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The market for entrepreneurial finance has witnessed the arrival of new players – specifically, different types of crowdfunding platforms – which have joined the more traditional forms of entrepreneurial finance such as BAs and VCs over the last decade. Taking stock of this increasingly diverse landscape, the present study explores the concept of a complex funding trajectory and its impact on the dynamics of nascent venture governance. Using a processual case-study design, we explore the particular funding trajectory of a young technology venture, successively combining different actors: reward based crowdfunding (RBC) first, then equity based crowdfunding (ECF) combined with business angels (BAs), followed by ECF combined with BAs and VCs. Our contribution to the literature is two-fold. The case makes an empirical contribution by deepening insights from prior quantitative studies on the determinants of follow-on funding after initial crowdfunding campaigns. The present study also makes a theoretical contribution by demonstrating that, beyond particular determinants of fundraising from various sources linked to initial venture characteristics and individual campaign attributes, the specific shape and sequencing of the overall funding trajectory plays a central role for the success of follow-on funding and the nascent governance of the young venture.
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Crowdfunding, business angels, and venture capital: an exploratory study of the concept of
the funding trajectory
Véronique Bessière, Eric Stéphany, Peter Wirtz
Venture Capital, April 2019, Taylor & Francis
DOI: 10.1080/13691066.2019.1599188
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Crowdfunding, business angels, and
venture capital: the concept of the
funding trajectory
What is it about?
The market for entrepreneurial nance has witnessed the arrival of new players
specically, dierent types of crowdfunding platforms which have joined the more
traditional forms of entrepreneurial nance such as BAs and VCs over the last
decade. Taking stock of this increasingly diverse landscape, the present study
explores the concept of a complex funding trajectory and its impact on the dynamics
of nascent venture governance. The specic shape and sequencing of the overall
funding trajectory plays a central role for the success of follow-on funding and the
nascent governance of the young venture.
Why is it important?
The study focuses on deepening the understanding of a specic funding trajectory,
among many potential trajectories, drawn across the complex landscape of the
presentday entrepreneurial nance market. To the best of our knowledge, this is the
rst study of its kind, examining RBC, ECF, BAs, and VCs and their concurrent
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... In this review, we focus on signaling to the two most important sources of external early-stage financing for high growth potential ventures: AIs and VCs . Although these two types of investors differ in terms of the source of investment funds, both provide financial and non-financial investments and work closely with entrepreneurs to maximize the venture's growth prospects (Bessière, Stéphany, and Wirtz (2020), , Cohen (2013)). With the advent of angel groups, the decisionmaking process, investment size, and stage of the ventures in which AIs invest have become increasingly similar to those of VCs (Mason, Botelho, and Harrison 2019). ...
... VCs as well as angel groups have more sophisticated and formalized investment decision-making processes compared to individual AIs (Mason, Botelho, and Harrison 2019;Cumming and Zhang 2019). The two types of investors also differ in their style of governance, with AIs placing greater emphasis on the entrepreneur-investor relationship as a form of oversight and VCs relying more on contractual governance (Bessière, Stéphany, and Wirtz 2020). These differences between investors may result in different investment policies. ...
... Young ventures are under specific constraints to finance their needs at the various stages of development with different investors. The resulting funding trajectory must be successful at every step to increase its trustworthiness and the probability of raising funds for the next stage (Bessière et al. 2020). ...
... The pitch represents a unique point of contact to scan and question during a limited period of time. The main characteristics for investment decisions vary from the most structured one to the highest gut feeling (Bessière et al. 2020;Graebner 2009). Angels in Canada and USA rank the entrepreneurial team by preference, and second, the product or service delivered (Muller et al. 2015). ...
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The pitch is an important part of the entrepreneur–investor relationship. To come to an agreement, entrepreneurs and investors need to trust each other. However, how does trust arise between them, and how does trust evolve during the few minutes of a pitch? With the aim to develop propositions, we build on previous studies in entrepreneurship and venture funding. Therefore, we rely on the main concepts of trust useful to analyze the interpersonal relationship during a pitch: behavioral trust and transformative trust. We discuss the place of formal documents diffused prior to the pitch and the importance of the oral presentation. We conclude by suggesting testable proposition on the evolution of trust during the pitch.
... Bessière et Stéphany, 2014, 2015Cumming et al., 2021 pour un exemple récent de programme de recherche sur la gouvernance dans un contexte de crowdfunding). Toujours est-il que la recherche sur la finance et la gouvernance entrepreneuriales a pour l'essentiel été menée acteur par acteur (Cumming et Vismara, 2017 ;Wallmeroth et al., 2018), et rares sont encore les travaux qui procèdent d'une vision multi-acteurs, qui débouchent sur la compréhension de véritables trajectoires de financement (Bessière et al., 2020) Tarillon (2021), enfin, s'intéresse aux évolutions des fonctions de la gouvernance (cognitive vs. disciplinaire) exercée par les actionnaires et leur impact sur la croissance des firmes. Là où beaucoup de recherches en matière de finance entrepreneuriale adoptent la perspective de l'investisseur (venture capital, business angel ou foule), l'originalité de l'approche de Tarillon consiste à interroger la perception du dirigeant-entrepreneur de l'apport des actionnaires et de la relation entretenue avec ces derniers. ...
... Cela confirme que la finance entrepreneuriale est un champ d'application particulièrement pertinent d'une approche intégrée de la gouvernance, qui recourt à la fois à des explications cognitives et disciplinaires, voire comportementales (Charreaux et Wirtz, 2006). Pour l'avenir, l'articulation précise de ces dimensions mériterait des approfondissements, comme par ailleurs la dynamique temporelle de l'interaction entre acteurs multiples (venture capital, business angel, foule, entrepreneurs) (Bessière et al., 2020 ;. ...
... In addition, it analyzed the specific financing trajectory of a technology company that combines various crowdfunding methods and quantitatively explored the impact of initial crowdfunding activities on subsequent fundraising. It was found that the initial financing risk characteristics, financing trajectory, and follow-up activities have important impacts [5]. Kim explored the leadership style and management strategy of small and medium-sized venture companies. ...
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Aiming at improving the enterprise performance and venture capital management, the edge computing is combined with blockchain technology in the construction of the supply chains so as to improve the stability and security of raw material supply chains of venture capital enterprises. Firstly, the relationships among venture capital, enterprise performance, and supply chain integration are analyzed, and the positive impacts of optimization and innovation of supply chain technology and venture capital on enterprise performance improvement are discussed. Secondly, the edge computing and blockchain technology are adopted to optimize the supply chain, and a protocol model is established to improve the security of supply chain information transmission. In addition, the supply chain Internet of Things (IoT) system is designed in layers based on blockchain and edge computing technology. Finally, the designed protocol model is applied to the supply chain and the supplier performance is evaluated by using the fuzzy analytic hierarchy process (FAHP). The results show that the gas value of the designed protocol model is stable at 104,000∼116,000 in blockchain transactions, and the execution time of a single blockchain transaction fluctuates between 4,300 and 6,100 ms. Therefore, the designed protocol model can effectively ensure the security of supply chain data during the transmission. The evaluation results of supplier performance suggest that the cooperative relationship between venture capital enterprises and suppliers is affected by many factors. Optimizing the supply chain structure and production activities can improve the performance of suppliers and venture capital enterprises. This work provides a reference for analyzing the performance of blockchain technology on venture capital enterprises and suppliers.
... Moreover, while dissecting Gulf entrepreneurs' construction, it ought to be noticed that more than 90% of those are microenterprises. 4,5 Since admittance to fund is still among the top five issues entrepreneurs face in the GCC, it is fascinating to recognize crowdfunding's genuine pertinence to quicken the admittance to back. The purpose of this paper is to acquire the complete comprehension of crowdfunding ventures and assess their wellness to address the genuine requirements of entrepreneurs in the GCC. ...
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This study aims to analyze crowdfunding’s economic success in the Gulf region as the Crowdfunding (CF) experience and practice in this part of the world tend to be unexplored in terms of research. In particular, the study examines whether the adoption of entrepreneurial finance (EF) principles in crowdfunding platforms affects the economic success of funding and entrepreneurs’ ability in the Gulf Cooperation Council (GCC) to access financial resources. The study uses an online questionnaire survey on Crowdfunding economic success in the GCC to collect information from the participants. Participants are investors, entrepreneurs, and startups from five Gulf countries (i.e., Saudi Arabia, Bahrain, Kuwait, Oman and UAE) in addition to several Crowdfunding platforms commonly used by crowdfunders in this region (such as Indiegogo, Kickstarter, Eureeca, Beehive and GoFundMe) with total members (102964). Signaling theory and principle-agent theory combine to make a theoretical foundation that explains the relationship between funders and fundraisers. The pilot sample consisting of 10 units was used to validate and verify the research instrument of the study. The research sample consists of 1145 respondents (sample size n = 1145) selected randomly from the five Gulf countries included in the study. The findings reveal that CF’s presence positively impacts economic fundraising success and that crowdfunding platforms are an effective financial technology (Fintech) tool for financing entrepreneurs in the GCC. We conclude with recommendations for future EF and CF research. The findings of this study will have implications for improvements in practices of economic and finance. They may be used as a guide towards advancing the management and performance of the crowdfunding platforms in the Gulf region. Presently, a very few number of published research on crowdfunding exist in this region. Moreover, to the best of our knowledge, there is no single study investigating crowdfunding as an alternative financing source in the GCC.
This article proposes an adaptable hybrid model for recommending effective investments in different scenarios. Currently, a wide variety of methodologies are used for company valuation, especially those that take into account financial statements. However, for private held companies, there is no method that would be capable of predicting, with full certainty, the future success of an investment. The Optimal Capital Investment Case-Base Reasoning (OCI-CBR) consists of a case-based reasoning system that uses a classification algorithm to prune the case base according to a projected increase in certain company attributes. Once the cases have been pruned and the case is fed with the most profitable investment opportunities, the case-based reasoning system recommends optimal investments to potential investors. The complete model is conceived as an intelligent hybrid model that optimizes the case base by employing different algorithms for data retrieval and reuse. The system makes recommendations based on the investor’s preferences and the investment decisions of other investors with similar profiles or interests.
Le dirigeant-entrepreneur est l’acteur central dans la trajectoire de financement de l’entreprise. À partir de la théorie du signal, les auteures supposent que le capital humain de celui-ci émet des signaux pouvant affecter la probabilité de faillite de l’entreprise. Par l’étude de données portant sur 277 dirigeants-entrepreneurs financés par equity crowdfunding en France entre 2010 et 2018, elles montrent que les entreprises dirigées par des docteurs ont une probabilité de faire faillite plus faible alors qu’elle est plus élevée pour celles dirigées par d’anciens dirigeants.
Français Cette étude montre que les pratiques de gouvernance des plateformes d’equity crowdfunding contribuent au développement des ressources entrepreneuriales. Elles agissent en tant qu’interface, structurant les interactions entre les acteurs de la finance entrepreneuriale (foule, business angels et capital-risque). Les auteurs proposent une typologie permettant de caractériser quatre types de plateformes mobilisant les ressources cognitives de chaque catégorie d’investisseur de manière différenciée. English Cognitive governance and entrepreneurial resource development. Study of French equity crowdfunding platforms This study shows that the governance practices of equity crowdfunding platforms contribute to the development of entrepreneurial resources. They act as an interface, structuring the interactions between the actors of entrepreneurial finance (crowd, business angels and venture capital). The authors propose a typology making it possible to characterize four types of platforms mobilizing the cognitive resources of each category of investor in a differentiated manner.
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Research Question/Issue Today, startups frequently obtain financing via the Internet through many small contributions of non‐sophisticated investors. Yet, little is known whether these startups can ultimately build enduring businesses. This study investigates the determinants of follow‐up funding and firm failure after an equity crowdfunding campaign has taken place. Research Findings/Insights We use hand‐collected data from 13 different equity crowdfunding portals and 413 firms that ran at least one successful equity crowdfunding campaign in Germany or the United Kingdom between 2011 and 2016. Our findings show that German firms that received equity crowdfunding stood a higher chance of obtaining follow‐up funding through business angels or venture capitalists, but also had a higher likelihood of failure. The number of senior managers and the number of initial venture capital investors both had a positive impact on obtaining post‐campaign financing, while the average age of the senior management team had a negative impact. The number of initial venture capital investors and the valuation of the firm were significant predictors increasing the hazard of firm failure, while the number of senior managers and the amount raised during previous equity crowdfunding campaigns had a negative impact. Theoretical/Academic Implications This study provides some first empirical evidence regarding the firm and campaign characteristics that determine follow‐up funding and firm failure after an equity crowdfunding campaign has taken place. Given the absence of research on this topic so far, this study inevitably remains original and exploratory to some extent. The empirical findings suggest various avenues of research for human capital theory, organizational ecology, and the comparative corporate governance literature. Practitioner/Policy Implications Identifying influencing factors of follow‐up funding and firm survival is important to make this new and potentially welfare enhancing form of entrepreneurial finance more predictable by decreasing the risk of individual investments. Furthermore, this study offers insights to policy makers, which are currently expected to implement appropriate regulations for this new market segment. In addition, it provides important insights for portal managers as well as firms raising capital via equity crowdfunding, which may learn about their chances to build an enduring business.
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Crowdfunding is a rapidly growing phenomenon wherein entrepreneurs seek funding for their entrepreneurial activities from a potentially large audience of interested individuals. Crowdfunding has exploded in popularity over the last decade and now accounts for tens of billions of dollars annually. But despite the importance and growth of crowdfunding, little scholarly knowledge exists about the topic. To address this gap, this special issue includes five articles that each advance knowledge about crowdfunding in important ways. We briefly review past work on crowdfunding in leading entrepreneurship and management journals. We then highlight the diverse contributions offered in the special issue articles.
Compared to scholarship focused on venture capital, we know less about angel investing and, in particular, less about how angels operate across institutional environments. Given the importance of angels within early-stage entrepreneurial investment growing globally, the field of angel governance is poised for further investigation. Thus, in this paper, we begin the conversation on angels and institutions and provide a framework for studying the post-investment governance role taken by angels amid institutional variation. First, we provide a review of the research conducted on angel-centered corporate governance. We then explore how the regulative, normative, and cultural-cognitive institutional domains may influence angel governance arrangements. Within these domains, we isolate how the extent, frequency, and mode of angel engagement with the target venture can be shaped by the institutional environment.
Venture capital, angel financing, and crowdfunding have evolved and matured in the entrepreneurial finance market. These market developments have also been accompanied by a growing body of research. In this monograph, we provide an overview of a vast body of literature in the field of entrepreneurial equity finance, presenting the current state of research and succinctly identifying its subcategories. We also provide insight into major research trends and research gaps and examine the growing research field of cognition in entrepreneurial equity finance. Our review is structured using a theoretical framework that aims to link venture capital, angels, and crowdfunding whilst considering the significant differences exhibited between each investment stage.
Using an augmented dataset with combined information from Crowdcube, Crunchbase, and Companies House, we study the population of 212 successfully funded initial equity offerings on the UK's largest crowdfunding platform Crowdcube from inception (2011) to 2015. We find that 18% of these firms failed, while 35% pursued one or more seasoned equity offerings in the form of either private equity injection (9%) or follow-on crowdfunding offering (25%), while three firms were acquired. Among the determinants of the post-campaign scenarios, we find that the degree of investor participation in the initial offering plays a relevant role. In particular, firms with more dispersed ownership are less likely to issue further equity, while those that reach the target capital more quickly are more likely to launch a follow-on offering. Further, none of the companies initially backed by qualified investors subsequently failed.