Duality in User Entrepreneurs’ Prior Knowledge and Fundraising Performance: Evidence from a Randomized Field Experiment

57 Pages Posted: 20 Sep 2019 Last revised: 15 Oct 2019

See all articles by Sofia Bapna

Sofia Bapna

University of MN, Carlson Schoiol of Management

Martin Ganco

University of Wisconsin - Madison - Department of Management and Human Resources

Liangfei Qiu

University of Florida - Warrington College of Business Administration

Date Written: September 12, 2019

Abstract

User entrepreneurs are responsible for the most important innovations in many industries, but little research has explored the performance of firms founded by user entrepreneurs. While user entrepreneurs have a deep knowledge of customer needs that facilitates the identification of innovative solutions, they tend to lack the relevant business knowledge (e.g., market, production, operational and organizational) to successfully exploit opportunities and grow their ventures. Using a randomized field experiment, we examine the performance of user entrepreneurs, specifically, their ability to raise capital through equity crowdfunding. We find that investors’ interest in investing is significantly lower in a firm founded by a user innovator relative to a comparable firm founded by a producer innovator. While extant literature tends to conceptualize the dimensions of entrepreneurs’ prior relevant knowledge as “more-is-better,” which suggests that the dimensions of knowledge are independent, our study highlights that prior knowledge can be dual in nature. We maintain that sometimes it is not possible to conceptualize the different dimensions of relevant knowledge as independent, and importantly, that some dimensions may be perceived to be negatively related. Specifically, in the context of user entrepreneurship, knowledge of unmet needs that leads to novel solutions and business knowledge relevant to opportunity exploitation and firm growth may be perceived by investors to be negatively related. A follow-up survey of study participants confirms that experienced investors perceive this duality in user entrepreneurs’ knowledge.

Keywords: user entrepreneurship, user innovators, prior knowledge, equity crowdfunding, entrepreneurial finance, innovation, randomized field experiment

Suggested Citation

Bapna, Sofia and Ganco, Martin and Qiu, Liangfei, Duality in User Entrepreneurs’ Prior Knowledge and Fundraising Performance: Evidence from a Randomized Field Experiment (September 12, 2019). Available at SSRN: https://ssrn.com/abstract=3452366 or http://dx.doi.org/10.2139/ssrn.3452366

Sofia Bapna (Contact Author)

University of MN, Carlson Schoiol of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

Martin Ganco

University of Wisconsin - Madison - Department of Management and Human Resources ( email )

Madison, WI
United States

Liangfei Qiu

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States

HOME PAGE: http://sites.google.com/site/qiuliangfei/

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