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
Date Written: September 12, 2019
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
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