Building an entrepreneurial ecosystem based on crowdfunding in Europe: the role of public policy
| Pages | 297-318 |
| Date | 02 September 2019 |
| DOI | https://doi.org/10.1108/JEPP-05-2019-0037 |
| Published date | 02 September 2019 |
| Author | Antonella Francesca Cicchiello |
| Subject Matter | Strategy |
Building an entrepreneurial
ecosystem based on crowdfunding
in Europe: the role of public policy
Antonella Francesca Cicchiello
Department of Economics Management and Institutions,
University of Naples Federico II, Naples, Italy
Abstract
Purpose –The purpose of this paper is to assess the role that public policies may have in re-shaping
entrepreneurial ecosystems and supporting the creation of functioning ecosystems based on new forms of
finance, i.e. the equity-based crowdfunding.
Design/methodology/approach –The paper first identifies and examines the European policies developed
to encourage the use of equity crowdfunding in entrepreneurial finance from 2003 to 2018. Then, it reviews
national regulatory frameworks for crowdfunding, and analyses the barriers that constrain the growth of
national crowdfunding markets. Finally, the paper addresses the issue of regulatory harmonisation by
underlining its importance in building an entrepreneurial ecosystem based on crowdfunding.
Findings –Building an entrepreneurial ecosystem based on crowdfunding requires better policy
coordination between European countries and readiness to take concerted actions. National authorities must
look at the crowdfunding phenomenon from a European perspective and align their policies. European
policymakers must import best practices from thriving national ecosystems by implementing less
bureaucratic policies and with greater impact on entrepreneurial activity.
Social implications –In a post-crisis economy, the architecture of entrepreneurial ecosystems must evolve
and focus on new financing alternatives ensuring the survival of successful businesses.
Originality/value –The paper offers a new perspective on entrepreneurship looking at the formation and
development of new ecosystems around equity crowdfunding platforms. It also provides a relevant starting
point for subsequent studies into this field.
Keywords Public policy, Entrepreneurial ecosystem, Entrepreneurial finance, Equity crowdfunding
Paper type Conceptual paper
1. Introduction
Entrepreneurial ecosystems consist of cultural, social, political and economic elements
whose combination influences the creation and growth of new ventures (Spigel, 2017).
The provision of financial resources (preferably in the form of equity), and consequently
the presence of private equity investors (such as business angels, venture capitalists and
more recently equity crowdfunding) is a vital component of a thriving and efficient
entrepreneurial ecosystem providing significant benefits to all involved actors (Colombo
and Murtinu, 2017; Block et al., 2018; Colombo et al., 2019). As Kerr and Nanda (2009) clearly
pointed out, better financing environments are associated with higher economic growth.
In a post-crisis economy, characterised by tight credit conditions and liquidity
constraints, finding new financing alternatives is critical for the survival of entrepreneurial
activity, which is the key to innovation, growth and employment (Cumming et al., 2014).
The purpose of this paper is to assess how new financing alternatives are changing the
nature of entrepreneurship and their ecosystems, and how public policies can fostering the
formation of a new ecosystem around these new sources of funding. In particular, the paper
focuses on equity-based crowdfunding, a new player in entrepreneurial finance providing
young innovative firms with the possibility to raise capital by issuing securities through
online platforms (Block et al., 2018).
Public policies are a key part of the economic and political context in which
entrepreneurship occurs (Spigel, 2017). Policy differences associated with governments
Journal of Entrepreneurship and
Public Policy
Vol. 8 No. 3, 2019
pp. 297-318
© Emerald PublishingLimited
2045-2101
DOI 10.1108/JEPP-05-2019-0037
Received 2 May 2019
Revised 2 May 2019
Accepted 10 May 2019
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2045-2101.htm
297
Building an
entrepreneurial
ecosystem
could indeed impact on financial mechanisms pursued by entrepreneurs by determining,
in the long run, their relative availability (Bruton et al., 2015).
Entrepreneurial ecosystems literature recognises the key role that public policies play in
developing entrepreneurship around the world (Christensen, 2011; Lerner, 2010; Liao et al.,
2014; Stam, 2015).
Many authors have analysed their impact in improving the capacity of governments to
build and maintain viable ecosystems (Keuschnigg and Nielsen, 2003, 2004; Armour and
Cumming, 2006; Huggins and Williams, 2011; Mason and Brown, 2013; Li et al., 2016;
Cumming et al., 2018).
Public policies attempt to build successful entrepreneurial ecosystems through the
creation of an operating environment that encourages people to start their own businesses
and improves levels of business survival and growth by facilitating access to finance,
encouraging investment and ensuring an appropriate regulatory framework. These policies
range from laws and regulations that create publicly funded support programs designed to
encourage entrepreneurship, tax benefits, to reforms of the regulatory environment to make
it entrepreneurship-friendly.
Keuschnigg and Nielsen (2003, 2004), for example, study the effects of various tax policy
initiatives on venture capital activity. Authors find that reductions in capital gains tax
increase the number of entrepreneurs while a wage tax holds opposite incentives;
progressive taxation retards entrepreneurship and the expansion of innovative industries;
output and investment subsidies to start-up firms both stimulate entrepreneurial activity.
Chen and Mintz (2011) assess the impact of both corporate and personal taxes on
Canadian small business growth. By estimating the amount of tax paid on the rate of return
to capital, authors show that the existing tax system inhibits growth in small businesses.
According to the authors, new incentives would be more effective in encouraging small
business growth and would also improve the neutrality of the existing tax system.
Armour and Cumming (2006) highlight that the legal environment matters as much as
the strength of stock markets in encouraging entrepreneurial activities. By comparing the
economic and legal determinants of venture capital investment, authors show that
government programmes more often hinder than help the development of private equity.
Huggins and Williams (2011) analyse public policies undertaken by the UK Labour
government from 1997 to 2010 to foster entrepreneurship. Authors find that policymakers
are under pressure to measure short-term results at the expense of long-term nurturing.
They also underline that cultural change towards entrepreneurship is a long-term
commitment. According to Mason and Brown (2013), policymakers have to design
appropriate policy interventions by taking in to account the specificities of their
entrepreneurial environment.
Pergelova and Angulo-Ruiz (2014) investigate the impact of government financial
support measures, such as government loans, guarantees and government equity, on firms’
overall competitive advantage in the USA. Results suggest that government guarantees and
government equity have a direct effect on new firms’competitive advantage and only an
indirect impact on performance.
By examining government policies that promote entrepreneurship on angel investment,
Li et al. (2016) show the positive effects of these policies on the amounts of angel
investments. Accordingly, such policies guide angel investors in making more efficient
investments.
It has been recognised by the literature that the informal capital market has become the
most important source of equity capital in the entrepreneurial economy (Mason and
Harrison, 1995), and that equity crowdfunding is an increasing use alternative for
investment in newly established entrepreneurial ventures (Cumming and Zhang, 2016;
Stevenson et al., 2019).
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