A Proposal for a Standard With Innovation Management System

Hanno Kortleben and Bernhard Vollmar
neurs actively court investors, in addition to holding the obligatory conferences. Therefore, it is uncertain
whether a generally positive environment would lead to the desired result or whether it is only the
dedication of the entrepreneurs which can bring this about. Furthermore, the representatives of the
crowdinvesting platform are in debt for themselves, but above all for the crowdinvestors,to eliminate
the risk of sitting up fraudsters. Effective research and the examination of documents (screening), as
far as possible in advance, are two methods of eliminating such risks. As already mentioned, this
could otherwise negatively affect the reputation of the platform and investors' confidence in the abilities
of the platforms´ representatives. The entrepreneurs may proof, in addition to technical skills (certificates,
etc.), through award-winning business plans or patented technologies, the soundness of their
project (signalling). Articles or interviews in newspapers and/or the Internet could serve as an indication
of entrepreneurial commitment.
Relationship six describes an agency relationship with hidden characteristics between the start-up
(principal) and the crowdinvesting platform (agent). Prior to the contract, it will not be evident whether
the crowdinvesting platform can mobilize sufficient investors who can raise the necessary capital for
the company or not. While no financial risk arises from a non-successful auction (no funding = no fee),
the entrepreneurs are, however, deeply involved with the presentation of the company to investors
and could lose mentionable time. Depending on the contract, the companies could also be limited to
only one crowdinvesting platform, denying other channels of capital acquisition. The crowdinvesting
platform could publish the number of registered investors and the capital available to entrepreneurs
and thus show if a project is potentially fundable or not. Finally, a further problem should be addressed,
which cannot be assigned directly to a particular relationship, but should be mentioned as a
suggestion for reducing the uncertainties of investors:
Inexperienced investors might be deterred by high-tech business ideas, because their knowledge may
not be sufficient to assess an adequate share price or they may do not want to rely solely on a by
anonymous judgment formed auction price (in the case of innovestment). A disclosure of all investors
with their individual technical and professional background, coupled with the possibility of sharing
opinions publicly could help the investors to compare their opinion abouta start-up with the opinions of
others. The possibility of discussing business ideas with start-ups is yet very limited. However, it is
possible that comments are made on some German crowdinvesting platforms. Comments serve as
an important form of personal feedback and comments from experts could help inexperienced investors
form a complete picture of a start-up company.
4. Arguments in favor of crowdinvesting platforms from the perspective of
transaction cost theory
Crowdinvesting is in both Germany and its country of origin, the United States, still in its infancy.
Companies that have not been founded in the past due to lack of funding can now put their hopesin a
new funding alternative. It can be seenthat crowdinvesting platforms already have a base of investors
and alongside the infrastructure and social network integration, organizational groundwork (including
contract templates) has already been accomplished. The social network integration, as well as the
commitment of crowdinvestors (‘provestors’) to promote ‘their’ company, results in rapid publicity for
the respective companies. Theoretically, investors could be globally active because all decisionrelevant
information is made available online.In summary it can be said that transactions become
more efficient through the intermediation of the Crowdinvesting platform between start-up companies
and investors. Both ex-ante transaction costs, and ex post transaction costs are reduced [For the
concept of transaction costs see inter alia Williamson (1985), North (1990)]. Because several companies
pitch on the platforms, the investment opportunities for investors are bundled. On the other hand,
companies can present themselves on the platform to a variety of investors. Furthermore, investors
can view all relevant data online, which in turn lowers their information costs. In addition, the contract
costs (ex-ante transaction costs) are reduced because standard contracts are used and the company
valuation is known in advance or can be formed automatically through an auction (Innovestment).Subsequent
control is shifted from a continuous physical inspection to a virtual control of the
quarterly and annual financial statements. But for this point, an increase in efficiency and effectiveness
cannot simply be assumed. In addition, for crowdinvestors arises the opportunity to discovercompanies,
which they would not have been attentive to without crowdinvesting. By combining all the
mentioned points, the following hypothesis can be formulated: Crowdinvesting platforms will provide
an alternative way for a start-up to acquire large sums of equity (low to medium six-figure sums) in the
future, if neither a business angel nor a venture capitalist wants to support the company. Thus, the
funding gap between Seed / Early-stage financing and Later-Stage Financing could be closed by a
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