Investor Response to User Entrepreneurs: Evidence from a Randomized Field Experiment
59 Pages Posted: 20 Sep 2019 Last revised: 13 May 2020
Date Written: May 12, 2020
User innovators create products to meet their own needs while producer innovators create products with the goal of profiting from them. Although user innovators are responsible for some of the most important consumer product innovations, little research has explored the performance of firms founded by user innovators relative to those founded by producer innovators. We explore the fundraising performance —that is, investor response to—ventures founded by user innovators as compared to those founded by producer innovators. Based on prior work in entrepreneurship, we theorize that investors may have both positive and negative perceptions regarding user entrepreneurs, relative to producer innovators. On the one hand, user entrepreneurs tend to have tacit knowledge regarding emerging user needs and the context of use, and thus, may be perceived as being able to offer more innovative products relative to producer innovators. On the other hand, due to user entrepreneurs’ path to entrepreneurship (they create products for their own use and subsequently pursue entrepreneurship) and their varied backgrounds, investors may perceive that, relative to producer entrepreneurs, user entrepreneurs may be deficient in the skills important for opportunity exploitation and firm growth. Through a randomized field experiment in the context of equity crowdfunding, we study which of these perceptions dominates. We find that experienced investors are significantly less interested in ventures founded by user innovators than those founded by producer innovators. The study has practical implications for how user entrepreneurs may present their ventures to investors.
Keywords: user entrepreneurship, user innovators, prior knowledge, equity crowdfunding, entrepreneurial finance, innovation, randomized field experiment
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