Research paper

Investor motivations behind start­ups crowdfunding

Comparative study donation­based & equity­based

Authors: Larry Mikano, Xiaofang Zhang, Tom

Vermeersch, Yong Wang

Course Leader: Lena Olaison

Examiner: Rana Mostaghel

Semester: VT16

Course:Managing Innovation and Entrepreneurship

Degree: Marketing Master Program

Course Code: 4FE125­Final paper

Abstract

Crowdfunding can be seen as nascent and disruptive to traditional methods of raising finance.

Through platforms such as kickstarter, Indiegogo and Fundable, entrepreneurs, as well as

start­ups can solicit funds either large or small from an extensive network of individuals/

investors around the world. The purpose of this study is to examine the motivations behind

investors participating in crowdfunding for start­up companies: comparative study of

equity­crowdfunding and donation­based crowdfunding. Motivation variables of altruism, fun &

enjoyment, tangible return, financial return & gain and subjective norm were explored to explain

behavioral intention of the "crowd. " The Theory of Reasoned Action was adapted as the

explanation for behavioral intention of investors participating in crowdfunding. These

motivations were tested in the frame of a quantitative study, through a web­based survey. Using

a sample of eighty­two respondents and testing eight hypotheses, the results for donation­based

crowdfunding show that both altruism and fun & enjoyment have a positive influence on

investors intention to participate. For equity­based the variables altruism, fun & enjoyment and

tangible return are proven to have a positive influence. This supports past and existing literature

that shows these variables as important motivators. Both results and literature offer additional

insights into existing crowdfunding research and can help explain important motivation

determinants that can potentially be applied to different crowdfunding methods. In addition, the

conclusion present practical implications for entrepreneurs and start­ups considering choosing

the crowdfunding alternative.

Keywords: Equity­based Crowdfunding, Donation­based Crowdfunding, Motivation, Start­ups,

1. Introduction

Entrepreneurs and start­up companies face many challenges when it comes to raising capital in

the initial stage to fund new ventures. The emergence and new phenomenon of crowdfunding has

been able to circumvent the complexities involved to secure funds acting as a new source of

finance for individual founders (Belleflamme et al., 2012). Start­up's no longer need to rely on

traditional private equity providers such as business angels or venture capitalists to back products

or service offerings. Crowdfunding is a nascent trend, changing how capital is allocated and

prevails as a viable alternative in streamlining external funds to entrepreneurial ventures

(Belleflamme et al., 2013). It has become instrumental in providing support for both commercial

and charitable purposes (Choy and Schlagwein, 2016).

Crowdfunding draws inspiration from concepts like micro­finance (Morduch, 1999) and can be

seen as a form of crowdsourcing (Poetz and Schreier, 2012; Bretschneider et al., 2014) which

allows individuals or firms to obtain ideas, solutions or content of specific problems through

soliciting contributions from a large network of people (Howe, 2008; Kleeman et al., 2008).

Crowdsourcing also allows individuals to communicate and collaborate with each other through

social media platforms involving a product or solution development (Shen et al., 2014). This can

also be explained in the case of crowdfunding which is facilitated by a growing number of

internet sites such as kickstarter, Indiegogo, Fundable and Angelists dedicated to different

crowdfunding methods as well as initiatives such as business and entrepreneurship, social causes,

films and performing arts and other distinctive categories.

Schwienbacher and Larralde (2010) defines crowdfunding as “an open call, essentially through

the internet, for the provision of financial resources either in form of donation or in exchange for

some form of reward or voting rights in order to support initiatives for specific purposes"

(Mollic, 2013, pg.2). However, as crowdfunding continues to expand covering multiple facets a

broader definition is needed to include new disciplines. For the purpose of this paper with an

emphasis on entrepreneurs and start­up companies, crowdfunding can be seen as the efforts by

entrepreneurial individuals and groups­cultural, social, and for­profit to finance their ventures

through drawing on relatively small contributions from a large audience utilizing the reach of the

internet without standard financial intermediaries (Mollic, 2013). Griffin (2012) differentiates

between four different forms of crowdfunding: donation­based, reward­based, lending­based and

equity­based which offer opportunities for various projects and ventures to be seen and funded

by the online community.

Globally, crowdfunding has seen an accelerated growth in 2014, increasing by 167 percent to

achieve $16.2 billion raised altogether in contrast to figures of $6.1 billion in 2013

(Crowdsourcing, 2016). Growth can be attributed to Asia as a developing region with the

industry set to reach $3.4 billion in funds raised propelling the continent to second place ahead of

Europe (The Economist, 2015). Collectively, the global crowdfunding market is expected to

reach $34. 4 billion in 2015 with North America leading as the largest market (The Economist,

2015).

For start­up companies, the solution of crowdfunding in tackling financial barriers in the early

stage also presents another dilemma that requires careful consideration and thought – the

different alternatives offered. Individual entrepreneurs are plagued with what method to use in

order to achieve a successful campaign which then presents the challenge of how to motivate

funders to invest in projects. Past scholars have addressed the issue to investigate crowd's

motivations behind campaigns (Lehner, 2012; Moritz and Block, 2013) since motives in start­ups

differ from motives within crowdsourcing schemes (Bretschneider et al., 2014). Subsequently,

this has led to triumphant commercial campaigns and motivations of donors receiving wide

attention in the following literature (Bradford, 2012; Bretschneider et al., 2014; Kuppuswamy

and Bayus, 2013; Rossi, 2014; Schenk and Guittard, 2011). Specific crowdfunding methods have

also been explored and researched such as reward­based (Zheng et al., 2016) and equity­based

(Bretschneider et al., 2014; Mortiz et al., 2015). However Belleflamme et al. (2012) is one of the

few papers comparing two different forms of crowdfunding: pre­ordering the product versus

advancing a fixed amount of money in exchange for a share in profits.

All crowdfunding methods have pros and cons which can affect project outcomes which this

paper seeks to address. Focusing on two specific methods – equity­based crowdfunding and

donation­based crowdfunding demonstrates both the advantages and disadvantages gained by

entrepreneurs. Equity­based crowdfunding has become increasingly popular with start­up

companies and has the potential to raise large amounts (Bretschneider et al., 2014). Though its

relatively new and is subject to legal regulations it is gaining momentum especially with the

increase in entrepreneurship and business ventures within the global crowdfunding sector (The

Economist, 2016). However, donation­based crowdfunding differs with very limited regulatory

restrictions as entrepreneurs retain full ownership. Despite this, it can be less attractive for

investors as it’s more suited to caused­based projects (Josef and Merri, 2015) and barriers to

entry are extremely low making it difficult to distinguish products and services and gain attention

from potential investors (Return on Change Blog, 2014). In light of the limited research, the

purpose of this study is to examine the motivations behind investors participating in

crowdfunding for start­up companies: comparative study of equity­crowdfunding and

donation­based crowdfunding.

In this study, the motivation theory focusing on intrinsic and extrinsic motivations (Ryan and

Deci, 2000b) will be employed as it is deemed as both relevant and helpful in understanding

crowdfunding literature and investor decisions primarily within equity and donation­based

crowdfunding. In addition, the Theory of Reasoned Action (TRA) will be adapted as it can be

used to explain the intention model (Fishbein and Ajzen, 1975) as well as exploring the

relationship between attitudes of the different motivations and behavioral intention to participate

in crowdfunding.

2. Literature Review

This section will first provide comparative literature on both equity­based crowdfunding and

donation­based crowdfunding. In addition, the TRA will be discussed to support the dependent

variable of “Intention to use” crowdfunding. Lastly, literature on the motivation theory will

precede which will cover intrinsic and extrinsic motivations as well as highlighting the five

independent motivation variables.

2.1 Equity­based Crowdfunding

Since 2010, equity­based crowdfunding has experienced rapid development (Tomczak and

Brem, 2013) in comparison to other forms of crowdfunding methods which have emerged as

early as 2000 (Mortiz et al, 2015). The market witnessed an increase of 182% to $1.1 billion in

2014 (Marketwire, 2016) and past research addressed the expected improvement when

regulations leave pending status (Bretschneider et al., 2014). The JOBS (Jumpstart Our Business

Startups, 2012) Act in the U.S. can also be explained as one of the drivers in facilitating the

increase in funds raised by start­ups within equity crowdfunding platforms (Ahlers et al., 2015)

as well as stimulating the industry’s growth (Jian and Shin, 2015). Equity­based crowdfunding

differs from other methods as it sees a group of small investors provide young start­ups with

funding via the internet in exchange for shares in the company which can be described as a new

promising way to increase start­up financing (Ahlers et al., 2015). Bretschneider et al. (2014)

defines this method as involving financial returns that includes equity, equity­like shares or

dividends. The main benefit of equity crowdfunding is that investors have the opportunity to

share in the profitability of a new venture which makes it more attractive to a large number of

investors (Josef and Merri, 2015). However, Josef and Merri (2015) also highlights the

probability of a loss of the investment occurring in the aftermath which makes the risk higher in

comparison to donation or reward methods. Equity­based crowdfunding has been shown to be

prevalent within Europe in markets of Austria, Finland, Germany, The Netherlands, Sweden and

the UK (ECN, 2014). Factors that have contributed to the success of equity­based crowdfunding

campaigns for ventures in past research include having better networks, a clear exit strategy, the

existence of a financial plan and the age of the capital­seeking venture (Ahlers et al., 2013).

Equity­based crowdfunding also involves legal barriers and high levels of regulations

(Heminway and Hoffman, 2010), that affects both investors and entrepreneurs. Schwienbacher

and Larralde (2010) discuss the limits to how many investors a company can have in many

countries which creates significant legal limitations to crowdfunding initiatives (Belleflamme et

al.,2012). Despite legal limitations, Belleflamme et al. (2012) past research through examples

from Seedmatch (German equity­based platform) shows how several entrepreneurial companies

have been successful with crowdfunding campaigns raising up to one hundred thousand euro's.

This demonstrates the potential equity­based crowdfunding has in attracting the crowd as equity

investors and having the possibility to raise extensive capital propelling start­ups.

2.2 Donation­Based Crowdfunding

In contrast to equity­based crowdfunding, donation­based differs due to the fact that donors do

not receive any explicit financial returns which can also explain different motivations behind

investors (Jian and Shin, 2015). Funders either donate to causes motivated by philanthropic

behaviour and sponsorship incentives (Ahlers et al., 2013) or based on supporting new start­ups

to help fund projects and new innovations. Figures from Massolution shows that donation­based

crowdfunding grew by 45% in 2014 (Marketwire, 2016). Despite equity­based crowdfunding

becoming more popular (Bretschneider et al., 2014) as well as important for start­ups financing

(Josef and Merri, 2015) and reward­based being used more frequently (Mollic, 2013;

Belleflamme et al., 2012), donation­based crowdfunding means not having to give up partial

ownership for new ventures. Moreover, the degree of uncertainty is less influential in contrast to

other types of crowdfunding, due to the fact that donors presumably already have positive

opinions (Ahlers et al., 2013). As a potential method for start­ups in raising capital,

donation­based crowdfunding can be seen as less complex from a legal standpoint (Ahlers et al.,

2013). It offers very limited regulatory restrictions in comparison to equity­crowdfunding. Josef

and Merri (2015) also states that it is less risky, however it can be difficult to raise a lot capital

using this method as a result of the lack of return (World Bank, 2013).Though past research has

primarily shown donation­based to be typically linked to charitable crowdfunding (Choy and

Schlagwein, 2016). Mollick (2013) corroborates this, explaining how crowdfunding efforts such

as art or humanitarian projects are driven by a patronage model positioning investors as

philanthropists, who expect no monetary return for donations. Focusing on the donation model,

"such types of systems are usually studied by scholars under the framework of collective actions,

which, by definition, are ‘‘actions taken by two or more people in pursuit of the same collective

good’’ (Marwell and Oliver, 1993, pg.4; Jian and Shin, 2015, pg.168). Irrespective of the

different methods and in this case­ equity and donation­based, all forms of crowdfunding

maintain similar principles, in that funders are investing with the hopes of achieving a successful

outcome (Mollick, 2013). Though start­ups might find donation­based as more appealing in

preserving full control of the business trajectory.

2.3 Intention to use

Fishbein and Ajzen’s (1975) theory of reasoned Action (TRA) has been extensively researched

and recognized as an intention model to explain behavior across a wide spectrum (Davies et al.,

1989). It has been used to examine the relationship between individual attitudes and behavior

(Ajzen, 1988) and TRA has been shown to be a useful model to predict behavioral intentions or

behavior (Sheppard et al., 1988). According to TRA, “a person’s performance of a specified

behavior is determined by his or her behavioral intention to perform the behavior and is jointly

determined by the person’s attitude and subjective norm concerning the behavior in question”

(Davies et al., 1989, pg.983). Fishbein and Ajzen’s (1975) further describes attitudes as a

person's positive or negative feelings in regards to performing the identified behaviour. For this

paper we focus primarily on attitudes and not subjective norms. Davies et al. (1989) research

which employed the use of TRA and Technology Acceptance Model (TAM) showed the positive

affect attitude (part of the TRA construct) has on behavioral intention. This is also

corroborated in Bock et al. (2005) research with results showing that the more favorable the

attitude the greater the intention will be. Subsequently, TRA can be used as a determinant of

measuring behavioral intention to use crowdfunding which is represented as a dependent

variable. In this case, the positive attitudes experienced by investors from both extrinsic and

intrinsic motivations can ultimately influence the intention to participate in crowdfunding for

both equity­based and donation­based crowdfunding for start­ups.

2.4 Motivations Theory

Motives of crowd investors are determined by the particular crowdfunding model which results

in dissimilar information needs (Cholakova and Clarysse, 2014; Gerber et al., 2012; Ordanini et

al., 2011). This means for start­ups, that funders will experience different motivations to invest

with different crowdfunding methods offered. Bretschneider et al. (2014) states that it is crucial

to understand why funders invest in start­ups which seeks to explore the issue of motives behind

individual actions and behaviour. To better understand the interaction between humans and

technology based on IT charitable crowdfunding, Choy and Schlagwein (2016) also found the

use of implementing the motivation theory in order to understand investors drive behind

campaigns. Deci et al. (1991) defines motivations as the degree to which individuals are

encouraged to perform a particular action and it can be seen as highly valued because of its

consequences (Ryan and Deci, 2000a). It prevails as a concept that has been widely studied in

psychology and many other fields (Jost, 2000; Ryan and Deci, 2000a, Ryan and Deci, 2000b;

Chris Zhao and Zhu, 2014; Choy and Schlagwein, 2016).

For the purpose of this paper we will draw attention to the particular motivation theory from

Ryan and Deci (2000b)’s “intrinsic vs. extrinsic motivation” model as this model is a widely

accepted and can shed valuable insight behind decisions to invest. The Self­Determination

Theory (Deci and Ryan, 1985) can be shown as a foundation and point of reference for the study

of human motivation, distinguishing between intrinsic and extrinsic motivations. Intrinsic

motivation relates to doing an activity for its inherent satisfactions that can be characterized as

fun and challenging (Ryan and Deci, 2000b). Whereas, extrinsic differs as a result of motivations

for actions based on a separable outcome­such as rewards or instrumental value (Ryan and Deci,

2000b). In all, both motivations constructs will be adapted to specifically analyze equity and

donations types of crowdfunding with eight hypotheses developed represented by five relevant

independent variables (altruism, fun & enjoyment, tangible return, financial return & gain and

subjective norms).

3. Frame of reference

3.1 Hypothesis Development

Intrinsic Motivations Crowdfunding can be seen as both novel as well as disruptive to traditional funding methods

(Mollic, 2013) which makes understanding motivations behind it important. Individuals can be

motivated because they value an activity personally or as a result of a sense of personal

commitment which is characterized as internal motivations (Ryan and Deci, 2000a). Focusing on

equity­crowdfunding, the drivers of investment decisions can be different compared to other

crowdfunding models (Mortiz et al., 2014) as a result of monetary expectations. Despite this,

altruism is a motive that can also be instrumental in influencing people's decisions to invest in

start­ups. Ozinga (1999) defines altruism as a selfless act that involves doing something for

another at some cost to oneself. It involves thinking of others and putting their interests first. It is

a construct that "has been researched in the contexts of open source communities and business

angel research" (Bretschneider et al., 2014, pg.5). Previous research has also deemed it

significant as part of intrinsic in nature impacting individual participants motivations in equity

crowdfunding (Bretschneider et al., 2014) as well as crowdsourcing (Chris Zhao and Zhu, 2014).

In addition to contributing to investors within equity­based crowdfunding, the idea of altruism is

also comparable to donation­based crowdfunding, where donors want to help a cause or project

without expecting returns on their funds. Research from Jian and Shin (2015) on donation­based

crowdfunding showed altruism as emerging as one of the strongest self­reported motivations. As

mentioned earlier, the donation model can be considered as philanthropic in nature (Hemer, et

al., 2011) as it usually linked to charities. Though, this can be applied for people donating to

start­ups as crowdfundees behaviour motivated by altruism seeks to increase another person's

welfare and in this case help start­ups succeed.

Hence we propose the following motivation hypotheses:

H1: Altruism positively influences investors intention to fund start­ups in the context of

equity­based crowdfunding.

H2: Altruism positively influences investors intention to fund start­ups in the context of

donation­based crowdfunding.

Some scholars have characterized intrinsic motivation in terms of the task and activity being

interesting in relation to a person and the task (Ryan and Deci, 2000b). Deci (1971) looked at the

behavioral design of intrinsic motivation using two often used measures of free choice measure

and the use of self­reports of interest and enjoyment of an activity. Individuals that decide to

invest in equity­based crowdfunding can also do so as a result of personal enjoyment and

pleasure received. This is corroborated as fun and enjoyment of an activity have been mentioned

in the self determination­theory as possible reasons of intrinsic motivation (Deci and Ryan

1993). Brabham (2008) and Stewart et al. (2010) both refer to perceived enjoyment and fun in

their research on crowdsourcing and more similar is Bretschneider et al. (2014) study on

equity­crowdfunding that applies both variables in the hypothesis. Therefore, fun and enjoyment

can be seen as a stimuli for individuals deciding to invest in start­ups throughout the process in

equity­based crowdfunding. In addition, Choy and Schlagwein (2016) research also found

intrinsic motivations (social­intrinsic) that includes enjoyment as leading to donors supporting

charitable crowdfunding campaigns. This can again be applied to donation­based in regards to

start­ups instead of charities. Consequently, despite differences behind equity­base (driven by

monetary return) and donation­based (dominated by philanthropic behaviour) the fun and

enjoyment investors experience throughout the crowdfunding process can also help increase their

decision to invest or donate in new ventures.

Hence we propose the following motivation hypotheses:

H3: Fun & enjoyment experienced when investing in start­ups has a direct positive influence

on investors intention to participate in the context of equity­based crowdfunding

H4: Fun & enjoyment experienced when donating to start­ups has a direct positive influence

on investors intention to participate in the context of donation­based crowdfunding

Extrinsic Motivations

External rewards received in extrinsic motivation can include non­monetary incentives such as

the tangible product/service investors gain at the end of the crowdfunding process. Tangible

rewards are commonly offered to individuals as an incentive to take part in a behavior which the

individual may normally refuse to engage in (Deci et al., 2001). Bretschneider et al. (2014) states

that for equity­based crowdfunding, donors might invest so that the product or service of the

start­up will subsequently both be adapted or developed according to the crowdfundees needs.

Where need is identified as the variable for motive, this paper identifies the tangible return as an

additional motive to monetary rewards in the case of equity­crowdfunding. In addition, the

donation­model operates just like an ordinary donation and as mentioned earlier is altruistic in

nature by the investors (Hemer, et al., 2011). Despite this, extrinsic motive behind donors might

be based on contributing to causes that benefit their interests (Odendahl, 1990). Interests can also

include a crowdfundee desiring the product or services under development as an outcome after

contributing funds to start­ups. In contrast to charity crowdfunding, commercial crowdfunding in

start­ups differs as a reward is considered to be a major motivator and a necessity (Bretschneider

et al., 2014; Gerber and Hui, 2013). Following research from Choy and Schlagwein (2016) this

can be considered an individual­extrinsic motive as investors are influenced by the tangible

return in the product/service at the end of the crowdfunding process. Therefore investors

underlying motives in expecting as well as desiring a new innovative product/service contributes

to their decisions to help start­ups in both equity­based and donation­ based crowdfunding.

Hence we propose the following motivation hypotheses:

H5: Tangible return in products/services from investing in start­ups has a positive influence

behind investor's intention to participate in equity­based crowdfunding

H6: Tangible return in products/services from donating to start­ups has a positive influence

behind investor's intention to participate in donation­based crowdfunding

Extrinsic motivation applies to actions that are influential which aims towards outcomes

extrinsic to the behaviour within itself (Deci and Ryan, 2000). As a sub theory to the Self

Determination Theory (SDT), Organismic Integration Theory (OIT) explains the distinct forms

extrinsically motivated behaviour is regulated (Ryan and Deci, 2000b). External regulation or

motivation is seen as the least autonomous and is based on reward contingency (Ryan and Deci,

2000a). Previous research discovered that financial rewards is instrumental in crowdsourcing and

prevails as one of the most important factors (Archak, 2010; Bayus, 2010; Brabham, 2010).

Bretschneider et al. 2014 also corroborated this by identifying obtaining a profit or capital gains

as an obvious motive for equity­based crowdfunding. In the case of equity­based crowdfunding,

individuals invest in start­ups primarily for monetary gains expected. Therefore the motivation is

inspired by the return on investment (financial return & gain).

Hence we propose the following motivation hypotheses:

H7: Financial return & gain has a positive influence on the investment intention in start­ups

related to equity­based crowdfunding.

Extrinsically motivated behaviors can be characterized as not being interesting which can mean

that the primary reason why people are likely to do a behavior is that they are valued by others

(family, a peer group, or a society) who are both important and a connection is shared between

the two (Ryan and Deci, 2000b). This leads us to the last antecedent explaining crowdfundees

behavioral intention which comes from subjective norms or social influence. Subjective norms

"are one’s perceptions or assumptions about others 'expectations of certain behaviors that one

will or will not perform" (Huda et al., 2012, pg.272). Chris Zhao and Zhu (2014) research on

crowdsoucring states that subjective norms play an important role in regulation of an individual’s

behaviour placing subjective norm under extrinsic motivation. In addition, Jian and Shin (2015)

research on donors motives behind crowdfunded journalism also identifies social influence

(friends and family) as contributing to the success potential of campaigns, which is also

consistent with findings from crowdfunding (Agrawal et al., 2011) and entrepreneurial finance

literature (Parker, 2009). The importance of subjective norms on behavioural intention is

transcendent across a wide scale of literature (Ajzen, 1991; Osman, 2014; Linden, 2011; Truong,

2009; Shien, 1998, Lim et al., 2011, Lee et al., 2010). Individuals can be influenced to donate to

start­ups as a result of their social networks, cultural norms and group beliefs which gives them a

sense of validation to make decisions. Social­extrinsic motivations have been used to explain

donor motivations in charitable crowdfunding (Choy and Schlagwein, 2016) which again can be

applied to donation­based that doesn't seek monetary rewards in comparison to equity­based

crowdfunding. Subsequently behaviour is affected by social influences.

Hence we propose the following motivation hypotheses:

H8: Subjective norms has a positive influence behind donor's investment intention related to

donation­based crowdfunding.

3.2 Research Model

Figure 1: Research model

4. Methodology

4.1 Research approach & design

In this quantitative study, the researchers are aiming to examine the motivations behind investors

participating in crowdfunding for start­up companies and test­out hypotheses based on gathered

data. Therefore a deductive approach was used, since the main focus of deductive research is

testing the relationships between theory and research (Bryman, 2016). Research design can be

viewed as a map that links every aspect of the research direction to the research purpose (Aaker

et al., 2011). Fitting with the purpose of this study, a descriptive design was used, considering

the goal of this type of research is to give insights that are based on prior research into a

particular part of the research field (Malhotra, 2010).

4.2 Sample and Data collection

Sampling is the preferred method of obtaining information when it is prohibitive in terms of cost

and time to obtain such information from the population (Aaker et al. 2011). The target

population for this research was defined as: potential investors for start­up crowdfunding

campaigns. The gathered data came from a mixed sample, containing two groups: potential but

inexperienced investors and potential investors with prior crowdfunding experience. Of the 82

respondents, 56 were inexperienced and the other 26 respondents had already invested a

minimum of once in a crowdfunding campaign in the past. The respondents were divided into

their subgroups by the use of two filter questions. They were asked what crowdfunding method

they had had experience with and how many times they had priorly participated in crowdfunding

campaigns.

Primary data was collected, using a web­based survey. Due to the limited timeframe and scope

of the research, the initial collection method for the data was convenience sampling, which lead

to further snowball sampling.

4.3 Questionnaire design

The questionnaire uses multiple choice questions for the questions regarding previous

experiences and for the basic personal information. For the testing of the dependent and

independent variables, the multiple­item measure, five­point Likert scale was used. The Likert

scale was chosen as its aim is to measure the respondent attitudes and feelings (Bryman, 2016).

Three statements for every research variable were created, with each respondent asked to give

his or her personal opinion towards every statement. Their opinions can be expressed from

‘strongly disagree’ (1) to ‘strongly agree’ (5).

For testing the one dependent variable, investment intention, there were three statements.

Considering this is a comparison study, the questionnaire was divided into two sections: one

section for donation­based crowdfunding and one for equity­based crowdfunding. These sections

consisted of 12 statements (questions) each, testing four independents variables with three

statements per variable. As the first three variables were applicable to both methods, both parts

had the same nine questions, allowing the researchers to do a direct comparison. Both sections

finished their part of the questionnaire by testing one crowdfunding method­specific variable

with three statements, one specific for donation­based and one specific variable for equity­based.

Combining these questions for the variables, participant experiences and basic personal

information gives the questionnaire a total of 32 questions.

4.4 Instrument pre­testing

Pre­tests are administered to ensure that the chosen instruments link together with the study

expectations (Aaker et al. 2011). Therefore, prior to the launch of the web­based survey, pilot

tests were conducted on six representatives of the research sample. Furthermore, the

questionnaire was evaluated by two experts from the research field. These pre­testings were

conducted over a two day span. Based on their answers and responses, alterations were made for

the comprehensibility of the questions and to make improvements on the questionnaire design.

4.5 Operationalization

The use of operationalization is designing the measuring of the research concepts to link it with

the research operation (Bryman and Bell, 2015). The operationalization, which is presented

below in table 1, aims to guide what this research is measuring and how they will be measured.

Concept & Definition Variable Variable definition Item used Adapted from

Intention to use

(Theory of Reasoned

Action)

TRA, “a person’s

performance of a

specified behavior is

determined by his or

her behavioral

intention to perform

the behavior and is

jointly determined by

the person’s attitude

and subjective norm

concerning the

behavior in question”

(Davies et al., 1989,

pg.983).

Investment

Intention(II)

A person’s subjective

probability that he

will invest in

crowdfunding

II1­ The intention to

participate

II2­ The willingness to

participate

II3­ The personal

importance of

participating

(Davies et al.,

1989)

Intrinsic Motivations

Intrinsic motivation

relates to doing an

activity for its

inherent satisfactions

that can be

characterized as fun

and challenging.

(Ryan and Deci,

2000b).

Altruism (A)

(donation ­&

equity based)

A selfless act that

involves doing

something for another

at some cost to

oneself

(Ozinga, 1999).

A1­ Helping start­ups

achieve success

A2­ Supporting

commercial start­ups

A3­ The positive feeling

of investing

Clary et

al.,1998; Jian

and Shin, 2015

Fun &

enjoyment

(F&E)

(donation ­&

equity based)

Fun and enjoyment of

an activity are

mentioned in the self

determination­

theory as possible

causes of intrinsic

motivation (Deci and

Ryan 1993).

F&E1­ Having fun in

investing

F&E2­ Enjoying the

process of investing

F&E3­ Enjoyment of

participating

(Amabile et al,

1994; Zheng et

al., 2011)

Enjoyment;

(Nov,

2007;.Jian and

Shin, 2015)

Fun

Extrinsic Motivations

Extrinsic motivations

are based on a

separable

outcome­such as

rewards or

instrumental value.

(Ryan and Deci,

2000b)

Tangible

return (TR)

(donation ­&

equity based)

“Frequently offered

to people as an

inducement to engage

in a behavior in

which they might not

otherwise engage.”

(Deci et. al, 2001,

pg.4)

TR1­ Expectation of a

product or service

TR2­ Benefiting of an

innovative product or

service

TR3­ The importance of

receiving a new product

or service in the decision

process

(Deci et. al,

2001)

Subjective

norm (SN)

Donation­base

d

"One’s perceptions or

assumptions about

others 'expectations

of certain behaviors

that one will or will

SN1­ Participating

because of social

networks

SN2­ Participating

(Jian and Shin,

2015; Clary et

al.,1998)

not perform."

(Huda et al., 2012,

pg.272)

because of friends and

family

SN3­ The importance of

friends and family or

social networks in the

decision process

Financial

return (FR)

Equity­based

Obtaining a profit

and/or capital gains

on the invested

capital has been

shown as a plausible

explanation behind

investments

(Bretschneider et

al.,2014).

FR1­ The importance of

the financial nature of

start­ups

FR2­ The expectation of

monetary returns

FR3­ The opportunity to

receive monetary returns

(Amabile et al,

1994)

Table 1: Operationalization

4.6 Data analysis method

The gathered data from the survey was analyzed with the IBM SPSS software. With the aim of

understanding the participants intrinsic and extrinsic attitudes and the influence it has on the

investment intention, descriptive statistics were calculated. The research hypotheses were tested

by using: Multiple Regression, One­Sample T­Test and Variables Correlation Analysis

4.7 Validity and reliability

4.7.1 Validity

There are various different ways of testing the measurement validity. The term validity itself

refers to if the research concepts are actually measured by the measure of a concept (Bryman,

2016). Validity was maintained by developing the research measures and constructs from past

research and proven theoretical frameworks. The validity of the different survey variables of this

study were proven further by the valid results of the correlation coefficients tests. Furthermore,

validity was ensured through filter questions. In the beginning of the questionnaire, the

respondents were asked about their previous crowdfunding experiences. At the end of the

questionnaire, we asked how often they had participated in crowdfunding. If they had responded

no previous experience but later answered with one time, they would be excluded. Same

principle was applied if they had said they had prior experience, but would have answered never

participated at the end of questionnaire. Hereby, two participations were excluded from the total

end sample. Face validity for the questionnaire was established through the pre­tests with the

field experts and pilot tests.

4.7.2 Reliability

The main concern of reliability is dealing with the measures consistency (Bryman, 2016). By

testing the Cronbach Alpha’s for multiple multi­item measures of this research, the reliability

was checked. As the results of these tests passed the threshold guidelines of the Cronbach Alpha,

the results were deemed as reliable and approved for further analysis.

5. Results analysis

5.1 Reliability

The measurement model provides the quantitative measures of the validity and reliability for the

questionnaire. Using Cronbach’s α, internal consistency among the items was measured, the

score ranges from .86 to .96 in donation­based variables questions and from .91 to .96 in

equity­based variables questions which lies between the acceptable limit of .7 and higher

(Bryman, 2016). The detail of reliability is outlined in Table 2. In the regression analysis, the

derived goodness of fit (adjusted R2) for the regression model is 0.581 which is acceptable

(adjusted R2=0.581, F=29.05, P<0.01).

Table 2 Questionnaire reliability

Donation­based Equity­based

Motivation variable Cronbach's α Cronbach's α

Altruism 0.87 0.93

Fun & enjoyment 0.96 0.96

Tangible return 0.86 0.93

Subjective norms 0.90

Financial return & gain 0.91

5.2 Demographic characteristics of the sample

In the total 82 valid samples, 56 respondents have no crowdfunding investment experience which

accounts for 66.7%, and 26 respondents have participated at least one time. Nine respondents

have participated only one time, six respondents have participated two times, four respondents

have participated three times and seven respondents have participated more than three times.

Most respondents are young people in the sample, 18­25 year­old group accounts for 67.1%,

26­30 year­old group has 18.3% and 31­40 year­old group accounts for 12.2%. Professions are

mainly students which comprised 67.1%, and followed by 19.5% employed. Self­employed 11%

and other accounts 2.4%. The sample has an even coverage of gender (50% male, 50% female).

Looking at the demographic differences between experienced and inexperienced, both samples

who have done crowdfunding investment before mainly are young individuals ranging between

18­30 year­old and a total of 84.6% combined (18­25 years­old plus 26­30 years­old), and their

professions are students and employed overall. Female samples have more investment

experience than male samples. For details of the demographic characteristics of the sample see

Table 3.

Table 3 Demographic variable

Total samples Samples with prior

crowdfunding experience

N % N %

Age

18­25 year­old 55 67.1 16 61.

26­30 year­old 15 18.3 6 23.1

31­40 year­old 10 12.2 4 15.4

41­50 year­old 2 2.4 0 0

Above 50 year­old 0 0 0 0

Profession

Student 55 67.1 17 65.4

Employed 16 19.5 7 26.9

Self­employed 9 11 2 7.7

Retired 0 0 0 0

Other 2 2.4 0 0

Gender

Male 41 50 11 42.3

Female 41 50 15 57.7

Times

Never 56 68.3

1 time 9 11

2 times 6 7.3

3 times 4 4.9

More than 3 times 7 8.5

5.3 Motivation differences between experienced and non­experienced

When comparing the mean scores of the motivation variables, the respondents were divided into

two groups. Based on whether they had prior investment experience or not, as shown in table 4.

In donation­based, the experienced give higher scores to all motivation variables than the

non­experienced. The experienced give fairly close scores to all motivations, the mean scores

range from 3.10 to 3.26. Among the non­experienced, they give the highest scores to tangible

return motivation (M=3.25), while the other motivations score lower than 3, the means scores are

range from 2.45 to 2.78. T­tests revealed a significant difference in the fun & enjoyment and

subjective norms motivations. Experienced respondents (M=3.28, SD= 1.01) give higher scores

to FE than non­experienced respondents (M=2.45, SD=1.10), t=­3.216, p<.01. Also to

subjectives norms, experienced respondents (M=3.10, SD= 1.16) give higher scores than

non­experienced respondents (M=2.54, SD=1.10), t=­2.113, p<.05. For the other two

motivations, the comparisons provided statistically insignificant results.

In Equity­based, the experienced investors also give fairly close scores for all the variables. They

give the highest scores with an equally high result to altruism and fun and enjoyments

motivations, both are M=3.36. The lowest score is given to the variable financial return & gain,

M=2.97. The non­experienced give higher scores to tangible return and financial return & gain,

(MTR=3.13, MFR=3.04) and lower scores to altruism and fun & enjoyment (MA=2.84,

MFE=2.67). T­tests show a significant difference in fun & enjoyment but not in the other

motivations. Experienced respondents (M=3.36, SD= 1.20) give higher scores to FE than

non­experienced respondents (M=2.67, SD=1.17), t=­2.451, p<.05.

Therefore, fun & enjoyment is the significantly strongest motivation for experienced investors

who participate in both donation­based and equity­based crowdfunding. With donation­based

crowdfunding, subjective norms are significantly more motivating for the experienced investors

than the non­experienced investors.

Table 4 Motivation difference between experiencers and non­experiencers

Experiencers

(n=26)

Non­experiencers

(n=56)

Motivation variables Mean SD Mean SD t

Donation­based

Altruism 3.26 0.96 2.78 1.07 ­1.941

Fun & enjoyment 3.28 1.01 2.45 1.10

­3.216**

Tangible return 3.38 1.21 3.25 1.03 ­0.518

Subjective norms 3.10 1.16 2.54 1.10 ­2.113*

Equity­based

Altruism 3.36 1.10 2.84 1.18 ­1.897

Fun & enjoyment 3.36 1.20 2.67 1.17 ­2.451*

Tangible return 3.27 1.23 3.13 1.11 ­0.507

Financial return & gain 2.97 1.25 3.04 1.19 ­0.256

Note: *p<.05. **p<.01.

5.4 Regression and Hypothesis analysis

The research purpose of this paper is aimed at finding the significant motivations behind

investors participating in crowdfunding for start­up companies with the comparison of

equity­based crowdfunding and donation­based crowdfunding.

Therefore, regression analysis was the used tool at the overall sample level to find out the

answer. The regression analysis (see Table 5) demonstrated that out of all five motivations only

altruism (Donation­based 62.7%, p<.01; Equity­based 40.2%, p<.01) represented as the intrinsic

motivation predictor, is positively associated with investors intention under both donation­based

and equity­based crowdfunding.

Hypothesis 1 & 2

The first hypothesis and the second were related to the altruism and positively influence

investors decisions to fund start­ups in the context of equity­based crowdfunding and

donation­based crowdfunding .The results of these hypotheses show that both of them are

statistically significant at p<0.01 (Table 5). Though, altruism more positively influenced

investor’s intention to participate in donation­based crowdfunding than equity­based

crowdfunding for start­ups.

Hypothesis 3 & 4

Although the theory showed that personal enjoyment and fun can be a stimuli for investors

participating in both equity­based and donation­based crowdfunding, the results of the regression

analysis show no significant influence on both methods of crowdfunding investment intention.

Therefore these two hypotheses are rejected

Hypothesis 5 & 6

Whereas, theory reveals that tangible returns can be an incentive for equity­based crowdfunding

and donation­based crowdfunding. The results of tangible return show no statistically significant

motivation predictor behind investor's intention to participate in both equity­based &

donation­based crowdfunding (Equity­based b=­4.2%, p=0.712>0.05; Donation­based b=­7.6%,

p=0.292>0.05). Therefore these two hypotheses are rejected.

Hypothesis 7

Financial return & gain has been proven to be an influential factor in previous research.

Nonetheless, the results of the regression analysis shows no significant positive relation between

financial return & gain and investment intention (b=­2.7%, p=0.770>0.05). Therefore the

hypothesis is rejected.

Hypothesis 8

Subjective norms or social influence (e.g. friends, family, etc) have been used to explain donor

motivations in both crowdfunding and crowdsourcing. While this has been applied in

donation­based crowdfunding, the regression analysis, the result (b=3.5%, p=0.595>0.05)

concludes there is no significant positive relation between subjective norms and investment

intention for donation­based crowdfunding, therefore rejecting this hypothesis.

Table 5 Motivation variables relative importance

Donation­based Equity­based

Motivation variables %(β)

p­

value

H

Label Decision %(β) p­value

H

Label Decision

Altruism 62.7 0.000 H2 Accepted 40.2 0.001 H1 Accepted

Fun & enjoyment 5.2 0.546 H4 Rejected 13.2 0.225 H3 Rejected

Tangible return ­7,6 0.292 H6 Rejected ­4.2 0.712 H5 Rejected

Subjective norms 3.5 0.595 H8 Rejected

Financial return & gain ­2.7 0.770 H7 Rejected

5.5 Correlation among motivations

In the regression analysis of all the motivation variables, only altruism as the intrinsic motivation

has been identified as having a positive influence on investor intention. Based on this result, an

independent variables correlation analysis has been done to check the rejected variables further.

Using the Pearson correlation coefficient (range from ­1 to +1), measuring the strength and

direction of the linear relationships between each two variables (Bryman, 2016). This research

uses correlation coefficient >= 0.6 as an acceptable level. The results show that with

donation­based, fun & enjoyment has a strong positive relation with altruism. In equity­based,

both fun & enjoyment and tangible return are shown to have a strong positive relation with

altruism. These results mean that fun & enjoyment also influences the investor intention under

donation­based crowdfunding. Moreover, fun & enjoyment and tangible return both influence

the investor intention within equity­based crowdfunding. For details of the Correlations of

variables see Table 6.

Table 6 Correlations Among Motivations

Donation­based Equity­based

Motivation variables 1 2 3 4 1 2 3 4

Altruism 1 1

Fun & enjoyment 0.685** 1 0.802** 1

Tangible return 0.570** 0.500** 1 0.718** 0.633** 1

Subjective norms 0.318** 0.551** 0.329** 1

Financial return & gain

0.574** 0.586** 0.718** 1

Note: ** P<0.01.

6. Discussion and conclusions

Based on the results of the demographics, potential investors who intend to participate in

crowdfunding in start­ups are primarily younger people who tend to be students or are employed.

Assuming that profession is a positive indicator for crowdfunding investment, we might interpret

that crowdfunding investors are well­educated or have an income that allows them to participate

in start­ups crowdfunding. These results can partially be explained due to the fact that generally,

young people are more likely to adopt a new innovations than other age groups (Rogers and

Havens, 1962). The researchers also take the overrepresentation of students in the sample into

account. Therefore, to fully identify the motivations behind crowdfunding investment intention

which would be fully representative of the population, the respondents sample would need to

expand into older age groups and other profession demographics.

Based on the results of the tested motivations, for donation­based, the experienced potential

investors give higher scores to all motivation variables than the non­experienced. T­tests

revealed a significant difference in the fun & enjoyment and subjective norms motivations

between the experienced, who rate them higher, and the non­experienced. This result for fun &

enjoyment is also the case for equity­based, where t­tests show a significant difference in fun &

enjoyment as the experienced respondents rate it more highly in importance. Hence, fun &

enjoyment can clearly be seen as a significantly strong motivation variable for experienced

investors who participate in both donation­based and equity­based crowdfunding. Also these

results show that the experienced investors are significantly more motivated by the subjective

norms when participating donation­based crowdfunding.

These results were surprising in several aspects as the researchers expected to see that subjective

norms were of a higher importance for non­experienced. The most surprising result is that

financial return & gain is not the most important motivator for equity­based. Looking at the

obvious financial return which is gained as a result of investing, the researchers expected that

this would support the statements from past research that equity­based crowdfunding has become

increasingly popular with start­up companies (Bretschneider et al., 2014) and has seen an

increase within the crowdfunding sector (Marketwire, 2016).

These surprising results can possibly be explained by the fact that this research focused on

start­up companies. The expectations and motivations of potential investors are likely different

when investing in start­ups, in comparison to investing in established companies.

A different possible explanation can lie in the sample. The demographics of young investors and

students are overrepresented in the total sample, therefore their responses could have influenced

the results.

The results of the analysis of the hypotheses show that only hypothesis one and two are accepted,

concluding that altruism positively influences investors intention to fund start­ups in both

donation and equity­based crowdfunding. This corroborates research from Jian and Shin (2015)

that also shows altruism as positively influencing motivation behind donors intentions to

participate in crowdfunded journalism. The remaining six hypotheses were rejected, meaning

that fun & enjoyment, tangible return, financial return & gain and subjective norms do not have a

positive influence on the investor intention to participate in start­ups crowdfunding. This result

was unexpected for the researchers, who expected that these positive relationships would be

proven, based on previous research by (Deci and Ryan 1993; Deci et al., 2001; Bretschneider et

al., 2014; Archak, 2010; Bayus, 2010; Brabham, 2010; Agrawal et al., 2011; Chris Zhao and

Zhu, 2014) .

However, the results of the independent variables correlation analysis of all the motivation

variables shined a different light on the results of the hypotheses analysis. As the regression

analysis surprisingly identified altruism as the sole motivation which has a positive influence on

investor intention. The researchers decided to test these rejected variables further by conducting

an independent variables correlation analysis on them. These results show that in the case of

donation­based, fun & enjoyment has a strong positive relation with altruism. For equity­based,

both fun & enjoyment and tangible return are shown to have strong positive relations with

altruism. These results indicate that for donation­based, the researchers can conclude that fun &

enjoyment also positively influences the investor intention. For equity­based, the same

conclusions can be made that fun & enjoyment and tangible return both positively influence the

investor intention.

The results of both tests presents an interesting contradiction. Purely based on the hypotheses

regression analysis, only altruism is proven to have a positive influence on the investment

intention. However further independent variables correlation analysis proves that for

donation­based, both altruism and fun & enjoyment have a positive influence. For equity­based

altruism, fun & enjoyment and tangible return are proven to have a positive influence. Also,

contradicting the previous research of (Jian and Shin 2015; Bretschneider et al.,2014) both tests

surprisingly conclude that both subjective norm on donation­based and financial return & gain

on equity­based don’t have a positive influence in the investment intention.

Again, these surprising results can possibly be explained by the fact that this research focused on

start­up companies and that the motivations of potential investors are likely different when

investing in start­ups. It could be very likely that some motivations have less of an impact in the

intention to crowdfund start­ups, but are still appealing motivations. Therefore, when these

motivations are combined with altruistic motivations, they still have a positive impact on the

intention. This can not be stated as the only possible reason for these results, as the sample was

not selected completely at random. It is likely that some groups are underrepresented in the

sample, which would have possibly had some different stronger motivations. This is a factor that

could have possibly affected the results of the conducted research.

7. Research limitations and future research

7.1 Limitations

This research paper contains some limitations. The first limitation is due to the research

approach. Quantitative research was done, using a web­based survey and opting for convenience

sampling which led to further snowball sampling. As this sample was not chosen completely at

random, it can not be viewed as completely statistical. Initial efforts to launch the survey on

professional platforms were unsuccessful and the timeframe for the research paper was limited.

Therefore, the researchers decided to send out requests to take part in the survey through

channels that were available for them: specific social media channels, mailings and personally on

the university campus. Although the data collection ended with 82 positive responses, the

researchers acknowledge that the participants demographics for professions show that most

participants are students. This leads to an overrepresentation of this demographic group and

underrepresentation of others. Hence, the research results are limited in information accuracy and

effectiveness and have a limited generalizability.

The second limitation of the research is due to the questionnaire, although the questionnaire was

pre­tested by experts and representatives of the sample and passed the necessary validity tests.

The researchers have received some feedback afterwards from participants who had difficulties

to comprehend every question, due to their limited pre­knowledge of the topic. Coinciding with

this, is the aspect that the survey was conducted in English and the sample is international.

Therefore, it can not be excluded that some participants may have misunderstood some

questions. These factors may have affected their responses and the results.

7.2 Future research

This study focused on two types of crowdfunding which are equity­based and donation­based

and examined the intrinsic and extrinsic motivations behind investors participating in

crowdfunding for start­ups. Further research can include or expand by using different variables

such as trust, recognition or reciprocity for motivation. In addition, different theories for

motivation can be adopted to explain behavioral intention behind investors.

Crowdfunding also offers four distinctive ways to raise funds. Lending­based crowdfunding,

although similar to equity­based crowdfunding might offer interesting results behind donors

motives to invest. In addition, reward­based crowdfunding can also be further researched or

included in a comparative study.

The results provided the research field with new possible insights that deviate from past research

through testing established theories in the new context of start­ups. The researchers acknowledge

that these results might have been affected due to the limited generalizability of the collected

sample. Nonetheless, these findings or the motivations of investors in start­ups should be

researched further in the future.

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