When Equity Crowdfunding is a No Go For Innovating SMEs

The idea of leveraging crowdfunding to foster innovation has been part of the hype around this entrepreneurial finance strategy in the public debate for the past years.

However, a recent study, published by the scholarly journal Small Business Economics, shows a different direction.

Indeed, according to the research’s authors, Derek Eldridge, Tahir M. Nisar and Mariateresa Torchia, equity crowdfunding doesn’t have a significant impact on SME innovation. But nevertheless, it plays a pivotal role in growth opportunities.

In other words, if on the one hand equity crowdfunding doesn’t make a small firm unique, on the other it would help its founder to better a product or the brand. Why?

Delivering a hypothesis test, they found that, “Crowdfunding leads to an increase in firm growth, through a reduction in the cost of financing and the provision of knowledge from external backers.”

On the other hand, though, data reject the argument according to which equity crowdfunding increases an SME’s levels of innovation, so contradicting outcomes from previous research.

This means that equity crowdfunding doesn’t seem to have the capability of providing a venture a unique selling proposition to enter a new market and maximise its competitive advantage while it represents a sounding business development tactic.

More should be added to this analysis, they conclude, and this is why the authors suggest to add qualitative studies to foster a deeper understanding of data.

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Reference

Eldridge, D., Nisar, T. M. and Torchia M. (2019) ‘What Impact Does Equity Crowdfunding Have on SME Innovation and Growth? An Empirical Study’ in Small Business Economics, 53(1), pp. 1-16.

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