This paper outlines findings from a large-scale interview based study of start-ups who obtained equity crowdfunding in the UK. It takes a novel integrative approach towards the analysis of entrepreneurial networks by examining both personal and business networks involved in the equity crowdfunding process. Adopting a processual perspective, the empirical findings show that networks and social capital play a critical role in the crowdfunding process. Start-ups leverage, build and draw upon a complex array of network actors and “ties” as they move through the different stages of their crowdfunding journey. The paper shows that this form of funding confers important relational benefits to recipients which amount to “more than money”. It concludes that equity crowdfunding is a highly “relational” form of entrepreneurial finance, requiring holistic forms of empirical investigation. Implications for theoretical development, managerial practice and further research are outlined.

Introduction

Stinchcombe (1965) famously noted that “new” firms have a higher propensity to fail – the so-called “liability of newnesss” – due to their lack of legitimacy, track record or effective networks. Overcoming this liability may depend heavily on an entrepreneur’s ability to create effective “exchange relationships with resource providers” (Smith & Lohrke, 2008, p. 315), which explains why networks become crucial for emerging organisations such as start-ups (Aldrich, Rosen, & Woodward, 1987; Katz & Gartner, 1988; Johannisson, Ramírez-Pasillas, & Karlsson, 2002; Hite, 2005). A key resource for start-ups is finance. Due to a lack of lending track record coupled with limited collateral, start-ups often incur serious difficulties when accessing funding (Berger & Udell, 1998; Berger & Black, 2011). Since the global financial crisis, funding difficulties facing innovative start-ups have magnified (Cowling, Liu, & Ledger, 2012; Lee & Brown, 2016), prompting them to seek out “alternative” funding sources (Block, Colombo, Cumming, & Vismara, 2017). While banks have traditionally dominated the funding landscape for small and medium-sized enterprises (SMEs) (Colombo & Grilli, 2007), in recent years alternative sources of finance, including crowdfunding, have proliferated (Ahlers, Cumming, Günther, & Schweizer, 2015; Bruton, Khavul, Siegel, & Wright, 2015; Cordova, Dolci, & Gianfrate, 2015).1 Equity crowdfunding in particular has grown rapidly, especially in the UK, which is now Europe’s largest and fastest growing market for this form of entrepreneurial finance (Nesta, 2016) largely due to early deregulation and attractive fiscal incentives put in place by the UK government (British Business Bank, 2014; Brown, Mawson, Rowe, & Mason, 2017).