Saturday, 12 July 2014

Are Crowdinvestors Small Business Angels?

Are Crowdinvestors Small Business Angels?

Despite interesting insights the question whether crowdinvestors are
“small” BAs cannot be answered unambiguously as the boundary between the
two types of investors is vague. Yet, knowledge on crowdinvestors is
scarce and further research is required to provide a well-grounded
answer to this question. Additionally, it is important to keep in mind
that crowdinvesting is still at an infant stage of its adoption in
society, attracting what is known as “innovators” and “early-adopters”,
who obviously are primarily people with some level of familiarity of
entrepreneurship or finance. This is why it is important to conduct
related studies going forward to understand if and how inexperienced or
non-accredited investors will engage in crowdinvesting.


Given conjectural knowledge it is fair to imply that similarities
between crowdinvestors and BAs are evident, while structural
differences, i.e. size, stage and context of the investment, are too
significant to misconceive crowdinvestors as BAs. Crowdinvestors is a
stand-alone investor type and should be regarded as such, despite
resembling BAs to some extend.


Instead of comparing both types of investors along their similarities
highlighting the opportunity to complement each other is critical to
convey the true potential of crowdinvesting. Crowdinvesting will most
likely not replace investments from BAs and instead of conveying
crowdinvestors competing with BAs evident complementarities should be
embraced (Moritz & Block, 2013; BAND, 2014). Hornuf and
Schwienbacher (2014) suggest co-investing between BAs and crowdinvestors
can have several benefits. One advantage is that crowdinvestors may
rely on the financial skills and monitoring abilities of BAs, which
furthermore provide hands-on advice (“value-added”) and lend their
reputation to the entrepreneurial firm (Hsu, 2004; Ferrary &
Granovetter, 2009). In return BAs can leverage the crowd that may
complement what BAs can contribute. The wisdom of the crowd may reveal
novel information to the benefit of traditional investors. Furthermore,
knowledge of a diverse set of individuals can also be leveraged as a
resource to solve problems or develop solutions, similar to the idea of
crowdsourcing.