Is public support a bad for the dissemination of crowdfunding among innovative start up firms?

The role of government in innovation and technological development is really significant. A large literature evaluates the effect of state and local government programs in promoting innovation (Georghiou and Roessner, 2000; Klette et al., 2000; Roper et al., 2004). According to Hall (2008), start up firms need to be financed and venture capital financing is only a partial solution to this problem. Venture capital cannot provide a complete solution to the financing needs of new technology companies, especially in the early stages because it’s focused only on certain industries and it can only be offered in amounts that are too large for many start ups and only works in developed IPO markets. As a result, a market failure exists, which demands government intervention. There are different reasons that allow a startup to use new financing methods, such as crowdfunding (CF). CF is an emerging and interesting fundraising practice for both companies and individual entrepreneurs. CF is a “method for funding a variety of new ventures, allowing individual founders of for-profit, cultural, or social projects to request funding from many individuals, often in return for future products or equity” (Mollick, 2014, p. 1). There is a significant difference between crowdfunding platforms and other forms of financing; the former has three specificities that may not be found together anywhere else (Giudici et al., 2012): i) the presence of an enabling organization with which those seeking capital (initiators) and those in possession of capital (supporters) are affiliated; ii) direct interaction between entrepreneurs and investors; iii) emergence of social groups among investors and entrepreneurs. Researches, for example, agreed that entrepreneurs prefer those sources of finance that involve giving up less control and require lower servicing costs (Vanacker and Manigart, 2010). This would explain why entrepreneurs are likely to have a first preference for personal financial resources (Bruton et al., 2015).