Competition between Equitycrowdfunding Platforms: Network Effects Vs. Matching Efficiency

Transcription

1 Competition between Equitycrowdfunding Platforms: Network Effects Vs. Matching Efficiency Nabita Penmetsa David Eccles School of Business University of Utah

2 Agenda» Introduction» Research Statement» Literature Review» Model» Findings» Conclusion July 14, 2016 Platform Strategy Research Symposium, Boston University 2

3 Crowdfunding Industry July 14, 2016 Platform Strategy Research Symposium, Boston University 3

4 Multiple Platforms and Presence of Asymmetries US Crowdfunding Platforms Platform Raised to Date Investments Angellist $248,219, UK Crowdfunding Industry P5 P4 P3 Equitynet $137,273, Crowdfunder $107,886, Seedrs Fundable $80,615, Seedinvest $49,475, Wefunder $38,793, Earlyshares $22,955, Crowdcube Onevest $19,852, Source: Fundwisdom.com Source: Crowcube blogs July 14, 2016 Platform Strategy Research Symposium, Boston University 4

5 Research Questions How do we characterize the nature of competition between equity crowd funding platforms? Is there place for multiple platforms? How does the choice of pricing structures influence competition July 14, 2016 Platform Strategy Research Symposium, Boston University 5

6 Literature Review Crowdfunding Rewards based crowdfunding Debt-based crowdfunding Equity crowdfunding Funder, Lender, Investor Behavior Burtch et al. (2015) Chen et al. (2015) Hsu et al. (2015) Zhang and Liu (2012) Burtch et al. (2014) Lin and Wei ( 2015) Kim and Viswanathan (2016) Project or Funding Success Mollick (2014) Burtch et al. (2016) Ahlers et al. (2015) Strategic Issues Agrawal et al. (2015) Lin and Viswanathan (2015) Wei and Lin (2016) Competition: Pricing and quality differentiation July 14, 2016 Platform Strategy Research Symposium, Boston University 6

7 Literature Review Two-sided Markets Two-sided Markets (Pricing Structures and Externalities) Caillaud and Jullien (2003) Rochet and Tirole (2003) Parker and Van Alystyne (2005) Armstrong (2006) Rochet and Tirole (2006) Market Places (Network Effects) Ambrus and Argenziano (2009) Hagiu (2009) Gabszewicz and Wauthy (2014) Pricing and Quality Differentiat ion Matching Markets (Compatibility) Damiano and Li (2008) July 14, 2016 Platform Strategy Research Symposium, Boston University 7

8 Platform Matching Startups and Investors Startups (Growth Factor) s 1 Platform (Price, Quality) Investors (Risk Appetite) r 1 s 2 Compatibility Compatibility r 2 s 3 Network Size r 3 s 4 r 4 s 5 r 5 July 14, 2016 Platform Strategy Research Symposium, Boston University 8

9 Pricing Strategies Charging Startups Charging Investors Charging Startups and Investors July 14, 2016 Platform Strategy Research Symposium, Boston University 9

10 Model July 14, 2016 Platform Strategy Research Symposium, Boston University 10

11 Segmenting Equilibrium P 1 > P 2 Platform 1 q 1 > q 2 Platform 2 High Growth Startups Low growth Startups Low risk averse Investors High risk averse Investors Segmenting Equilibrium exists only when there is significant quality differentiation between the platforms and both startups and investors place a higher value on compatibility. July 14, 2016 Platform Strategy Research Symposium, Boston University 11

12 Findings Segmenting Equilibrium Asymmetry Profits Compatibility Charging both sides Charging Investors No Segmenting Equilibrium Charging Startups Charging both sides Charging Investors Weak Network Externalities Weak Network Externalities High Low Higher profits when network externalities are weak Higher profits when network externalities are strong Network Size Charging Startups Strong Network Externalities July 14, 2016 Platform Strategy Research Symposium, Boston University 12

13 Conclusions» Segmentation can improve the value of intermediation service offered by platforms and increase platform profits.» Platforms can achieve segmentation and strengthen their competitive position by offering differentiated services. Example: CircleUp focusses exclusively on consumer product companies.» Choice of pricing strategy can enhance the efficiency of matching by supporting segmentation. Example: Charging only startups may align well with EquityNet s focus on scale. July 14, 2016 Platform Strategy Research Symposium, Boston University 13

14 Thank You Feedback and Suggestions are welcome July 14, 2016 Platform Strategy Research Symposium, Boston University 14