Information problems, crowdfunding and debt decision for business start-upsLes problémes informationnels, financement participatif et décision d'endettement pour la création d'entreprise

Abstract

The recent rise of crowdfunding begs the question of what unique value the crowd brings to entrepreneurs. This paper proposes an answer to this question by focusing on the informational role of crowdfunding in resolving financial constraints. I argue that a distinct role of crowdfunding is the provision of early feedback to entrepreneurs that resolve the moral hazard problem and lead to more bank debt funding. As traditional funding (bank debt), crowdfunding may be directed under specific characteristics of business start-up as information problems (i.e. information opacity and asymmetry). The study aims at comparing the decisive weight of information opacity and moral hazard problem on traditional funding (as bank debts) and crowdfunding of business start-ups. The study uses the panel study of entrepreneurial dynamics and a sample of 1014 business start-ups. The results show that the crowd's feedback affects entrepreneurs’ access to traditional funding. The results confirm that crowdfunding as a screening tool improves the information environment of the entrepreneur and limits the moral hazard problem. Crowdfunding is not just promoted to raise funds, but also for collecting information, and it is a complement rather than a substitute traditional entrepreneurial bank funding.