiently formed in order to make it quick and easy to complete, taking approximately 3-4 minutes according to the test-pilots (Saunders et al., 2012). Survey Overview Total Population 2840 Sample Size 1026 Respondents 142 Response Rate 13.8%

Table 2. Survey Overview. 3.2.6 Research Ethics

Research ethics has been considered throughout the entire research process when conducting this study. First, by using a probability sampling and basing the findings solely on statistical data, this reduces the risk of bias and misleading results. There are however a number of possible sampling errors, but these have been fully presented in section 8.2 Limitations, to make the reader understand that the findings are subject to limitations. Moreover, to reduce the risk of producing inaccurate results, the findings are required to be based on a high significance level in the data analysis (Saunders et al., 2012).

Ethical implications have also been considered in the collection of primary data. The survey had a clear description of what the purpose of the research was and how the data would be treated. The participation information was promised to be held confidential, and would only be used for research purposes. Furthermore, the survey was voluntary to answer and the respondents were fully anonymous. Moreover, to avoid causing embarrassment, stress or discomfort regarding the question about private income, the respondents had the option to not share this information (Saunders et al., 2012).

(27)

22

3.2.7 Data Analysis

By asking the respondents to rank statements on a 1-6 Likert scale, it helps generate scale data that explains what motivated each individual investor to invest in equity crowdfunding. The data from Google Questionnaire was exported to Microsoft Excel, and then imported to IBM SPSS 21 Statistics that was the chosen data processing and analyzing program. After importing the data, a number of statistical analysis were performed in order to test the hypotheses and thereby answer the research questions of the paper (Bryman & Bell, 2011).

First, frequency analysis was performed in order to see how the different demographic characteristics were represented in the collected data (Bryman & Cramer, 2011). Furthermore, a confidence interval was calculated to estimate how many investors received an immediate payoff, in order to test if this was a relevant motivational factor in equity crowdfunding.

Second, descriptive statistics were used to analyze the data. The investors answered 17 different statements, where each motivational factor was represented by two or three statements. Since the investors ranked the importance of each statement, an average mean could be calculated for the eight motivational factors (Bryman & Cramer, 2011). Hence, the mean values indicate how important each motivational factor were to the investors.

Third, a paired samples t-test was used to find if there was a significant difference between the means of two dependent factors (Saunders et al., 2012). In this paper, the t-test shows if the motivational factors are differently important to investors in their decision to make an equity crowdfunding investment. A one-way ANOVA analysis was also used to further test if there was a difference in importance between the motivational factors, and if the difference is statistically significant (Saunders et al., 2012). The paired samples t-test also helps answer hypothesis 2 by testing if there is a significant difference between financial payoff and non-financial payoff in terms of importance to the investor (Bryman & Cramer, 2011).

Fourth, an independent samples t-test was conducted to find if there was a difference in means between two independent groups (Bryman & Cramer, 2011). In this paper, testing if the demographic characteristics within age, gender, location, income and investor experience value the motivational factors differently, thereby answering hypotheses 4a-4e.

Finally, a multiple regression analysis was conducted, which is suitable to use when investigating more than one independent variable, which is the case in this paper since five demographics are used (Bryman & Cramer, 2011). It is used to analyze and identify the strength of potential relationships between the demographic characteristics and each motivational factor (Saunders et al., 2012).

To ensure high quality and validity of the collected data, skewness and kurtosis was used to measure if the data was normally distributed. Whilst skewness analyzes the symmetry of the data, kurtosis decides whether the data is light-tailed or heavy-tailed relative to normality (Bryman & Bell, 2011). Furthermore, a Cronbach’s Alpha was calculated in order to test the