Guest editorial: Crowdfunding and innovation management: moving forward with platform-based innovation management

Citation

Troise, C., Sorrentino, M. and Schjoedt, L. (2024), "Guest editorial: Crowdfunding and innovation management: moving forward with platform-based innovation management", European Journal of Innovation Management, Vol. 27 No. 7, pp. 2173-2182. https://doi.org/10.1108/EJIM-09-2024-996

Crowdfunding, as a phenomenon, has experienced rapid growth over the past decade, in part because it offers entrepreneurs and innovators a funding opportunity for their activities (Mollick, 2014; Short et al., 2017; Testa et al., 2019; Troise et al., 2023b). As a financial innovation, crowdfunding provides an important alternative to traditional financing of new venture creation or innovations (Bruton et al., 2015; Block et al., 2018; Troise et al., 2020a, b). As a financial innovation, crowdfunding has gained a substantial amount of interest from multiple stakeholders such as governments, practitioners and scholars (Belleflamme et al., 2014; Stefani et al., 2019). Even though crowdfunding has gained substantial interest in the practitioner and scholarly literature, the research literature on crowdfunding is fragmented and sparse (Drover et al., 2017; Short et al., 2017; Mochkabadi and Volkmann, 2020; Troise et al., 2022c, 2023a). Scholars observe that this may be due to the fact that crowdfunding literature is still in its infancy (Mochkabadi and Volkmann, 2020). This means that crowdfunding, as a concept, holds promise for future research to advance our collective knowledge. Specifically in the context of innovation management, we offer this special issue (SI) on crowdfunding and innovation management to advance the literature.

Among the limited research on crowdfunding and innovation management, Hervé and Schwienbacher (2018) observe that crowdfunding holds a substantial potential to facilitate innovation through new sources of capital and for the crowd to actively participate in the innovation process. Research examining crowdfunding for innovations illustrates the importance of crowdfunding, as a funding option, in innovation management (Busse and Siebert, 2018; Troise et al., 2023b). It provides an important source of knowledge to support innovation activities such as inputs in the production phase of the commercialization process (Smith, 2015) in the form of “wisdom of crowds” (Macht and Weatherston, 2014; Brown et al., 2017; Di Pietro et al., 2018; Boutillier, 2019; Troise and Tani, 2021; Troise et al., 2023a, b).

Early research shows that crowdfunding platforms provide open innovation tools that affect innovations, their form and function and their performance as well as their impact on firm performance (Di Pietro et al., 2018; Estrin et al., 2018; Troise and Tani, 2021; Troise et al., 2021; Wald et al., 2019). In effect, crowdfunding acts as open innovation platforms that offer opportunity for entrepreneurs and innovators to acquire new knowledge from the public regarding the new ventures and innovative products or services and their use and potential bases for new or existing markets, as well as increasing public awareness of the new venture and innovation.

In the context of sustainability, crowdfunding platforms offer novel sources of knowledge for entrepreneurs and innovators (Testa et al., 2019; Troise et al., 2021). This is especially for the so-called “niche innovators” such as one-time users, entrepreneurs and new ventures, as well as innovation-oriented end-users (Nielsen et al., 2016). This is of particular importance for work on radical innovations in which active participants in the entire innovation process are critical to the innovation (Bogers et al., 2010, 2018) such as sustainable sociotechnical transitions. Phrased differently, “crowdfunding represents a novel sociotechnical practice with the potential of upscaling and transforming financial and potentially sustainability regimes by enabling significant levels of user-producers and user-consumers interaction” (Testa et al., 2019, p. 66).

As these considerations show, crowdfunding holds potential to involve the public in the innovation process, meaning that it may also change what is considered as business outcomes. Using crowdfunding in managing the innovation process means that crowdfunding holds potential to democratize the entrepreneurial and the innovation and commercialization processes (Mollick and Robb, 2016), influence business models (Gamble et al., 2017), generate innovation and change the R&D process (Callaghan, 2014). Or, as Daldrup et al. (2020, p. 326) observe, “The crowd should be involved in different stages of the innovation process.” Recently, Troise et al. (2023b) show that crowdfunding plays a vital role in providing resources, including funding, for underrepresented categories of innovative and small businesses such as university spin-offs.

Crowdfunding holds potential to change the management of innovations and investors (of any kind of resource); investors who provide crowdfunding may be considered early innovation adopters (Stanko and Henard, 2017; Testa et al., 2023) because they are willing to buy into the innovation early via the crowdfunding. As early adopters, investors of crowdfunding potentially influence behaviours of people who adopt the innovation later.

As suggested above, crowdfunding is an important part of innovation management. Yet, the research literature on crowdfunding has focused on showing its relevance. This is unfortunate as the literature on crowdfunding in the context of innovation management is sparse. This is because research on the nexus between crowdfunding and innovation management holds potential to substantially advance the literature and our collective understanding of the potential influence and benefits of crowdfunding on innovation management. To advance the crowdfunding literature and our collective understanding, we offer this SI on crowdfunding and innovation management.

With this SI and in concert with the authors of the included articles, we offer readers new insights into crowdfunding in the context of innovation management. As we offer such new insights, we hope to stimulate other researchers to enrich the literature on crowdfunding and innovation management with future research. Before we introduce the research included in this SI, we will provide a brief introduction to crowdfunding.

A brief intro to crowdfunding

Many entrepreneurs and innovators are hesitant to consider crowdfunding in the new venture creation or innovation process. This may be due to limited knowledge of crowdfunding or the suitability and value-adding potential of various crowdfunding models (Paschen, 2018; Troise et al., 2023b). Choosing an appropriate type of crowdfunding may be key to the development and valorisation of innovations, business ideas, patents and start-ups or spin-offs.

The extant literature provides four main crowdfunding models. They are donation crowdfunding, equity crowdfunding, lending crowdfunding and reward crowdfunding (Cappa et al., 2023; Troise et al., 2023a). More recently, a fifth model has appeared in the literature: royalty crowdfunding. This latter model has not yet gained wide recognition in the literature. As we have previously indicated, crowdfunding models may support the innovation process differently depending on the stage considered. This means that it is important to appreciate the evolution of crowdfunding models including new models such as the royalty model of crowdfunding or hybrid models.

To this end, we offer in Figure 1 a graphical representation of the suitable crowdfunding model for each of the innovation lifecycle stages. This figure is adapted from the literature (Testa et al., 2019; World Bank, 2013). Crowdfunding models may be grouped into two: Early high-risk crowdfunding models such as the donation and reward models and investment-based crowdfunding models such as the equity, royalty and lending models.

The first group of crowdfunding models includes donation and reward crowdfunding that may be valuable tools for supporting ideas in the initial phases of new venture creation and innovation process such as proof of concept or prototyping. These two crowdfunding models are appropriate because of the funding needs and risks associated with these early stages since they are “not investment-based crowdfunding” (Belleflamme et al., 2015; Rossi and Vismara, 2018). They allow entrepreneurs and innovators to obtain funds while at the same time testing the innovation in the form of a marketable product or service.

At this early stage of the new venture creation or innovation process, the purpose of the crowdfunding is for the entrepreneurs or innovators to obtain funds to begin, or continue, the development of a new venture or innovation product or service. In addition to the funds obtained, the entrepreneurs or innovators are provided with feedback from the public – the wisdom of the public. Through the wisdom of the public, entrepreneurs and innovators may have their new venture or innovation idea validated, or they may obtain feedback pertaining to the need for the new venture or use of the innovation or how or where to revise the new venture offerings or innovation features. As this shows, donation and reward crowdfunding models are valuable in obtaining critical information in the early stage new venture creation and innovation process. In these crowdfunding models, the participating public is usually motivated by personal or altruistic motives for supporting a specific new venture or innovation project, or anticipated rewards that may be knowledge about the products or services that are coming onto a market or an opportunity to pre-order products or services. In addition to funds, these considerations reveal that donation and reward crowdfunding models offer opportunity for entrepreneurs and innovators to obtain valuable information from the public, who, in exchange, receives non-monetary benefits. In effect, these models provide a viability test of the new venture or innovation as well as the potential to build a network among the public that may provide word-of-mouth promotion for the new venture or innovation. Having introduced donation and reward crowdfunding models, we consider investment crowdfunding models next.

The second group of crowdfunding models consists of investment-based models. These crowdfunding models may be considered alternatives to traditional forms of entrepreneurial or innovation financing (Belleflamme et al., 2015). Like traditional financing, their general purpose is to finance new venture creation or innovations. This category consists of three distinctive models: equity crowdfunding, royalty crowdfunding (recall that this is the new fifth model) and lending crowdfunding.

Equity crowdfunding offers investors equity in return for funding. Equity crowdfunding is specific to new venture creation and SMEs. It may be considered the primary crowdfunding model for entrepreneurs and small and medium-sized enterprise SME owners seeking funding for launching or further developing their new venture or for expanding or acquiring new or additional resources for their SMEs. After a viability test of the business concept for a new venture, equity crowdfunding is many times appropriate since the new venture is established and has a performance record or at least a satisfactory traction. Equity crowdfunding holds potential to offer benefits beyond funds for entrepreneurs or SME owners (Di Pietro et al., 2018; Estrin et al., 2018; Wald et al., 2019; Troise and Tani, 2021; Troise et al., 2024). These benefits include feedback, networking, word-of-mouth promotion, etc. generated by the public as entrepreneurs and innovators continue efforts in new venture or innovation development, innovation commercialization and growth or expansion of the new venture or business (Troise et al., 2023a).

Equity crowdfunding is one of two crowdfunding models that are based on investors receive a return from the investment that is directly related to the financial performance of the new venture or innovation (Battisti et al., 2024). Royalty crowdfunding is the other crowdfunding performance-based model. It is based on providing royalty payments for intellectual property rights (e.g. patents, trademarks, copyrights and business systems like a franchise) in exchange for funds provided by the investors. Royalty crowdfunding model is based on investment in a completed, qualified or protected innovation in return for royalties depending on the innovation’s later performance or the sale of the innovation that forms the base for the royalty payments.

Unlike equity or royalty crowdfunding, the third investment-based crowdfunding model is lending. It offers interest payments over time and repayment of the principal in return for a loan provided by the public. Also, unlike equity and royalty crowdfunding, lending crowdfunding does not typically provide any additional benefits beyond funding. This means that the lending model is like a bank loan; unlike a bank loan, lending crowdfunding provides funds for more risky activities like commercialization or business growth or expansion.

As equity and lending crowdfunding models serve entrepreneurs and innovators in their earlier stages of the innovation life cycle, their purpose and benefits seem to end when larger funding is needed for continued venture growth and development. At such time, traditional sources of funds from business angels, venture capitalists or an initial public offering are sought. In effect, this means that the crowdfunding stage, or early stage financing, has ended. Next, we will introduce the ten articles that make up this SI and that provide new insights into crowdfunding and innovation management.

Articles in this special issue on crowdfunding and innovation management

Alalwan et al. (2023) provide the first study in this SI. It is titled, “Entrepreneurial e-equity crowdfunding platforms: antecedents of knowledge acquisition and innovation performance.” The authors address e-equity crowdfunding activities and its’ effects on entrepreneurial businesses’ innovation performance. They propose a conceptual model that leverages three perspectives: relationship marketing orientation (RMO), Kirzner's alertness theory and the information systems model by DeLone and McLean. Using structural equation modelling, the authors examine how entrepreneurs' engagement in e-crowdfunding activities enhances innovation performance and knowledge acquisition. They find that RMO, alertness and system/service quality are positively associated with entrepreneurs' engagement in e-equity crowdfunding impact innovation performance and knowledge acquisition.

Camilleri and Bresciani (2024) offer the second study in our SI, titled “Crowdfunding small businesses and startups: a systematic review, an appraisal of theoretical insights and future research directions.” The two authors explore the use of crowdfunding platforms by small businesses and new ventures. Specifically, they employ a Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) methodical protocol to analyse 72 papers to determine the pros and cons of utilizing crowdfunding platforms. The study reveals a series of challenges and opportunities for actors seeking or providing crowdfunding in the context of crowdfunding models. The authors observe that crowdfunding models are useful in obtaining funds and other resources for fund-seekers, while fund providers strive to find a trade-off between risks and related rewards.

Chaudhary et al. (2024) supply us with the third paper in this SI. It is titled, “Mapping the field of crowdfunding and new ventures: a systematic literature review.” These authors provide an exhaustive literature review focused on new ventures soliciting crowdfunding. The study provides findings that reveal an identification of six main topics related to crowdfunding: founders, signalling, digitalization, outcomes, geography and success factors. Also, their literature review reveals gaps in the research literature that offer fruitful avenues for future research.

Matricano and Candelo (2024) offer the fourth paper in this SI. It is titled, “Matching innovation strategies and crowdfunding campaigns: an explorative investigation.” The authors provide a conceptual and explorative study that investigates if innovation strategies and crowdfunding can be cross-referred or even matched. Their study highlights a potential match between innovation strategies and crowdfunding, and the key role of innovation studies corroborating the relevance and attractiveness of crowdfunding.

Crocco et al. (2024) offer the fifth paper in this SI. It is titled, “Crowd inputs in reward-based and equity-based crowdfunding: a latent Dirichlet allocation approach on their potential for innovation.” They investigate rewards and equity crowdfunding; specifically, they analyse user-generated content to assess the effects of equity crowdfunding on open and user innovation. Critical latent factors are identified by the authors using a latent Dirichlet allocation (LDA) analysis. These findings show that backers provide various types of feed to entrepreneurs in areas such as strategy, marketing and the product co-development process and that there are several differences between the crowd inputs in the considered two crowdfunding models.

Amoozad Mahdiraji et al. (2024) offer the sixth study in this SI. It is titled, “Towards financing the entrepreneurial SMEs: exploring the innovation drivers of successful crowdfunding via a multi-layer decision-making approach.” They examine the cause-and-effect relationship between SMEs’ innovation drivers and successful crowdfunding. To this end, the authors employed multiple analytical methods such as multi-criteria decision-making, Fuzzy Delphi, DEMATEL, analytic network process and stepwise weight assessment ratio analysis. The analytical process resulted in a conceptual model of causality and the determination of importance/weight of each driver.

Lerro et al. (2024) furnish the seventh study in this SI. It is titled, “Mapping knowledge assets categories for successful crowdfunding strategies.” In this study, they leverage a holistic knowledge-based perspective on crowdfunding using both deductive and inductive approaches. The authors identify a set of knowledge-based dimensions grounding crowdfunding and technological scouting strategies. The findings show a theoretically grounded framework with useful applications, especially in the field of decision-making processes.

Yáñez-Valdés and Guerrero (2024) render the eighth paper in this SI. It is titled “Equity crowdfunding platforms and sustainable impacts: encounter of investors and technological initiatives for talking social and environmental challenges.” These two authors theorize on how equity crowdfunding campaigns attract investors to commit financial resources to technological initiatives for social and environmental value creation. They adopt an inductive qualitative approach to highlight that both disruptive technologies and sustainable purposes represent key drivers of success. Furthermore, they find that an active engagement of the investors contributes to the process of value creation.

Graziano et al. (2024) provide the ninth paper of the SI titled, “Contacts on LinkedIn: equity crowdfunding platforms' networks and creators' innovation performance.” In their study, they investigate the role of social media networks’ (SMNs), the networks in which firms and platform managers exchange ideas with investors, influence innovation performance and equity crowdfunding performance, among new ventures and SMEs. These authors specifically focus on LinkedIn to analyse the quality/quantity of the interactions, social links of platform managers and links between SMNs and creators’ ability to innovate. The findings reveal a link between creators, crowdfunding platforms and managers, as well as the crucial role of platform managers in providing specific network activities.

Salvi et al. (2024) afford our SI with the tenth paper titled, “How relevant is the individual’s levels of innovativeness in the investment decisions in equity crowdfunding campaigns?” The authors explored the relationship between the individual’s levels of innovativeness and the individual’s intention to finance an equity crowdfunding campaign. By adopting an ordinary least squares model and focusing on a sample of respondents from UK and USA, the findings of this study revealed a positive relationship between the two parameters mentioned above; furthermore, and interestingly, the authors showed that the introduction of moderators in the model had positive effects on this relationship, which is still positive, thus confirming that proactive personality and openness to experience represented personal traits that strengthen the relationship.

Conclusion and future research directions

With this SI, we seek to advance the extant literature by providing a collection of interesting new studies on the nexus between crowdfunding and innovation management. To place this SI and the included studies in a context, we provided a brief introduction to crowdfunding models in various new venture creation and innovation life cycle stages.

At present, our lives are influenced by a progressive digital transformation and massive use of digital technologies (Schjoedt et al., 2020; Troise et al., 2022a). As part of this, entrepreneurs and innovators have begun to leverage digital platforms to support their ideas for new ventures and innovations without personal interactions (Troise et al., 2022b). Crowdfunding may be critical for entrepreneurs and innovators in pursuit of their new venture creation or innovation efforts by providing access to valuable resources including financial, informational or other forms of resources.

Given the limited literature on crowdfunding and innovation management, avenues for future research on the nexus of crowdfunding and innovation management appear to be plentiful. In fact, there appears to be too many opportunities for future research to advance the literature for us to mention here. Yet, we will provide a few suggestions for future research. It may be beneficial for future research to examine the particularities of the different crowdfunding models, the importance assumed for innovators and the evolution of crowdfunding as an industry. Further, future research may enrich our appreciation of crowdfunding by investigating how crowdfunding models foster innovation, enhance the innovation process and influence innovation performance in a multitude of businesses such as new ventures, spin-offs and SMEs, as well as large and multinational organizations, whether for profit or not. Research on how crowdfunding models provide a variety of benefits to funding seekers and providers may also generate new insights. The last avenue we will suggest is that future research may enhance our appreciation and use of crowdfunding by developing typologies of funding seekers, funding providers, backers, platform participants who do not invest and platform facilitators, as well as the type of information exchanged on the crowdfunding platforms.

We end this editorial by reiterating that it is our hope that this SI will be an impetus for future research that will advance the literature and our collective understanding of the nexus between crowdfunding and innovation management.

Figures

Figure 1

Crowdfunding models for innovations

Publisher’s note: The publishers would like to advise the readers that an article that was intended for this special issue was erroneously published in a regular issue. You can find this article by following the link below; the publisher apologies for this error.

Alalwan, A.A., Baabdullah, A.M., Mahfod, J.O., Jones, P., Sharma, A. and Dwivedi, Y.K. (2024), “Entrepreneurial e-equity crowdfunding platforms: antecedents of knowledge acquisition and innovation performance”, European Journal of Innovation Management, Vol. 27 No. 2, pp. 521–550. https://doi.org/10.1108/EJIM-03-2022-0167.