Estructura del non bis in ídem : la triple identidad

Intermediaries play a critical role in influencing how their own investors interact with their platforms (Bratton & Levitin 2013). One of the most important questions regarding SME crowdfunding in Germany is which model a given platform is going to use. There are multiple models available which provide a structure for organising how giving and receiving take place. For instance, if a company is trying to raise a certain amount for a project but fails to meet its goal, albeit by a close margin, a choice needs to be made: Should that company be able to keep the money it has raised through the campaign? Should the money be returned to those who contributed because the campaign failed to reach its objective? There are many reasons why a given platform may choose one of these options over another, but they must consider how the decision ultimately impacts the behaviour of customers (Cumming et al. 2014).

Cumming et al. (2014) have reported that when a platform or intermediary uses an “all or nothing” approach to crowdfunding, people are much more likely to contribute. With this model, people get something back if the campaign does not reach its goal. There are two potential reasons why this could be the case. First, this structure creates more incentives towards the end for people to give. If an SME raises funds totalling 95% of its goal and it only has one day left in its campaign, then there is an easy way to communicate that to potential investors to encourage them to help (Mollick 2014). This simple step creates a sense of urgency that may potentially drive people to give money when they would not have otherwise done so. Cumming et al. (2014) have also hypothesized that people like to give when they know for certain that their money will be returned in the case of failure (Belleflamme et al 2016). At present, there is a school of thought in the literature that strongly suggests that people only tend to give money when they believe they are making a considerable impact. If they trust the SME that it needs a certain amount of money to begin operating, they may also logically believe

Ph.D. Research - Doctoral Research Programme in Business Page 63

that if the SME fails to reach its goal, it will struggle in this regard. These two schools of thought are in conflict, and perhaps both motivations play a role in determining whether people give more when an “all or nothing” approach is in use (Cumming et al. 2014).

Solomon et al. (2015) have noted that companies that facilitate crowdfunding have a strong incentive to see those campaigns work. Sites that provide this service are, of course, trying to earn a profit. They are companies with payrolls, monthly projections, and other financial concerns. When they run a campaign and it is successful, they get to keep the percentage of the funds raised representing their fees. They are able to take a share of the profits and to advertise that a particular company managed to raise enough money to perhaps release the next trendy card game or cure world hunger through a new type of corn. When campaigns are not funded, however, these sites do not get to keep a percentage. They have to refund all funds, including their own fee. This outcome represents a complete loss for everyone involved. All participants have lost their time, the SME has not obtained the capital it needed, and the investor is left scrambling to find a new opportunity for his or her money (Bratton & Levitin 2013).

This reality means that the platforms have two important questions to ponder (Solomon et al. 2015). First, they have the choice of whether they want to use a “keep what you get” model in which SMEs get to retain the money they raise even if they do not reach their goal. This benefits the platform or intermediary because from its perspective, all campaigns are a success; this model also allows it to keep a share of the funds raised. At the same time, this choice has the potential to harm the intermediary because, as the research suggests, people do not give as much money under this format. Intermediaries have a financial obligation to promote the strategy that creates the most engagement because that will yield the most in fees. At the same time, they have to weigh the risk of losing everything in a given campaign versus the certainty of knowing that a given campaign will provide at least some money (Solomon et al. 2015). As these authors have noted, there are other ways that companies can increase engagement. While some decisions and elements are in the hands of the SME running the campaign, other methods of increasing engagement are under the control of the intermediary. That third-party platform can effectively push for additional investor engagement by putting into place elements that push for more early returns. Just like

Ph.D. Research - Doctoral Research Programme in Business Page 64

fundraising for a charity often depends on early momentum to confer legitimacy and bring in momentum on the back end, for an SME, crowdfunding requires a company to attract investors early in the process (Vachelard et al. 2016). When a company succeeds in doing so, it will draw more late investors, but if the SME cannot attract that critical early mass, a sense of failure will linger over the campaign and make it difficult to gain momentum. It is a difficult catch-22 and something intermediaries must consider.

Vachelard et al. (2016) pointed to another critical way in which intermediaries can alter the behaviour of site visitors. While it is certainly true that the decisions of those intermediaries can help determine what individual investors do, these intermediaries also play a critical role in setting expectations and behavioural norms for investment seekers. First, they are able to establish norms regarding how much money a campaign organiser can initially ask for. As Vachelard et al. (2016) has reported, when people use crowdfunding to try to attract capital for a campaign dedicated to science, they have a serious chance of raising high amounts because people want to contribute to projects that are apt to change the world. At the same time, if an intermediary site is operating via the “all or nothing” system, it is incentivising an SME to choose a lower amount than it might have otherwise chosen. If the alternative is to receive nothing, SMEs may choose a lower amount and then come back on the back end and seek much more later on (Bratton & Levitin 2013). This critical strategy enables them to ask for more funds later but impacts how aggressive they are willing to be during an initial campaign. Intermediary sites have to choose how they want to manage these situations because their impact on the behaviour of funding seekers may not always be positive. To the extent that the setup and design of a site’s offerings keep SMEs from getting what they need out of fear, the intermediary has done a poor job of facilitating its core purpose (Bratton & Levitin 2013)..

There is, of course, an argument that sites can be designed so that SMEs can receive more funding than requested, and this is even possible with the “all or nothing” format (Bratton & Levitin 2013). For instance, an SME can set a low funding target in order to ensure that it meets its goal, and then it can receive additional funding from interested parties. This, however, undermines the entire concept of “all or nothing” funding; people simply will not give money once a company has visually reached its goal, even

Ph.D. Research - Doctoral Research Programme in Business Page 65

if that goal was somewhat nominal. The sense of urgency evaporates when this happens, and the company can no longer pressure potential funders to help it reach its goal. This particular fix is not advantageous, as it does not resolve the operating problems that can sometimes occur when such systems are put into place (Vachelard et al. 2016).

Importantly, intermediary sites also have the ability to influence behaviour by requiring more disclosure from both campaign organisers and funders. There is little reason to require investors to provide more information about themselves on the site in places that are public and visible (Solomon et al. 2015). Funders are entitled to anonymity just as rich investors and venture capitalists are entitled to remain behind the scenes if they so choose. This means that the decision to compel these individuals to provide more information is typically based on the needs of the intermediary site. The site may need to engage in more social signalling to attract people to a given investment, so it may ask for additional information from certain users. Or, intermediaries can give investors control over whether to reveal information—which is the route many sites have chosen as a compromise between their obligations and their desire to turn a profit (Solomon et al. 2015). At the same time, these sites can positively influence behaviour whenever they require entrepreneurs to disclose more information. The goal of such initiatives is to ensure that entrepreneurs are open and honest with investors about who they are and what they want. The more information that is required of them, the more likely it is that the process will be transparent. In this case, the interests of the site and the entrepreneur or SME are aligned. Because social signalling plays such a critical role in the success of these campaigns in the first place, requiring more information from funding seekers has the effect of protecting investors while also increasing their likelihood of investing in the campaign being marketed to them. It is a true win-win for the intermediary site, while in other situations, it must make value judgments regarding priorities in a given situation (Vachelard et al. 2016).