Skip to main content

Unleashing main street entrepreneurship: Crowdfunding, venture capital, and the democratization of new venture investments

Abstract

Over the past several decades, U.S. venture capital (VC) firms have focused their attention and investment dollars in specialized regional hubs where high-tech entrepreneurship tends to flourish. As a result, “main street” businesses such as retail stores, consumer services, and other non-tech businesses typically find it incredibly difficult to secure equity funding. Yet, in recent years, crowdfunding (CF) has become a viable new source of funding for entrepreneurs. Using a longitudinal assessment of VC and CF at the national, regional, and sector levels in the USA, we demonstrate how the emergence of CF has unlocked new growth opportunities for main street entrepreneurs, particularly those located in underserviced funding regions. Likewise, we expose how CF augments national and regional funding patterns by re-allocating funding to industries that VCs typically do not fund. Lastly, we discuss the practical and theoretical implications of what appears to be a shifting venture funding regime, and shed light on CF’s potential role in enhancing the resurgence of main street entrepreneurship across the USA.

This is a preview of subscription content, access via your institution.

Fig. 1
Fig. 2
Fig. 3

Notes

  1. The eight states not significant include WV, SD, NE, MS, MI, ME, IL, and FL.

  2. t tests were used to evaluate if there was a statistical difference between the 13 quarters of the pre-CF period and the inception period using quarterly data.

  3. “Gazelles” is a term commonly used to identify fast growth firms while “Unicorns” is a term commonly used to identify venture-backed private companies founded after 2003 that had grown in value to at least $1 billion.

  4. Notable exceptions include Fisher, Kuratko, Bloodgood, and Hornsby (2017) and Mollick and Nanda (2016)

References

  • Afuah, A., & Tucci, C. L. (2012). Crowdsourcing as a solution to distant search. Academy of Management Review, 37(3), 355–375.

    Article  Google Scholar 

  • Ahlers, G. K., Cumming, D. J., Guenther, C., & Schweizer, D. (2015). Signaling in equity crowdfunding. Entrepreneurship Theory and Practice, 39(4), 955–980.

    Article  Google Scholar 

  • Allison, T. H., McKenny, A. F., & Short, J. C. (2013). The effect of entrepreneurial rhetoric on microlending investment: an examination of the warm-glow effect. Journal of Business Venturing, 28, 690–707.

    Article  Google Scholar 

  • Allison, T. H., Davis, B. C., Short, J. C., & Webb, J. W. (2015). Crowdfunding in a prosocial microlending environment: examining the role of intrinsic versus extrinsic cues. Entrepreneurship Theory and Practice, 39, 53–73.

    Article  Google Scholar 

  • Almerico, K. (2015). SEC: startups can now raise $50 million in “mini IPO.” Entrepreneur https://www.entrepreneur.com/article/244278 Accessed 3 March 2018.

  • Altman, R. C. (2009). The great crash, 2008: a geopolitical setback for the west. Foreign Affairs, 88(1), 2–14.

    Google Scholar 

  • Anglin, A. H., Allison, T. H., McKenny, A. F., & Busenitz, L. W. (2014). The role of charismatic rhetoric in crowdfunding: an examination with computer-aided text analysis. In J. Short (Ed.), Social entrepreneurship and research methods (pp. 19–48). Bingley: Emerald Group Publishing Limited.

    Chapter  Google Scholar 

  • Basu, S., Sahaym, A., Howard, M. D., & Boeker, W. (2015). Parent inheritance, founder expertise, and venture strategy: determinants of new venture knowledge impact. Journal of Business Venturing, 30(2), 322–337.

    Article  Google Scholar 

  • Belleflamme, P., Lambert, T., & Schwienbacher, A. (2014). Crowdfunding: tapping the right crowd. Journal of Business Venturing, 29(5), 585–609.

    Article  Google Scholar 

  • Blevins, D. P., Ragozzino, R., & Reuer, J. J. (2017). How the JOBS Act is reshaping IPOs: implications for entrepreneurial firms. Academy of Management Perspectives, 31(2), 109–123.

    Article  Google Scholar 

  • Burchardt, J., Hommel, U., Kamuriwo, D. S., & Billitteri, C. (2016). Venture capital contracting in theory and practice: implications for entrepreneurship research. Entrepreneurship: Theory and Practice, 40(1), 25–48.

    Google Scholar 

  • Case, S. (2017). The third wave: an entrepreneur’s vision of the future. New York: Simon and Schuster.

    Google Scholar 

  • Chan, C. S. R., & Parhankangas, A. (2017). Crowdfunding innovative ideas: how incremental and radical innovativeness influence funding outcomes. Entrepreneurship Theory and Practice, 41(2), 237–263.

    Article  Google Scholar 

  • Chen, H., Gompers, P. A., Kovner, A., & Lerner, J. (2010). Buy local? the geography of venture capital. Journal of Urban Economics, 67(1), 90–102.

    Article  Google Scholar 

  • Cholakova, M., & Clarysse, B. (2015). Does the possibility to make equity investments in crowdfunding projects crowd out reward-based investments? Entrepreneurship Theory and Practice, 39(1), 145–172.

    Article  Google Scholar 

  • Chow, G. C. (1960). Tests of equality between sets of coefficients in two linear regressions. Econometrica, 28(3), 591–605.

    Article  Google Scholar 

  • Ciuchta, M. P., Letwin, C., Stevenson, R. M., & McMahon, S. R. (2016). Regulatory focus and informational cues in a crowdfunding context. Applied Psychology, 65, 490–514.

    Article  Google Scholar 

  • Ciuchta, M. P., Letwin, C., Stevenson, R. M., McMahon, S. R., & Huvaj, M. N. (2018). Betting on the coachable entrepreneur: signaling and social exchange in entrepreneurial pitches. Entrepreneurship Theory and Practice. https://doi.org/10.1177/1042258717725520.

  • Cumming, D., Schmidt, D., & Walz, U. (2010). Legality and venture capital governance around the world. Journal of Business Venturing, 25(1), 54–72.

    Article  Google Scholar 

  • Davis, B. C., Hmieleski, K. M., Webb, J. W., & Coombs, J. E. (2017). Funders positive affective reactions to entrepreneurs crowdfunding pitches: the influence of perceived product creativity and entrepreneurial passion. Journal of Business Venturing, 32(1), 90–106.

    Article  Google Scholar 

  • Dimov, D., & Milanov, H. (2010). The interplay of need and opportunity in venture capital investment syndication. Journal of Business Venturing, 25(4), 331–348.

    Article  Google Scholar 

  • Dow Jones/Venture Source (2017). Venture capital report. https://www.dowjones.com/press-room/dow-jones-venturesource-4q17-u-s-venture-capital-report/ Accessed 3 March 2018.

  • Drover, W., Busenitz, L., Matusik, S., Anglin, A., & Dushnitsky, G. (2017). A review and road map of entrepreneurial equity financing research: venture capital, corporate venture capital, angel investment, crowdfunding, and accelerators. Journal of Management, 43(6), 1820–1853.

    Article  Google Scholar 

  • Fischer, H. M., & Pollock, T. G. (2004). Effects of social capital and power on surviving transformational change: the case of initial public offerings. Academy of Management Journal, 47(4), 463–481.

    Google Scholar 

  • Fisher, G., Kuratko, D. F., Bloodgood, J. M., & Hornsby, J. S. (2017). Legitimate to whom? The challenge of audience diversity and new venture legitimacy. Journal of Business Venturing, 32(1), 52–71.

    Article  Google Scholar 

  • Gohmann, S. F., & Fernandez, J. M. (2014). Proprietorship and unemployment in the United States. Journal of Business Venturing, 29(2), 289–309.

    Article  Google Scholar 

  • Gompers, P. A. (1994). The rise and fall of venture capital. Business and Economic History, 23(2), 1–26.

    Google Scholar 

  • Granger, C. W. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica: Journal of the Econometric Society, 37, 424–438.

    Article  Google Scholar 

  • Gupta, A. K., & Sapienza, H. J. (1992). Determinants of venture capital firms’ preferences regarding the industry diversity and geographic scope of their investments. Journal of Business Venturing, 7(5), 347–362.

    Article  Google Scholar 

  • Harrison, J. D. (2015). No, entrepreneurs, most of you don’t need angel investors or venture capitalists. Washington post. https://www.washingtonpost.com/news/on-small-business/wp/2015/03/?noredirect=onandutm_term=.286b78c029cb Accessed 3 March 2018.

  • Ice Miller. (2005). Venture capital tax credits by state. http://www.icemiller.com/enewsletter/bulletins/pen/tax_credit_chart_pen.pdf Accessed 2 February 2018.

  • Josefy, M., Dean, T. J., Albert, L. S., & Fitza, M. A. (2016). The role of community in crowdfunding success: evidence on cultural attributes in funding campaigns to “save the local theater”. Entrepreneurship Theory and Practice, 41(2), 161–182.

    Article  Google Scholar 

  • Kuchler, H. (2017). Silicon Valley start-ups suffer fall in VC funding. Financial Times. https://www.ft.com/content/9adcf5ea-d6d9-11e6-944b-e7eb37a6aa8e Accessed 2 February 2018.

  • Kuratko, D. F. (2017). Entrepreneurship: theory, process, practice (10th ed.). Mason: Cengage/Southwestern.

    Google Scholar 

  • Kuratko, D. F. (2018). The third wave: An interview with Steve Case, founder and former CEO of AOL.com. Business Horizons, 61(1), 7–12.

    Article  Google Scholar 

  • Kuratko, D. F., Ireland, R. D., & Hornsby, J. S. (2001). Improving firm performance through entrepreneurial actions: Acordia’s corporate entrepreneurship strategy. Academy of Management Executive, 15(4), 60–71.

    Google Scholar 

  • Lee, C., Lee, K., & Pennings, J. M. (2001). Internal capabilities, external networks, and performance: a study on technology-based ventures. Strategic Management Journal, 22(6–7), 615–640.

    Article  Google Scholar 

  • Lerner, J. (1995). Venture capitalists and the oversight of private firms. Journal of Finance, 50(1), 301–318.

    Article  Google Scholar 

  • Lerner, J. (2010). The future of public efforts to boost entrepreneurship and venture capital. Small Business Economics, 35(3), 255–264.

    Article  Google Scholar 

  • Li, J., Chen, X.-P., Kotha, S., & Fisher, G. (2017). Catching fire and spreading it: a glimpse into displayed entrepreneurial passion in crowdfunding campaigns. Journal of Applied Psychology, 102(7), 1075–1090.

    Article  Google Scholar 

  • Lin, M., & Viswanathan, S. (2015). Home bias in online investments: an empirical study of an online crowdfunding market. Management Science, 62(5), 1393–1414.

    Article  Google Scholar 

  • LiPuma, J. A., & Park, S. (2014). Venture capitalists’ risk mitigation of portfolio company internationalization. Entrepreneurship: Theory and Practice, 38(5), 1183–1205.

    Google Scholar 

  • Ma, Y., & Liu, D. (2017). Introduction to the special issue on Crowdfunding and FinTech. Financial Innovation, 3(1), 8.

    Article  Google Scholar 

  • Mann, S. (2017). The 8 biggest startup acquisitions of 2017. Inc. Magazine, https://www.inc.com/sonya-mann/big-startup-acquisitions-2017.html Accessed 2 February 2018.

  • Markowitz, E. (2013). Crowdfunding start-ups wait in wings as SEC stalls. Inc. Magazine, https://www.inc.com/eric-markowitz/crowdfunding-start-ups-wait-for-sec.html Accessed 2 February 2018.

  • Marvel, M. R., & Lumpkin, G. T. (2007). Technology entrepreneurs’ human capital and its effects on innovation radicalness. Entrepreneurship: Theory and Practice, 31(6), 807–828.

    Google Scholar 

  • Mason, C. M., & Harrison, R. T. (2003). Closing the regional equity gap? A critique of the Department of Trade and Industry’s regional venture capital funds initiative. Regional Studies, 37(8), 855–868.

    Article  Google Scholar 

  • Massolution. (2015). The crowdfunding industry report. Massolution Crowdsourcing LLC. http://www.crowdsourcing.org Accessed 2 February 2018.

  • McKenny, A. F., Allison, T. H., Ketchen, D. J., Short, J. C., & Ireland, R. D. (2017). How should crowdfunding research evolve? A survey of the entrepreneurship theory and practice editorial board. Entrepreneurship Theory and Practice, 41(2), 291–304.

    Article  Google Scholar 

  • Meyskens, M., & Bird, L. (2015). Crowdfunding and value creation. Entrepreneurship Research Journal, 5(2), 155–166.

    Article  Google Scholar 

  • Mollick, E. (2014). The dynamics of crowdfunding: an exploratory study. Journal of Business Venturing, 29(1), 1–16.

    Article  Google Scholar 

  • Mollick, E., & Nanda, R. (2016). Wisdom or madness? Comparing crowds with expert evaluation in funding the arts. Management Science, 62(6), 1533–1553.

    Article  Google Scholar 

  • Morris, M. H., Neumeyer, X., & Kuratko, D. F. (2015). A portfolio perspective on entrepreneurship and economic development. Small Business Economics, 45(4), 713–728.

    Article  Google Scholar 

  • Mosey, S., & Wright, M. (2007). From human capital to social capital: A longitudinal study of technology-based academic entrepreneurs. Entrepreneurship: Theory and Practice, 31(6), 909–935.

    Google Scholar 

  • Neus, W., & Walz, U. (2005). Exit timing of venture capitalists in the course of an initial public offering. Journal of Financial Intermediation, 14(2), 253–277.

    Article  Google Scholar 

  • Pearce, B. (2014). Adapting and evolving: global venture capital insights and trends. EandY Venture Capital Center of Excellence, (UK: Ernst and Young).

  • Petty, J. S., & Gruber, M. (2011). “In pursuit of the real deal” a longitudinal study of VC decision making. Journal of Business Venturing, 26(2), 172–188.

    Article  Google Scholar 

  • Prpic, J., Shukla, P. P., Kietzmann, J. H., & McCarthy, I. P. (2015). How to work a crowd: developing crowd capital through crowdsourcing. Business Horizons, 58(1), 77–85.

    Article  Google Scholar 

  • PWC. (2017). Money tree report. Price Waterhouse Coopers National Venture Capital Association Report. https://www.pwc.com/us/en/industries/technology/moneytree.html Accessed 3 March 2018.

  • Ray, D. M., & Turpin, D. V. (1993). Venture capital in Japan. International Small Business Journal, 11(4), 39–56.

    Article  Google Scholar 

  • Rosenstein, J. (1988). The board and strategy: venture capital and high technology. Journal of Business Venturing, 3(2), 159–170.

    Article  Google Scholar 

  • Ruhnka, J. C., & Young, J. E. (1991). Some hypotheses about risk in venture capital investing. Journal of Business Venturing, 6(2), 115–133.

    Article  Google Scholar 

  • Ryu, S., Kim, K., Kim, S., & Kim, Y. G. (2017). Reward and philanthropy: the role of contributor motivation in crowdfunding. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2966673 Accessed 3 March 2018.

  • Securities and Exchange Commission (2015). Regulation D. electronic code of federal regulations: 17 CFR 230.501 - 230.508. http://www.ecfr.gov/ Accessed 21 January 2018.

  • Securities and Exchange Commission (2016). Investor bulletin: crowdfunding for investors. www.sec.gov/oiea/investor-alerts-bulletins. Accessed 11 March 2018.

  • Shane, S. (2009). Why encouraging more people to become entrepreneurs is bad public policy. Small Business Economics, 33(2), 141–149.

    Article  Google Scholar 

  • Shepherd, D. A. (1999). Venture capitalists’ introspection: a comparison of “in use” and “espoused” decision policies. Journal of Small Business Management, 37(2), 76–87.

    Google Scholar 

  • Short, J. C., Ketchen, D. J., McKenny, A. F., Allison, T. H., & Ireland, R. D. (2017). Research on crowdfunding: reviewing the (very recent) past and celebrating the present. Entrepreneurship Theory and Practice, 41(2), 149–160.

    Article  Google Scholar 

  • State of Wisconsin. (2003). Wisconsin Act 255. https://docs.legis.wisconsin.gov/2003/related/acts/255.pdf Accessed 2 February 2018.

  • Stemler, A. R. (2013). The JOBS Act and crowdfunding: Harnessing the power-and money-of the masses. Business Horizons, 56(3), 271–275.

    Article  Google Scholar 

  • Thorpe, D. (2014). Where does crowdfunding go from here? Experts explain. Forbes. https://www.forbes.com/sites/devinthorpe/2015/11/18/experts-explain-new-crowdfunding-rules/. Accessed 18 March 2018.

  • U.S. Small Business Administration. (2017). Employment statistics https://www.sba.gov/business-guide/plan-your-business/market-research-competitive-analysis Accessed 2 February 2018.

  • Uy, M., Foo, M., & Aguinis, H. (2010). Using experience sampling methodology to advance entrepreneurship theory and research. Organizational Research Methods, 13(1), 31–54.

    Article  Google Scholar 

  • Welter, F., Baker, T., Audretsch, D. B., & Gartner, W. B. (2017). Everyday entrepreneurship-a call for entrepreneurship research to embrace entrepreneurial diversity. Entrepreneurship Theory and Practice, 41(3), 311–321.

    Article  Google Scholar 

  • Zacharakis, A. L., McMullen, J. S., & Shepherd, D. A. (2007). Venture capitalists decision policies across three countries: an institutional theory perspective. Journal of International Business Studies, 38(5), 691–708.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Donald F. Kuratko.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Stevenson, R.M., Kuratko, D.F. & Eutsler, J. Unleashing main street entrepreneurship: Crowdfunding, venture capital, and the democratization of new venture investments. Small Bus Econ 52, 375–393 (2019). https://doi.org/10.1007/s11187-018-0097-2

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11187-018-0097-2

Keywords

  • Entrepreneurship
  • Venture capital
  • Crowdfunding
  • Entrepreneurial finance

JEL codes

  • L26
  • L25