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User entrepreneurs are responsible for the most important innovations in many industries, but little research has explored the performance of firms founded by user entrepreneurs. While user entrepreneurs have a deep knowledge of customer needs that facilitates the identification of innovative solutions, they tend to lack the relevant business knowledge (e.g., market, production, operational and organizational) to successfully exploit opportunities and grow their ventures. Using a randomized field experiment, we examine the performance of user entrepreneurs, specifically, their ability to raise capital through equity crowdfunding. We find that investors’ interest in investing is significantly lower in a firm founded by a user innovator relative to a comparable firm founded by a producer innovator.
Harnessing Innovative Startups: Evidence from Corporate Venture Capital in China
Peking University Gary Dushnitsky,
London Business School
Established firms invest in entrepreneurial ventures to capture the external growth opportunities; an activity labeled as corporate venture capital (CVC). While past work documented the general antecedents of CVC activities, little is known about the mechanisms through which established firms target a specific industry. We study the factors guiding these corporate investors through the lens of information economics and competitive dynamics. Our study contributes to the extant literature in three ways: first, we emphasize entrepreneurs’ role of creating market opportunities; second, our study complements previous CVC literature by focusing on the specific market entry decisions; finally, we enrich the extant studies by introducing new driving forces of CVC decisions.
Having Your Cake and Eating It Too? Ambivalent Linguistic Framing Strategies in Equity Crowdfunding
Dennis Helding Jacobsen,
Yale School of Management Diego Stea,
Copenhagen Business School
Linguistic framing has important consequences for firms that need to convey information to potential resource contributors. However, while linguistic frames are ubiquitous and normally simultaneously deployed, knowledge is lacking on the workings and outcomes of the use of ambivalent framing strategies. To address this issue, we explore the application of linguistic framing strategies that simultaneously appeal to the familiarity and novelty of a given entrepreneurial project in an equity crowdfunding setting. Particularly, we extend a complementarity logic to the context of ambivalent linguistic frames to theorize and show that, while per se deleterious, ambivalent framing strategies lead to increased resource acquisitions when formulated in a clear manner, but result in the opposite effect when formulated in complex ways.
How to Fund 2-sided Marketplaces? Venture Capital Financing of Platform Businesses
London Business School Evila Piva,
Polytechnic University of Milan
Platform businesses exhibit key distinction from non-platform firms; notable the role of network effects and potential for winner-takes-all dynamics. Extant work on platform businesses offers little guidance as to the funding needs and investment patterns in this distinct firm type. It is a puzzling lacuna as an increasing fraction of total venture capital (VC) investments targets such platforms. We investigate the differences in VC governance between invested platform and non-platform businesses. Drawing on the insights that the viability of network effects is demand-based and highly uncertain to assess, we expect VC-backed platform businesses are more frequently staged and syndicated than VC-backed non-platform businesses. We test these predictions using a matched sample of European businesses backed by VC investors between 1998 and 2014.