Crowdfunding as an alternative investment opportunity in Germany

Benefits and Motivational factors to participate in crowdfunding campaigns


Bachelor Thesis, 2018

82 Pages, Grade: 1,0

Anonymous


Excerpt

2
Abstract
DEGREE
BA (Hons) International Business
Administration
DISSERTATION TITLE
Crowdfunding as an alternative invest-
ment opportunity in Germany ­ Benefits as
a Motivational factors to participate in
crowdfunding campaigns
DATE
April 2018
KEYWORDS
CROWDFUNDING
MOTIVATION
INVESTMENT
GERMAN CULTURE
Over the past ten years crowdfunding has emerged as an alternative in-
vestment form and a new way to raise funds. Project funders increasingly
try to raise funds from a crowd through the internet. Therefore, the "crowd",
also referred to as "backers" play the key role in a successful funding pro-
cess.
The literature on crowdfunding examines the different crowdfunding types
and their benefits for backers. The literature on the German culture and
crowdfunding in Germany will be presented.
Using a questionnaire, this study aims to identify benefits which motivate
people living in Germany to invest in a particular crowdfunding type. Sub-
sequently, the study evaluates the four main crowdfunding types and which
motivate potential backers most to invest into crowdfunding based on the
benefits they are offering. All participants of the questionnaire are German
residents.
The analysis of the questionnaire's collected quantitative data reveals that
the benefits people receive from the participation in rewards-based crowd-
funding, such as receiving a final product before the official product launch

Abstract
3
and actively participating in the realisation of a crowdfunding project have a
huge motivational impact on people to invest in crowdfunding. Moreover,
the analysis from the gathered data showed that not receiving any benefits
from participation in donation-based crowdfunding mostly discouraged the
participants in this study. Thus, people living in Germany mostly expect
benefits for investing their money. Moreover, the motivations vary within
different age groups.
This study identifies limitations that occur using the chosen sampling
method and closes with recommendations for further research.

Abstract
4
Table of Contents
Abstract
2
Table of Charts
7
List of Tables
8
1
Introduction
10
1.1
Research topic
10
1.2
Research objectives and question
11
1.3
Dissertation Structure
12
1.3.1
Chapter 2 ­ Literature Review
12
1.3.2
Chapter 3 ­ Methodology
12
1.3.3
Chapter 4 ­ Analysis and Findings
13
1.3.4
Chapter 5 ­ Conclusions
13
2
Literature Review
14
2.1
Introduction
14
2.2
Definition of Crowdfunding
14
2.2.1
Motivations of and benefits for Backers
15
2.2.2
Crowdfunding web-sites and their differences
18
2.2.3
Rewards-based crowdfunding
19
2.2.4
Equity-based crowdfunding
21
2.2.5
Lending-based crowdfunding
22
2.2.6
Donation-based crowdfunding
23
2.3
German Culture
24
2.3.1
Crowdfunding in Germany
26
2.4
Limited Literature
28
2.5
Hypothesis
28
3
Methodology
30
3.1
Introduction
30
3.2
Research Approach
30
3.3
Research Strategy
31

Abstract
5
3.3.1
Qualitative Research
31
3.3.2
Quantitative Research
32
3.4
Questionnaire
33
3.5
Sampling
36
3.6
Data Analysis
36
3.7
Limitations
37
3.8
Ethical Considerations
37
3.9
Chapter Summary
39
4
Analysis and Findings
40
4.1
Introduction
40
4.2
Questionnaire
40
4.2.1
Research demographic
40
4.3
How well-known crowdfunding is in Germany
depending on the residents age
42
4.4
Preferred crowdfunding type based on the benefits
45
4.5
Specific benefits within crowdfunding projects
47
4.6
The preferred crowdfunding type in Germany
depending on the residents age
51
5
Conclusion
57
5.1
Introduction
57
5.2
Answering the research question
57
5.3
Review of the research objectives
58
5.4
Limitations of the conclusions
61
5.5
Suggestions for further research
61
6
References
63
7
Appendices
70
7.1
Appendix A ­ Reflective Learning Statement
70
7.2
Appendix B ­ Google Trends ­ Crowdfunding
72
7.3
Appendix C ­ Questionnaire
73

Abstract
6
7.4
Appendix D ­ Expected and observed data
81

Table of Charts
7
Table of Charts
Chart 2.1
Crowdfunding volume in 2015 per crowdfunding
type (Massolution, 2015)
18
Chart 2.2
Equity Crowdfunding in Europe between 2012 and
2014
22
Chart 2.3
German Culture ­ Hofstede cultural dimensions
("Country Comparison - Hofstede Insights," n.d.)
24
Chart 2.4 Crowdfunding volume in Germany between 2012 and
2014 per crowdfunding type (Zhang et al., 2015)
26
Chart 4.1
Crowdfunding Awareness
42

List of Tables
8
List of Tables
Table 2.1 Meyskens and Bird Framework ­ Choosing a
crowdfunding type
19
Table 3.1
Questionnaire Questions and their purpose
35
Table 3.2
Ethiclal Considerations
39
Table 3.3
Research Methods and Methodology summary
39
Table 4.1
Age distibution within the questionnaire
41
Table 4.2
Involvement in crowdfunding campaigns
42
Table 4.3
Awareness of crowdfunding per age group
43
Table 4.4
Chi-squared test 1
43
Table 4.5
Awareness of crowdfunding with regard to the age
­ expected and observed count
44
Table 4.6
Benefits that motivate peopole to participate in a
crowdfunding campaign
45
Table 4.7
Benefits that motivate people to invest into
rewards-based crowdfunding
48
Table 4.8
Benefits that motivate people to invest into equity-
based crowdfunding
49
Table 4.9
Benefits that motivate people to invest into lending-
based crowdfunding
50
Table 4.10
Benefits that motivate people to invest into
donation-based crowdfunding
51
Table 4.11
Chi-Squared test 2
53
Table 4.12
Benefits that motivate people to invest into
crowdfunding with regard tot he age
56
Table 7.1
Motivation for receiving material or immaterial
rewards per age group
81
Table 7.2
Motivation for receiving shares in the funded
company per age group
82
Table 7.3
Motivation for receiving interest rates on the
invested money per age group
82

List of Tables
9
Table 7.4
Motivation for not receiving any benefit (donation)
per age group
82
.

Introduction
10
1 Introduction
This chapter aims to provide an opening into the following dissertation. It
starts with an introduction into the research topic, the research objectives
and the research question as well as the dissertation structure.
1.1 Research topic
The increasing digitalisation that has emerged over the past decades had a
huge impact on the way businesses operate and organize themselves. E-
Commerce for instance is a digitalised form of commerce and involves all
types of business transactions via the internet. However, not just the com-
merce has been affected through the digitalisation, but also the way com-
panies raise funds. (Ryu & Kim, 2016) Especially small and medium sized
companies and start-ups increasingly intend to raise funds online. Particu-
larly smaller ventures are facing the problem of early-stage funding in the
beginning of their entrepreneurial activity, due to a lack of sufficient cash
flows and the presence of information asymmetry between a company and
its investors (Cosh, Cumming, & Hughes, 2009). However, financing as
one of the most critical resources is needed in order to succeed (Kortum &
Lerner, 2000). Therefore, especially small companies facing a barrier in
raising money at the beginning of their entrepreneurial activity are increas-
ingly using crowdfunding to raise funds in an early-stage in order to realise
new ideas (Kuppuswamy & Bayus, 2013; Ordanini, Miceli, Pizzetti, &
Parasuraman, 2011). Thus, crowdfunding as a digitalised option to raise
funds has gained importance but not a high profile in Germany yet. In order
to have a successful funding process the project funder needs to motivate
people to invest in the project. Crowdfunding projects cannot be successful
in the funding process without the "crowd". Consequently, the motivation
behind investing in this alternative investment opportunity is going to be

Introduction
11
explored in this research. Crowdfunding emerged over the past 10 years
and has started to be regarded as a serious option to invest money in.
However, not all people are inclined by the same benefits the different
crowdfunding types have to offer.
The purpose of this study is to survey the crowdfunding market in Germany
in order to achieve an understanding about factors that motivate German
residents to use crowdfunding as an alternative investment method. Due to
the increasing digitalisation crowdfunding is likely to receive an increasing
attention from both, founders / companies attracting project funding and for
people (the crowd) that want to benefit from of their investment.
1.2 Research objectives and question
The researcher put forward several objectives for this dissertation and uses
different methods in order to achieve these research objectives within the
research topic as described above. The research objectives are as follows:
1. To gain a greater understanding of how well-known crowdfunding is
in Germany depending on the residents' age.
2. To identify which crowdfunding type and therefore which benefits
motivate people in Germany the most to invest in a crowdfunding
project.
3. To see which potential benefits of the different crowdfunding types
are the drivers that motivate German to invest in crowdfunding.
4. To verify whether age affects the perception of a benefit that partici-
pants can receive in a crowdfunding project.
The research question can be described as follows:
"Which crowdfunding type with its benefits motivates German resi-
dents the most to invest in a crowdfunding project?"

Introduction
12
The research question has been chosen due to the willingness of the re-
searcher to analyse the crowd since the crowd makes the success of a
crowdfunding project possible in the first place. Due to a personal interest
the researcher wants to examine the benefits that motivate people in Ger-
many to invest into crowdfunding. The different crowdfunding types with
the different benefits within these crowdfunding types are tested on wheth-
er or not they motivate people that live in Germany to invest in crowdfund-
ing campaigns.
1.3 Dissertation Structure
A short overview of the chapter will be given below in order to create an
understanding of the dissertation structure and what to expect. The disser-
tation consists of five chapters including the Introduction as the first chap-
ter. The introduction aims to give an overview about the research topic, the
researcher's research objectives and questions and the structure of the
dissertation.
1.3.1 Chapter 2 ­ Literature Review
In chapter two the literature in the area of research will be reviewed. There-
fore, the author investigates the literature that contains crowdfunding and
the different crowdfunding types. The German culture is being introduced
and an insight on crowdfunding in Germany will be provided. This chapter
provides the reader with background knowledge before continuing with the
methodology of the research.
1.3.2 Chapter 3 ­ Methodology
Chapter three aims to explore the ways in which this research can be car-
ried out. The research approaches and different research strategies will be
considered, alongside with the sampling and the data analysis. The chosen
method will be explained and justified within this chapter. The limitations of

Introduction
13
the chosen method will be analysed and addressed. Besides the tech-
nique, ethical consideration will be taken into account as well.
1.3.3 Chapter 4 ­ Analysis and Findings
Within this section the findings from the conducted research will be pre-
sented to the reader of this dissertation. This chapter will analyse the quan-
titative data that has been gathered to achieve a better understanding of
crowdfunding as an alternative investment method in Germany. Once the
data will be gathered and analysed, knowledge will be applied to the find-
ings and therefore the data will be given meaning. The findings will be re-
ferred back to the presented literature.
1.3.4 Chapter 5 ­ Conclusions
This chapter will conclude this dissertation and the results from the re-
search will be referred back to the research objectives and whether these
objectives have been realised in this research. An answer to the research
question will be provided as well. This chapter will discuss any limitations
of the conclusions, alongside with areas that would be appropriate for fur-
ther research.

Literature Review
14
2 Literature Review
2.1 Introduction
This section aims to provide the literature written in the field of crowdfund-
ing in order to obtain a wider knowledge of the subject. While traditional
forms of financial resources such as bank loans, venture capital, private
equity and business angels are well known, a new form of investment has
emerged over the past 10 years: crowdfunding (Tomczak & Brem, 2013).
Firstly, the author will define the term crowdfunding, followed by a definition
of the term backer and the benefits crowdfunding offers for backers. In sec-
tion 2.2.2 different crowdfunding web-sites are going to be introduced
which leads to the following sections 2.2.3 to 2.2.6 which will provide addi-
tional information and descriptions of the four main crowdfunding types. An
overview about the German culture as well as an insight of crowdfunding in
Germany will be thematised in this section as well. This section will be
concluded through the pointing out how limited the literature is and the hy-
pothesis.
2.2 Definition of Crowdfunding
In recent years the term crowdfunding emerged as a new way for ventures
to raise funds via online platforms without using traditional sources
(Lambert & Schwienbacher, 2010; Mollick, 2014; Ordanini et al., 2011).
Especially small enterprises are increasingly using crowdfunding for early-
stage funding to commercialise new ideas (Kuppuswamy & Bayus, 2013).
The term crowdfunding originates from the term crowdsourcing which Jeff
Howe initially introduced in his article in the WIRED magazine (Howe,
2006). Crowdsourcing aims to develop corporate activities through feed-

Literature Review
15
back, ideas and solutions of the crowd. In the term of crowdfunding how-
ever, the main objective is to raise money for investment (Belleflamme,
Lambert, & Schwienbacher, 2010). While there are several definitions of
crowdfunding in the literature, there is no definition that has received uni-
versal scientific acceptance (e.g. Belleflamme, Lambert, & Schwienbacher,
2014; Tomczak & Brem, 2013). Even though there are miscellaneous defi-
nitions, most of them include the focus on receiving financial funding from a
crowd. In Lambert and Schwienbacher's definition for instance, crowdfund-
ing is described as the provision of financial resources for projects and en-
terprises by a group of individuals instead of professional parties
(Schwienbacher & Larralde, 2010). Another definition for crowdfunding is
provided by Bradford whose description of this alternative financing method
is similar since he defines crowdfunding as raising small amounts of money
from a large crowd (Bradford, 2012). While crowdfunding projects consist
of three players (Ordanini et al., 2011):
1. the entrepreneur that offers a project and hopes to receive financial
funding in order to realise the project or idea
2. the sponsor that makes the decision whether to invest into a project
or not
3. and the crowdfunding platform that functions as an intermediary be-
tween the creator of the project or idea and the backer (Ryu & Kim,
2016),
neither of the two above described definitions covers the compensations
for and motivations of sponsors (which are called backers).
2.2.1 Motivations of and benefits for Backers
Since the successful funding of a crowdfunding project is dependent on the
participation of backers, understanding their motivations and benefits is
fundamental in this area of research (Ryu & Kim, 2016).

Literature Review
16
The Massolution Crowdfunding Industry Report reported a total funding
volume worldwide of $16,2 billion in 2014, which is an increase of 167%
compared to the total funding volume of $6,1 billion in 2013 (Massolution,
2015). Moreover, Massolution forecasted a total crowdfunding volume of
$34,4 billion for 2015. Therefore, it is obvious that according to the report
the total crowdfunding volume worldwide and therefore the crowdfunding
market increased tremendous over the past years and will grow in the fu-
ture as well.
The willingness of backers to fund is dependent on different factors.
Agrawal, Catalini and Goldfarb (2011) found that sponsors that are geo-
graphically close to the project founder are more likely to invest into a
crowdfunding project in the initial phase of the funding period. Moreover,
the number of backers plays a role in the willingness of other potential
sponsors to fund a project. Many backers contributing with a small sum to
the combined amount are sending out a stronger signal to other backers
compared with an single backer investing the same amount individually
(van de Rijt, Kang, Restivo, & Patil, 2014).
Gerber, Hui and Kuo (2012) found that reward seeking is a factor that mo-
tivates people to support a crowdfunding campaign. Furthermore, people
are motivated by being part of a community and through the support that
they are giving the founders in order to achieve their goals (Gerber et al.,
2012). Cholakova and Clarysse (2015) on the other hand found that back-
ers are in fact more motivated through financial than through nonfinancial
factors.
The potential benefits that motivate individuals to fund a project can be di-
vided into four main types. The benefits for backers depend on the crowd-
funding type (Mollick, 2014). Crowdfunding can be divided into different
"types" that differ in their benefits for backers. The four main crowdfunding
types that potential backer can support are: reward-based, equity-based,

Literature Review
17
lending-based and donation-based crowdfunding. There are additional
crowdfunding types such as royalty crowdfunding and hybrid crowdfunding
which however do not have a significant high market share within the
crowdfunding market and will therefore not be explored in detail in this
study. Based on the four main types funders have the option to choose
crowdfunding campaigns based on the following four compensations that
are most likely to be offered to backers (Mollick, 2014):
1. Backer receive a reward (such as the product of the funded cam-
paign or an immaterial reward such as being named on the compa-
ny's website)
2. Backer receive equity stake
3. Backer offer the fund as a loan and receive interest
4. Backer donate and do not receive a direct return.
Massolution not only reported a forecast for the total funding volume
worldwide, the company also published a forecast regarding the total fund-
ing volume per crowdfunding type for 2015. The forecast includes royalty
and hybrid as two additional crowdfunding types. Royalty crowdfunding is a
type of equity crowdfunding in which backers' receive profits from projects
that are mostly not on-going businesses (Beaulieu, Sarker, & Sarker,
2015). Hybrid crowdfunding does not just include crowdfunding, founders
are also able to get in contact with joint ventures or business angels
through these platforms (Clawson, 2015). These two types of crowdfunding
have been combined to the below shown pie chart into the category "oth-
ers".
Excerpt out of 82 pages

Details

Title
Crowdfunding as an alternative investment opportunity in Germany
Subtitle
Benefits and Motivational factors to participate in crowdfunding campaigns
College
Northumbria University
Grade
1,0
Year
2018
Pages
82
Catalog Number
V432149
ISBN (eBook)
9783668744417
ISBN (Book)
9783668744424
File size
1694 KB
Language
English
Tags
Crowdfunding, Investment, Culture, Motivation, Finance
Quote paper
Anonymous, 2018, Crowdfunding as an alternative investment opportunity in Germany, Munich, GRIN Verlag, https://www.grin.com/document/432149

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