The Only Option or a First Step? Entrepreneur and Banker Perspectives on Start-Up Crowdfunding

Research in the small and medium sized enterprises (SME) crowdfunding domain has grown over the last decade. However, the implications of pursuing crowdfunding and seeking follow-up bank finance are not fully understood. Employing unique two-way insights from 22 interviews across the SME and banking sectors, this paper aims to chart and explore the capital market forces which lead entrepreneurs to pursue crowdfunding, whilst also examining the implications of selecting specific types of crowdfunding over the start-up cycle. The implications of crowdfunding for access to future bank finance are also investigated. Accordingly, this study finds that validation building plays a key role in understanding both the pursuit, and use, of crowdfunding. However, the findings also reveal that reward-based crowdfunding is unsuitable for certain types of niche ventures, leaving some start-ups with no option but to pursue equity crowdfunding. Lastly, the views of the bankers in this study adhere to pecking order logic, with bankers arguing that crowdfunding is seen as a last resort of sorts and diverse ownership structures in equity crowdfunding make it difficult to evaluate a venture. However, the banks argued that entrepreneurs can pursue crowdfunding to build market validation and return to banks at a later stage once the venture has generated revenue.