June 2019 – BOS

Crowdfunding as a cooperative movement – The present and future of crowdfunding in Denmark

By Kristian Roed Nielsen.

How does crowdfunding look like in Denmark and where is it heading? Drawing on empirical data from two well-known reward-based crowdfunding platforms (Kickstarter and IndieGoGo), I try to give a quick overview of the two most famous examples of crowdfunding in Denmark. After which I will give my predictions for where the Danish crowdfunding sector will head and how the emergence of lending-based platforms like Coop Crowdfunding could help take crowdfunding into mainstream in Denmark. Doing so by tapping into our cooperative movement roots by allowing customers to decide, through their loans, what we will eat in the future.

The bank, they don’t understand shit now, especially not in my business.
An entrepreneur’s view on banks (Junge & Bech, 2019)

Trust in banks is for many good reasons at an all-time low as consequence of a series of damning money-laundering scandals, the facilitations of offshore tax havens for the super-rich (i.e. Panama Papers), and not least the lingering resentments from the 2007 financial crisis. Despite these and other indictments, the sector as whole has seemed remarkably unaffected, perhaps because despite our moral reservations they hold a near monopoly on the purse strings not least when seeking a loan for an entrepreneurial endeavor. Or at least they used to.

The emergence of crowdfunding as an alternative source of finance for entrepreneurs is increasingly challenging the banks near monopoly as entrepreneurs now are increasingly engaging consumers and citizens directly for financial support. Citizens have thus become increasingly common enablers of product and service innovation in their own right (Belleflamme et al. 2014) and the global value of funds raised through crowdfunding have already hit US$ 32 billion in 2017 with continued strong growth expected (Statista 2018).

In Danish context, where loans for SMEs remains restrictive (Nielsen 2019), crowdfunding nonetheless remains a uncommon practice and is generally outside the awareness of many entrepreneurs and consumers (Junge & Bech 2019). This is arguably somewhat surprising given the historic strength of cooperatives in Denmark that were driven forth in part due to strong consumer engagement in businesses. The question then is what is the current state of crowdfunding in Denmark? Drawing on empirical data from respectively Kickstarter and IndieGoGo – the two arguably best known examples of crowdfunding – I have sought to provide you with a quick overview of reward-based crowdfunding in Denmark. After which I will give my predictions for where the Danish crowdfunding sector will head.

Crowdfunding in Denmark: A Quick Overview

Reward-based crowdfunding emerged as means to finance creative endeavors, which is also apparent when we look into which campaign categories that are most popular amongst Danish founders (i.e. Film, Fashion and Music).

Figure 1: Number of Projects by Category (2015-2018).

Among these projects, about 22 pct. succeed in meeting their funding goal, while 78 pct. fail to hit their target[1]. However as is illustrated in the Figure 2 these rates vary significantly depending on for example the project category. For example, the project category ‘Art’ is nearly a 50/50 proposition, but campaign categories like ‘Animals’ have a 100-pct. failure rate.

Figure 2: Average success rates by project category (2015-2018).

Finally, as illustrated in Figure 3 and 4 respectively success rates are strongly affected by geographic location and the regional distribution of crowdfunding resources thus remains strongly tied to the major cities. For example, Copenhagen alone accounts for 50 percent of resources garnered via reward-based crowdfunding. To see why please read my other recent blog post on this topic. So, while certain municipalities outside the major cities have high success rates one should not assume that they have many successful campaigns. In fact, the two municipalities (Vallekilde and Morud) with a 100-pct. success rate have only one campaign per respective municipality.

Figure 3: Success rates by municipality.

Figure 4: Distribution of crowdfunding resources by city.

Future of crowdfunding in Denmark

Crowdfunding in Denmark remains a rare source of income for entrepreneurs and is generally challenged by a lack of awareness from both entrepreneurs and citizens. This lack of awareness furthermore results in a lack of trust in this new form of financing. However, while reward-based crowdfunding remains niche and tailored to specific entrepreneurial endeavors that can offer tangible perks for their supporters, the emergence of other crowdfunding models provides an arguable basis for a strong competitor to the banks. For example, lending-based models, exemplified by Lendino and Coop Crowdfunding, provide entrepreneurs with an access to loans from their customers (and others) that are often cheaper then what banks are willing to offer (Junge & Bech 2019). The lenders on the other hand, who face little incentive to keep their saving in a fixed interest account at a negligible interest level, are increasingly incentivized to look for alternatives like these lending-based models especially as many loans are guaranteed.

I therefore believe that especially Coop Crowdfunding’s focus on driving new and more sustainable business models within the food sector represents, as they say themselves, a return to a type of cooperative movement 2.0 that is well-placed in Danish context. Coop Crowdfunding provides a platform for entrepreneurs to find engaged citizens who want to drive new and more sustainable food practices and are willing to put their money where their mouth is by offering cheaper loans as compared to the banks. In a country with high levels of trust and in context of an engaging story were consumers themselves can decide what we will eat in the future, I believe Coop Crowdfunding model could signal an opportunity for crowdfunding and not least green growth in Denmark.

Footnote

[1] It is important to bear in mind that there are some significant differences between the two platforms analyzed. While Kickstarter is an “all-or-nothing” platform, which means that the creator of the campaign only keeps the money if (s)he hits their funding goal IndieGoGo is primarily a “keep-it-all” platform, where the creator of the campaign can choose to keep the money if (s)he thinks that they can provide the promised service or product for the money raised. This translates into significantly different “success rates” for respectively IndieGoGo and Kickstarter if hitting the creators funding mark is definition of this. Whereas on Kickstarter 46,4 pct. of Danish campaigns hit their funding goals only 5 pct. do so on IndieGoGo.

References

Belleflamme, P., Lambert, T. & Schwienbacher, A., 2014. Crowdfunding: Tapping the right crowd. Journal of Business Venturing, 29(5), pp.585–609. Available at: http://www.sciencedirect.com/science/article/pii/S0883902613000694.

Junge, I.C. & Bech, L.L., 2019. Choosing Crowdfunding: A study of why entrepreneurs choose to engage in crowdfunding and how the choice of crowdfunding model and purpose change throughout the startup life cycle. Copenhagen Business School.

Nielsen, B., 2019. 10 år efter finanskrisen: Mange små virksomheder får stadig et nej i banken. Jyllands-Posten. Available at: https://finans.dk/erhverv/ECE11308747/10-aar-efter-finanskrisen-mange-smaa-virksomheder-faar-stadig-et-nej-i-banken/?ctxref=ext.

Statista, 2018. Crowdfunding – Statistics & Facts. Statista. Available at: https://www.statista.com/topics/1283/crowdfunding/ [Accessed April 24, 2018].

About the author

Kristian is Assistant Professor at the Department of Management, Society and Communication and Visiting Researcher at Mistra Center for Sustainable Markets – Stockholm School of Economics. His research explores the potential role that “the crowd” could play in enabling sustainable entrepreneurship and innovation. Follow him on Twitter @RoedNielsen.

By the same author

The Winners and Losers of Reward-based Crowdfunding

Reward-based Crowdfunding for Sustainable Entrepreneurs: A Practitioner’s Guide

Photo

Photo by Rob Curran on Unsplash.

Are we trying to solve climate change, or are we merely playing the “blame game” on social media with the future of the Earth at stake?

By Daniel Lundgaard.

The climate change debate is something that is on the minds of most people these days. The most recent elections in Denmark have been dubbed “climate-elections”, and we have recently seen massive demonstrations throughout the city of Copenhagen, and all around the world. These demonstrations take place both offline and on social media, where the #FridaysForFuture-movement recently has had a central role in inspiring engagement, especially among the younger generation.

The central role of social media as a platform cultivating a pursuit for social change is not something new. Recently #Metoo became a viral phenomenon with millions of people contributing worldwide, and a few years back we saw the rise of the Black Lives Matter-movement – as well as the Arab spring.

Civil society is associated with responsibilities for contributing to solving the problem rather than “playing the blame game”

However, while it is widely acknowledged that social media is used to discuss societal issues, there is so far little knowledge about how these discussions associate global issues such as climate change with the question of responsibility. Based on an analysis of around 3 million “climate change”-tweets – tweets mentioning either “climate change” in the text, use the #Climatechange-hashtag or share a link containing “climate change” in the headline, I dove in to the climate change debate on Twitter, and explored how the issue of responsibility was discussed. I was in particular curious about how the question of responsibility was framed, and how this question was associated with various actors. As I emerged from the data, three trends could be identified:

1. The issue of causing climate change is associated with the fossil fuel industry

Tweets referring to the issue of causing climate change are to a large extent explicitly referring to the fossil fuel industry, oil companies or similar, arguing that “the fossil fuel companies are responsible for causing climate change”. An argument emphasizing society’s responsibility also appeared, although not in the way that I would have assumed. The attempts to frame climate change as something caused by society was raised, but quickly dismissed, and instead used to emphasize the role of the fossil fuel industry, e.g. by linking to a report on how just 100 companies are responsible for 71% of global emissions, while stating “please keep this in mind if you feel personally responsible for climate change”.

2. Responsibilities for remedial activities is associated with society as a whole

Despite corporations being “blamed” for causing climate change, a lack of trust in these actors’ ability to change their ways was expressed in the tweets. Interestingly, one of the primary ways of framing the issue of solving the problem was that while corporations can be blamed for causing the problem, and we (civil society) should not feel personally responsible for what has happened until now, it was emphasized that we need to stop pointing the finger at corporations. We need to stop blaming the fossil industry for what has transpired, and instead re-think our way of living, and consider the daily choices we make e.g. “Swap your car or plane ride for a bus or train” or “stop eating meat”. Thus, civil society is associated with responsibilities for contributing to solving the problem rather than “playing the blame game”.

3. The debate is highly politicized

Finally, while corporations are blamed for causing the problem, and consumer behavior is emphasized in terms of solving the problem, the politicization of the debate permeates these trends. In relation to both trends, I found multiple references to political actors, emphasizing their contribution to the problem. This was often identified in tweets referred to the issue of climate denialism, but also in relation to how politicians haven’t sufficiently regulated the oil industry or that politicians in some cases even protect the fossil fuel industry – often related to discussions about money. Interestingly, while the politicization permeates the debate, the tweets discussing the role of political actors also emphasized the responsibility of civil society. An example of this is the argument that civil society have voted for these individuals, and that we need to consider our actions, and consider who we vote for in the future.

What can we learn?

Reviewing the way that climate change is discussed on social media, there is a general agreement that politicians and – in particular the fossil fuel industry – is to blame for what has happened. However, as the debate unfolds, there is a highly valuable argument in that playing the “blame-game” doesn’t solve any problems, and instead we, as a global society, need to think about our ways of living, and consider how we can be part of the solution.

About the author

Daniel Lundgaard is a PhD Fellow embedded in the Governing Responsible Business research environment and part of CBS Sustainability at Copenhagen Business School. His research is mainly focused on how communication on social media shapes the ways we think about organizational responsibilities, and how responsibilities become associated with emerging issues, as millions of citizens, politicians, NGOs and corporations engage in highly fluid debates.

By the same author:

Fake news and what it means for discussions about CSR-related issues

Is Social Media Redefining the Pursuit of Social Change?

Image

Photo by Con Karampelas on Unsplash

More CEOs Sacked For Ethical Failure Than For Poor Financial Performance

According to a recent study, for the first time more CEOs have been dismissed for ethical lapses than for poor financial performance (in 2018). What is the lesson? I think that we overvalue compliance and undervalue the effects of a corporate culture on sustainable business decisions…

By Andreas Rasche.

Just a few days ago, Strategy& (the consulting arm of PwC) released its annual CEO Success study, which analyzed CEO behavior in the world’s largest 2,500 companies (defined by market cap). From a sustainability and SDG perspective, some of the results are rather sobering, though not entirely surprising: for instance only 4.9% of all incoming CEOs were female.

However, the results discussing why CEOs are forced out of companies are interesting. For the first time since this survey analyzed the reasons for forced CEO departure (which is since 2007), more CEOs had to leave their job due to ethical lapses and misconduct (39%) than due to poor financial performance (35%) or conflicts with the Board (13%). Ethical lapses, here, includes all sort of misconduct, such as failed management around environmental disasters, fraud and bribery, insider trading, and also sexual indiscretions.

What is interesting is the trend. Even during the financial crisis in 2008, only 10% of CEOs were sacked for misconduct, as the Washington Post reports. So, what impacts the rise in CEO departures due to misconduct? I think some of it can be explained by changing general expectations vis-à-vis top executives and shifts in societal awareness regarding specific topics (e.g. think of the #MeToo movement). Increasingly, Boards adopt a zero-tolerance policy on misconduct, also because they know that regulators and investors are less forgiving.

However, there is another key lesson to take away from these results: well-developed compliance systems by themselves are not enough. Companies still focus too much on what they can steer and measure (i.e. compliance), while forgetting about what often is considered hard(er) to manage and measure (i.e. integrity). But, compliance is by definition reactive and it can quickly lead to moral mediocrity. Traditional compliance programs neglect that prevention and detection, two key pillars of any compliance system, only work when the mindset of people change with them.

Changing the minds of people cannot be easily pushed into some sort of management technique or concept. Putting emphasis on integrity means to learn to listen more carefully. Managers love to talk, few of them are good listeners. Those who learn to listen understand and appreciate the stories that circulate in organizations; stories that make up a good bit of what we commonly refer to as “corporate culture”.

CEOs may be better advised to carefully analyze which stories, jokes, anecdotes, and gossip make up the organizations they are leading. In the end, this tells them more about whether their job is at risk due to “ethical lapses” than solely focusing of the metrics produced by compliance systems…

About the author

Andreas Rasche is Professor of Business in Society at Copenhagen Business School and Director of CBS’s World-Class Research Environment Governing Responsible Business (GRB). He is Visiting Professor at the Stockholm School of Economics. Andreas can be reached at: ar.msc@cbs.dk and @RascheAndreas. More at his personal homepage.

By the same author

Why Corporate Sustainability is Bullshit (And Why This is a Good Thing)

The Ethical Blindness of Corporate Sustainability

Image

Photo by Andrej Lišakov on Unsplash.