COPENHAGEN BUSINESS SCHOOL CROWDFUNDING FOR SUSTAINABILITY: SOLBJERG PLADS 3 DK-2000 FREDERIKSBERG DANMARK WWW.CBS.DK ISSN 0906-6934 Print ISBN: 978-87-93579-42-2 Online ISBN: 978-87-93579-43-9 ENTREPRENEURSHIP CROWDFUNDING IN SUPPORTING SUSTAINABLE A STUDY ON THE POTENTIAL OF REWARD-BASED Kristian Roed Nielsen CROWDFUNDING FOR SUSTAINABILITY: A STUDY ON THE POTENTIAL OF REWARD-BASED CROWDFUNDING IN SUPPORTING SUSTAINABLE ENTREPRENEURSHIP Doctoral School of Organisation and Management Studies PhD Series 35.2017 PhD Series 35-2017 Crowdfunding for Sustainability A study on the potential of reward-based crowdfunding in supporting sustainable entrepreneurship Kristian Roed Nielsen Supervisors: Professor Lucia Reisch Copenhagen Business School Department of Management, Society and Communication Associate Professor Marcel Bogers University of Copenhagen Department of Food and Resource Economics Doctoral School of Organization and Management Studies Copenhagen Business School Denmark Kristian Roed Nielsen Crowdfunding for Sustainability: A study on the potential of reward-based crowdfunding in supporting sustainable entrepreneurship 1st edition 2017 PhD Series 35-2017 © Kristian Roed Nielsen ISSN 0906-6934 Print ISBN: 978-87-93579-42-2 Online ISBN: 978-87-93579-43-9 The Doctoral School of Organisation and Management Studies (OMS) is an interdisciplinary research environment at Copenhagen Business School for PhD students working on theoretical and empirical themes related to the organisation and management of private, public and voluntary organizations. All rights reserved. No parts of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage or retrieval system, without permission in writing from the publisher. Foreword One of the first things I received when starting as a Ph.D. student at my department was an orchid. It was a beautiful thing full of life with two white flowers and four or five healthy dark leaves. That orchid is now nearly dead despite the myriad of advice given to me on how to take care of it. I should have listened better and taken the time. Instead what you have in front of you is what occupied my time and is a product of what happens when you listen to and are supported by a loving wife, two great supervisors, brilliant colleagues, and not least family and friends, who, while not understanding what I was talking or writing about, were always there for me. I am genuinely proud of what I have achieved and am humbled by the fact that I have been lucky enough to find so many people who cared enough about me to help me through the downs and celebrate the ups. Firstly, to my wife Charlotte, thank you for pushing me to pursue my dream and catching me when I stumbled. To my friends, thank you for pulling me out of the office and out of my head and not least for looking somewhat attentive when I tried to describe what my Ph.D. was about. To my parents, thank you for always being there for me no matter what. And to my family, you are stuck with me and for that I am sorry. To my two supervisors Lucia Reisch and Marcel Bogers, thank you for the support, inspiration, and not least patience. Lucia, I will be forever grateful to you for giving me a chance and not least giving me the opportunity to be paid to learn. I would also like to thank everyone from he EU-InnovatE project for three wonderful years of pan-European research collaboration and celebratory drinks. Not least thank you to Rosina, Christine, Hugh, and Emma from Cranfield School of Management and Gemma, Louise, and Corina from Forum for the Future for everything. I will miss our times together and hope that we will find new ways to work together, even in a post-Brexit world. Finally, to my many colleagues at the Department of Management, Society, and Communication who took the time to listen, guide, and offer feedback to an aspiring Ph.D., my heartfelt thanks. Most especially to my close colleagues at the Consumer Behavior Research Group – Kristian, Jan, Tina, Wencke, and Lucia – I am indebted to you for all the times you have helped me along the way. Our 3 weekly meetings have become a bedrock on which I could build my otherwise cluttered week around. If not for the help of all these kind souls and numerous others, what you see in front of you would not have been possible and while the mistakes and successes of my Ph.D. are mine, it would have been impossible without their support. 4 English Abstract The dissertation sets out to explore the often ignored role of the consumer (end-user) within sustainable innovation by examining the potential of reward-based crowdfunding in enabling sustainable entrepreneurship. It explores under which conditions and to what extent reward- based crowdfunding could benefit entrepreneurs with social and/or environmentally-oriented products. The dissertation employs four articles in order to explore this. The first sets the stage by systematically reviewing the various roles that end-users can adopt within sustainable innovation process. The second serves to present a conceptual understanding of how the process of crowdfunding is organized. Finally papers three and four respectively present the dissertation’s empirical evidence. Paper three focuses on uncovering the distributive qualities of reward-based crowdfunding in terms of its ability to increase innovation finance access, while paper four introduces the experimental evidence on the role of individual and product details in shaping pledging behavior as it relates to a diversity of (un)sustainable campaigns. Empirically the dissertation finds that reward-based crowdfunding is neither a silver-bullet that will suddenly enable a great number of sustainable entrepreneurs to receive funding, nor is it an adverse or hostile setting. Instead certain characteristics are associated with crowdfunding success while others with failure. This is exemplified by the fact that experienced crowdfunding teams (for example with past success) within certain contexts (for example urban areas with high median income and social capital) and specific budgets (around 8,000 US$) are particularly well-placed to receive support, especially if their respective sustainable products are consumer goods that are not directly related to personal style. Conversely sustainable entrepreneurs who have failed in the past to receive funding, who are located in poorer rural areas, and who pursue consumer goods relating to personal style targeting funding range well-past 8,000 US$ (€7,400) face an uphill battle. It has also been found that crowdfunder pledges, rather than following a specific path of either sustainable or unsustainable behavior instead oscillate between the two. Where individuals are in certain circumstances enticed by sustainable messages while others are motivated by egocentric messages often depending on the product. This is complicated further by the fact that individuals also respond differently depending on whether the message is focused on social (for example fair wages) or environmental (for example recycled materials) 5 sustainability. Rather than correlating as commonly expected these dimensions more commonly result in different pledging behavior. In some respects, reward-based crowdfunding therefore appears to correlate with current market pressures and consumer demand which, at the moment, are far from sustainable. Reward-based crowdfunding thus represents a potentially significant source of innovation finance for many forms of entrepreneurship. However, as a source of finance for green growth, reward-based crowdfunding in and of itself does not change demand. Thus while there is a significant potential for it to be exploited to promote sustainable entrepreneurship, reward-based crowdfunding faces many of the same hurdles as those who seek to alter consumer behavior towards more sustainable consumption. The dissertation contributes to literature in various capacities. Firstly, it provides a taxonomic framework for understanding the various roles that end-users can have within the sustainable innovation process. In addition to systematizing the various literature streams within the field identifying the various barriers and enablers of this type of sustainable end-user driven innovation. Secondly, it provides a conceptual model of the crowdfunding process that represents, to the best of my knowledge, the first systematic attempt to theorize how it is organized. Finally, and by using a multiple quantitative method it provides empirical evidence on both the ability of reward-based crowdfunding to enable new actors, as well as insights into the causal relationship between crowdfunding and sustainability. 6 Danish Abstract Denne afhandling tager udgangspunkt i brugerdrevet innovation med henblik på at udforske den ofte ignorerede rolle, som forbrugeren (slutbrugeren) spiller i at fremme bæredygtig innovation. Dette vil gøres ved at undersøge, hvilket potentiale belønningsbaseret crowdfunding har for at muliggøre bæredygtig iværksætteri. Det specifikke formål hermed er således at undersøge, under hvilke omstændigheder og i hvilket omfang belønningsbaseret crowdfunding kan være en nyttig, alternativ finansieringskilde for iværksættere med sociale og/eller miljøorienterede produkter. Afhandlingen består af fire artikler, som belyser dette emnefelt: Artikel nr. et består af en systematisk litteraturgennemgang, der fremhæver de forskellige roller, som slutbrugerne kan påtage sig i den bæredygtige