1The financing of early-stage startups has seen significant changes in recent years, due to two trends. First, the 2008 global financial crisis undermined trust in investment activities that were controlled and operated by large financial institutions (banks, insurance companies and trust companies) located in, or connected to, major financial centers. Second, the rapid development of internet technologies facilitated the expansion of bottom-up initiatives driven by new, multi-functional and multi-sided platforms, based on new models of digital economic circulation (Evans et al., 2011; Langley, Leyshon, 2016).
2These two interrelated trends were the origin of the ongoing proliferation of crowdfunding platforms all over the world, thus bringing together entrepreneurs and individual investors, and circumventing established financial intermediaries. Consequently, direct investment in innovative young companies is no longer restricted to professional qualified investors such as Venture Capitalists (VC, which, over the last few years, have struggled to raise funds from institutional investors and identify high-potential startups (Salomon, 2016). Indeed, the mushrooming platform-based models of crowdfunding provide a new way to finance new ventures by putting entrepreneurs in direct contact with numerous private investors.
3In terms of geographical distribution, the Asian crowdfunding sector raised $3.4 billion in 2014 (320% growth in volume), which essentially put the region ahead of Europe’s $3.26 billion to become the second-largest region by crowdfunding volume. North America remained at the top in terms of crowdfunding volumes, growing by 145% to raise a total of $9.46 billion (Massolution, 2015). According to Crowdfunding Monitoring Switzerland 2016, $27.8 million was raised for 1342 projects in 2015, thus displaying a 73% increase compared to 2014 ($16 million). However, in terms of total per capita funding, Switzerland is still in the very early stages of development compared to markets in the United Kingdom, US and China.
4Investing in young companies through dedicated platforms refers to a specific form of crowdfunding which is either called equity crowdfunding or crowdinvesting. Unlike reward- or donation-based models, the purpose of crowdinvesting is to acquire a stake in a startup, which is often at an early stage of development. Although ‘crowd’ investors receive shares in the company, they have limited voting power, thus providing the management team with greater autonomy.
5It is widely acknowledged that funding an early-stage startup is a high-risk activity, which, until now, has been the domain of sophisticated investors such as VC firms or professional Business Angels (BAs). Historically, potential investors in a young venture with no track record were supposed to have a solid financial background, specialist expertise, and many years’ experience. However, not only do crowdinvestors often lack this knowledge, many of the risks remain hidden and investor protection is only minimally regulated, if at all (Bieri, 2015). To date, there is no Swiss legislation or regulation that explicitly addresses crowdfunding platforms; consequently, private investors must bear the cost of any losses due to a poor choice of investment, or some questionable activities by platform managers or startup founders (FINMA, 2015).
6Although there are five active crowdinvesting platforms in Switzerland, only two of them have been successful: Investiere and c-crowd. These two platforms were therefore selected to conduct case studies as part of this research. In accordance with the main framework of the Special Issue, which aims to provide new insights on innovative experiences in crowdfunding and improve the knowledge of its potential for innovative projects, the specific focus of this article is on uncovering innovative evaluation strategies as part of fundraising campaigns on crowdinvesting platforms. From a pragmatic perspective of value calculation (Callon, Muniesa, 2005) and a theoretical approach to knowledge-based value creation (Crevoisier, 2016), this article explores the role of sociotechnical ‘calculative devices’ and some particular forms of knowledge-sharing during the startup evaluation process.
7In line with this research goal, the study was guided by the following two questions:
- What sociotechnical devices and mechanisms are implemented on crowdinvesting platforms that are dedicated to the evaluation of early-stage startups?
- To what extent and how can actors (startup founders, investors, platform managers) base their evaluation strategies on such devices?
8This article is structured as follows. It begins with a literature review focused on the issues of evaluation in the domain of crowdfunding and identifies gaps in current research (Section 2). Section 3 introduces the theoretical and conceptual framework. Section 4 explains the methodology, and Sections (5) and (6) present the empirical findings of the two case studies (c-crowd and Investiere respectively). Section 7 compares the evaluation strategies of both crowdinvesting platforms with regard to traditional VC practices. It discusses the role of shared and significant knowledge in startup evaluation by applying the concept of ‘social proof’ . Finally, some concluding remarks and suggestions for future research are summarized in Section 8.
9Although the literature on the topic of crowdfunding has grown rapidly in recent years, little has still been said about the evaluation strategies and the drivers for successful crowdinvesting. Assessing the value of a young venture has always been tricky, even for sophisticated professional investors. The task becomes even more complicated because of agency dynamics in crowdfunding models, due to information asymmetry between startup creators and a community of inexperienced, small-scale, geographically and relationally dispersed investors (Ley, Weaven, 2011).
10Scholars have mostly focused on two questions: (1) How do entrepreneurs signal the quality of their venture to potential investors (Colombo, Franzoni, Rossi-Lamastra, 2014; Frydrych et al., 2014; Ahlers et al., 2015)? and (2) How does the crowd interpret such signals and decide which projects to finance (Guidici et al., 2013; Bessière, Stéphany, 2014; Frydrych et al., 2014; Kim, Viswanathan, 2014; Mollick, Nanda, 2015)?
11It should be noted that the success factors of a completed fundraising campaign lie very much in the entrepreneur’s efforts to promote the young company, thus enhancing its evaluation by potential investors. As highlighted by Pierre and Fernandez (2018), to access private funding a small firm should be able to present viable and convincing projects.
12Closely linked to advertising activities, the process of evaluation by the community of investors involves different factors related to the sharing of knowledge and the interpretation of quality signals transmitted by entrepreneurs.
How Do Entrepreneurs Signal the Quality of Their Venture?
13Previous research has highlighted some of the determinants of success in signaling the quality of a potential investment. Ahlers et al. (2015) explore the information that entrepreneurs provide to small investors in the context of crowdfunding, in order to signal a good-quality venture. Their study hypothesized that these signals would be different from those provided to BAs or VC firms. They found that the most effective signals entailed detailed information about potential risks through specified documentation available on the platform. A second strong signal was given by entrepreneurs who retained a part of the equity by themselves investing in their startups. The assumption is that entrepreneurs only retain a substantial stake in their company if they expect future cash flows to be relatively high compared to the firm’s current value. Interestingly, the study found that entrepreneurs’ social and intellectual  capital had little or no impact on funding success.
14Frydrych et al. (2014) studied the drivers for success on the Kickstarter platform in the United States in terms of entrepreneurs’ legitimacy. They found that interactive story-telling and an eye-catching project presentation significantly influenced the investment choices of small-scale crowdfunders. Colombo et al. (2014) analyzed the role of internal social capital. This new source of capital emerges through building social links and supporting other projects within a crowdfunding community. Investors are encouraged to commit to ventures whose founders actively participate in activities such as inspecting, funding, and giving feedback to other projects.
How Do Investors Interpret such Signals?
15Furthermore, scholars have also examined the question of what signals are most effective in attracting the interest of small investors, and how investors interpret these signals. For instance, Mollick and Nanda (2015) compared the judgments made by crowdinvestors and experts. Specifically, they investigated whether decisions taken by the crowd were more irrational than the presumed ‘wise’ investment choices of experts. The study was based on Kickstarter data, and the findings suggested that, despite the statistically-significant congruence of investment decisions taken by the two groups, they evaluated projects very differently. The biggest differences lay in the style of presentation. More ‘crowdfunding-friendly’ proposals that included videos, pictures, and rewards for investors appealed to the crowd. On the other hand, experts looked for signals such as the formality of the proposal and specific information related to the business model and marketing strategies.
16Guidici et al. (2013) examined the role of observable social capital in the success of crowdfunding campaigns. They distinguished between individual social capital (the social network) and localized territorial social capital (entrepreneurs’ geographical area). They found that a high level of localized territorial social capital had a negative impact, as good-quality projects were assumed to easily find financial support from local investors. However, a high level of individual social capital (high-quality network) had a positive impact on fundraising by signaling a good-quality project. A further finding was that the crowd appeared to observe and follow the attitude of other investors using the platform.
17In addition, the involvement of ‘Friends, Family and Fools’, reputable investors, BAs and serial entrepreneurs, seems to reassure small investors about the thoroughness of the business plan and the market potential (Salomon, 2016). In the context of crowdfunding mobile applications, Kim and Viswanathan (2014) examined the role of experts or reputable investors in the valuation of startups. They found that two categories of early investors (App Developers and Experienced Investors) had a significant influence on later investors (the crowd). The authors provided evidence that the crowd followed signals given by sophisticated investors in order to identify good-quality projects.
18The crowd also appears to use non-financial signals to evaluate potential investments. Bessière and Stéphany (2014) observed that startup financing tends to depend on perceptions, rather than on an in-depth analysis. The crowd focuses its attention on product concept information, commercial dynamics (e.g. time-to-market projections), the project founders, and their vision of the future. Building on behavioral finance theory, the authors emphasize the role of emotions in the decisions made by small-scale, individual investors. Finally, Frydrych et al. (2014) found that the composition of the startup team played an important role in reducing uncertainty in the eyes of the crowd. Projects founded by a team were much more successful than projects launched by individuals. Curiously, projects headed by females seemed to be more successful than those created by their male counterparts.
19Drawing on these assumptions, the present paper will endeavor to highlight and clarify the interplay between the sociotechnical calculation devices  applied by crowdinvesting platforms, and other, external, valuation activities. External activities involve various stakeholders and may influence the valuation by orienting startup selection, price setting, and the decision to invest. Rather than to be viewed as a disembodied crowd, the platform’s community is seen as a social network of individuals anchored in an (extra) local environment, which helps them to create meaning from their investment activities.
Theoretical and Conceptual Framework
20The following theoretical and conceptual approaches are jointly used to understand the logics underlying evaluation strategies upstream of the investment decision. First, the economic issue of value assessment is addressed from the pragmatist perspective in social sciences (Dewey, 1939; Callon, Muniesa, 2005). Second, the concept of significant vs substantive knowledge (Crevoisier, 2016) is harnessed to identify the mechanisms used by crowdinvestors to assess the worthiness of announced projects.
The Pragmatist Perspective and Market Devices
21The question of how value is determined raises the issue of the complexity of social mechanisms, which is itself linked to the problem of uncertainty (Beckert, Aspers, 2011).
22In social sciences, empirical approaches to valuation began with the assumption by John Dewey that valuation must be based on concrete action (Hutter, Stark, 2015). Dewey (1939) highlighted that the words ‘valuing’ and ‘valuation’ had two different meanings: prizing and appraising. While the former is used “in the sense of holding precious, dear, […] having definite personal reference”, the latter conveys the sense “of putting a value upon, assigning value to. This is an activity of rating, an act that involves comparison, as is explicit, for example, in appraisals in money terms of goods and services” (Dewey, 1939, p. 5). Dewey’s pragmatism lies in the fact that the valuation should be viewed as a process or action which “refers to something that happens to something, and this happening can be a matter of consideration or of relation, or both at the same time” (Muniesa, 2011, p. 26). To study the evaluation process, Dewey suggests referring to evaluative judgments, which he defines as “judgments of practice” (De Munck, Zimmermann, 2015). Such evaluative or practical judgements are action-oriented and grounded in empirical inquiry (De Munck, Zimmermann, 2015). To summarize, the pragmatist approach to valuation should be understood as a process, a form of mediation, or something that happens in practice (Muniesa, 2015).
23Drawing upon Dewey’s pragmatist approach to valuation, the concept of market devices developed by Callon and Muniesa (2005) has been used to address the specific issue of evaluation in the domain of equity crowdfunding. Here, the focus is on the identification and analysis of the market mechanisms, devices and rules that contribute to the construction of an evaluation infrastructure (Barman, 2015). In this article, the evaluation is explored by considering particular calculative tools designed to assess the economic value of goods (Callon, Muniesa, 2005), especially in situations of uncertainty.
24According to Muniesa et al. (2007), such market devices, which are produced through social and technical arrangements, make it possible to qualify market objects and calculate their value. The authors argue that “the qualities of goods and services are the output of complex operations of qualification, of framing and reframing, of attachment and detachment. The way in which market devices are tinkered with, adjusted and calibrated affect the ways in which things are translated into calculative and calculable beings” (Muniesa et al., 2007, p. 5).
25Callon and Muniesa (2005) decompose the valuation process and show how a new product (or service) can be qualified and its value calculated. They formulate a very general three-step process: (1) objectification; (2) singularization/ individualization; and (3) extraction of a result (pricing). First, the entities concerned have to be objectified, i.e. they have to be detached and placed in a single calculative space. It should be noted that there may be many calculative spaces depending on product and market characteristics. In the case of crowdfunding, the calculative space is viewed as an online platform where a new project is presented, promoted and evaluated within the objective of raising financial capital from a community of startup enthusiasts. Beckert and Aspers (2011) argue that the value of a good is not intrinsic to a material object, but rather it is inseparable from its meaning for the consumer. Therefore, singularization makes it possible to associate the entity being evaluated with the customer’s (investor’s) world . The product is qualified and transformed into a commercial good through three operations. First, a space must be identified in which the new product can be compared to a variety of existing products. Second, products must be classified and clustered to enable different entities to be compared. Finally, it appears possible to calculate the price of a good (that has been qualified and classified) based on assessment of its value that measures and compares it on various scales (Stark, 2009).
Significant vs Substantive Knowledge
26To understand the practical completion of economic value assessment through crowdinvesting activities, we will mobilize the concept of ‘significant’ vs ‘substantive’ knowledge (Crevoisier, 2016), which seeks to clarify how these two forms of knowledge are transformed into monetary income.
27Economic value created through ‘substantive’ knowledge is based on exclusive use. Value creation principally lies in the right to use such knowledge, which is stabilized, clarified, owned by companies, and protected by various Intellectual Property (IP) instruments. Control of this type of knowledge is transferred from several actors to a single, identifiable actor (a physical person, firm or organization). Such knowledge can be formalized and it may circulate through contractual economic exchanges, be embodied in goods and services, or take the form of licenses and patents.
28The economic value of ‘significant’ knowledge lies in its sharing and diffusion, and the meaning it has for those who share it. Unlike substantive knowledge, the creation of significant knowledge is highly contextual, dialogic, and open-ended. Such knowledge is characterized by creativity, and therefore by uncertainty about the evolution of its content. Each step opens up new questions and new possibilities for development and it merges with the community that possesses, enriches and shares it. The dynamics of this knowledge result from the plurality of actors that possess it and interact around it. For example, a knowledgeable consumer can create additional value for products or services . This evolving capacity is conditional upon the absence of an owner and centralized control over its use, together with a diverse community. Such knowledge is spread across both the community of producers (entrepreneurs) and customers (investors). Rules for sharing this do not concern ownership or control, but the acknowledgement (status) accorded by the community to its most emblematic or creative members.
‘Substantive’ and ‘Significant’ Knowledge
‘Substantive’ and ‘Significant’ Knowledge
29The distinction between ‘significant’ and ‘substantive’ knowledge is somewhat porous because it is characterized by a double process. On the one hand, companies make efforts to control ‘pieces’ of knowledge by creating intellectual property rights, hiring knowledgeable people, or buying expertise (Crevoisier, 2016). On the other hand, companies play a specific role by “transforming some significant knowledge into assets, which they combine with other knowledge in order to create value and capture monetary income” (ibid, 6).
30In what follows, it will be examined how the issue of startup evaluation can be addressed in different ways from the perspective of ‘significant’/’substantive’ knowledge and the ‘calculative space’ approaches, within the context of crowdinvesting platforms.
31Qualitative case studies were realized to investigate two active crowdinvesting platforms in Switzerland: c-crowd and Investiere. As part of a case study approach, multiple data sources allow the development of converging lines of inquiry and multiple measures of the same phenomenon (Yin, 2009). Thus, this study draws upon a wide range of sources, including document analysis, participant observation, and qualitative interviews.
32Because of its rationale of scanning a phenomenon in its real-life context, the method of case studies (Yin, 1981) corresponds to our research objective. The guideline of constituting samples in the case study approach is not their size, nor their representativeness, but the richness, meaningfulness and insightfulness of the collected data. The underlying principle for selecting cases is variation, and the multiplication of real experiences, rather than representativeness of the parent-population (Patton, 1990). The major key is that researchers consciously select and problematize anomalous cases that are not satisfactorily explained and understood by existent theory. Accordingly, we have selected two cases of crowdinvesting platforms with significantly different rationales and functioning.
33The data collection and analysis were conducted in three distinct, but overlapping, steps. First, document analysis included an exploration of the content of the websites of several crowdinvesting platforms in Switzerland and internationally, in order to identify and compare their functioning and business models. It was then supplemented by various public documents explaining the operations, rules and business strategies of these platforms. Finally, relevant academic and media publications were reviewed.
34Second, several participant observations were realized during two years of empirical research. In the first instance, they involved attending two New Finance Conferences (2012, 2013), devoted to crowdfinancing in Switzerland. These conferences brought together various actors in the field, such as entrepreneurs, platform founders, finance professionals, private and professional investors, social media, journalists and academics. Data included field notes of informal conversations with relevant players, including the founders of the c-crowd and Investiere platforms, which prepared the ground for further investigation. In a later phase, the author was provided with access to the investor’s community membership on the Investiere platform, which enabled two years of intensive participant observation of several investment campaigns.
35Finally, four semi-structured interviews were carried out with the founders and associates of both platforms. The interviewees were selected with the objective of ensuring the most comprehensive insight into the startup evaluation process during the fundraising campaign. More specifically, the interviews were guided by questions about the functioning of the platform, its sociotechnical environment, its business strategy, its approaches to the selection and evaluation of startups, the main characteristics of crowdinvestors, and the principles of deal sourcing. The data was analyzed, interpreted and triangulated with the data collected from other sources in order to understand the logics and dynamics inherent in the evaluation of startups.
The C-Crowd Business Model Innovation
36C-crowd is an internet-based platform for early-stage startups financing. Its creation in April 2011 was inspired by the previous professional experience of its founder. After working for many years in investment banking and corporate finance the c-crowd founder recognized the inefficiency of the traditional fundraising process which involves “sending a lot of emails, calling a lot of people and running behind everyone” . In his view, the most appropriate solution was to outsource this inefficiency to the Internet and enhance fundraising through crowdfunding.
37The c-crowd platform’s infrastructure is composed of two spaces. The first is devoted to ‘Crowdfunding’ startups, and the second to ‘Marketplace’ startups. As the name suggests, Crowdfunding aims to raise money from numerous individual investors drawn from the c-crowd community. The ‘Marketplace’ functions as an advertising space for companies that are ineligible  for crowdfunding financing. These companies can post their proposals, explain their business models, and provide their contact details. Interested parties can therefore contact the company directly to negotiate a possible investment. Such companies were not taken into account in this study.
38The success of fundraising campaigns is at the core of the c-crowd business model. The latter consists in charging a fee of 10% on the amount of raised capital only when the startup financing has been successfully completed. The main marketing strategy is to attract good-quality projects to the platform, as the founder believes that investors will follow good investment opportunities. Negotiations with both entrepreneurs and potential investors take place during regular investor events or startup fairs. Deal sourcing is the result of intensive off-platform networking, which aims to ensure a range of valuable investment opportunities that may lead to successful fundraising. According to c-crowd’s founder, the task is not simple. Some entrepreneurs are reluctant to use crowdfunding to finance their projects as it means that they will have to open up the company to 20-50 new shareholders.
That’s the difficult part, because many people don’t like that. They think that afterwards, at a later stage, the company won’t be as interesting for VC investors as it would be if there were only 2 – 4 investors on board.
40As an open crowdinvesting platform, c-crowd provides free access to all kinds of investors who are willing to participate in fundraising campaigns with no typical investor profile. It is often the case that a student investing $300 and a professional BA investing $200k become shareholders of the same startup. Evaluating a young venture is very tricky, especially for inexperienced individual investors. Given that at the seed stage there is only an idea and a business plan — but no revenue, no track record and no market proof — how can potential crowdinvestors be reassured about the financial risks and the true value of the project? The following section explores how the problem of the startup evaluation is handled as part of c-crowd fundraising campaigns.
The C-Crowd Evaluation Space
41The calculative space for startup evaluation on the c-crowd platform can be characterized by a dual process: OFF platform relational work, combined with ON platform company presentation. The definition of ‘relational work’ used here draws from the definition proposed by Zelizer (2012), who argues that it consists in creating viable matches among the meaningful relations that people create, maintain, symbolize, and transform in all areas of economic life.
42OFF platform relational work operates in two steps: (1) at the stage of project selection and preliminary evaluation by the c-crowd team, and (2) throughout the fundraising process with the purpose of promoting the startup and attracting more investors. As c-crowd’s founder states, every startup goes through a very thorough evaluation process before it is given the green light for fundraising.
Usually, first, the entrepreneur sends me a business plan, we speak on the phone and then, if I find it interesting, we meet in person, we discuss the business plan, the idea, the whole concept. Then I give them feedback on whether it is suitable for crowdinvesting. Later we have a couple of iterations of the business plan. We meet at least one more time in order to present the project to the other board members of c-crowd. We have a discussion about the company and we vote. Only when every board member votes for the project do we put it live on the platform. It is rather similar to the VC evaluation process.
44The next step marks the beginning of fundraising. The c-crowd team organizes an investors’ event where the startup founder can present the project to potential investors. Because of the high risk and uncertainty related to startup financing, such real meetings constitute a very important aspect of crowdfunding.
We can’t do it all online, it is impossible. There is a lot of trust involved, and even if crowdfunding is an online business, people still like to see the entrepreneurs, to shake hands, to look them in the eyes and get an idea before they invest their money.
46While the c-crowd team helps by organizing investors’ events, the entrepreneurs are supposed to actively promote their startups, in particular, by inviting people from their own networks to attend meetings and events.
Obviously, the best case is that the entrepreneurs invite investors who have already invested in the startup. At the presentation, they can say things like ‘I invested in the company for the past twelve months and this is what I’ve seen of the founders. And I really liked them.’ The entrepreneur can use this kind of testimonial in order to encourage other investors.
48The c-crowd strategy consists in organizing at least three investors’ events throughout the fundraising campaign: at the beginning, in the middle, and at the end. The belief is that these events might actively contribute to company valuation and have a positive impact on the overall process. Furthermore, highlighting the milestone achievements of the startup team at the end of a successful fundraising can play an important role in promoting crowdfunding among other startup founders. Such success stories increase the confidence that the c-crowd can help them to raise funds for their startup.
49Alongside OFF platform networking and promotional activities, the proposal is put live ON the platform in order to reach out to a broader community of potential investors. The presentation consists of a short movie and several mandatory documents: the business plan and market strategy, a questionnaire about the company’s legal status, official company and shareholder registers, and an Equidam valuation report. These evaluation devices are intended to help investors to form their own judgement of the startup’s value and future growth potential. The Equidam report merits particular attention as it provides a formal validation and explanation of the startup’s financial valuation.
50Every selected startup must provide investors with a formal, standardized valuation report that is made available as a download from the platform. C-crowd collaborates with the Dutch company Equidam  which is specialized in the valuation of young companies. Entrepreneurs must register with Equidam and answer a wide range of questions about the business plan, management team, experience, etc. At the same time, they provide data that is input into a financial model. A bespoke algorithm has been developed that takes into consideration the completed questionnaire and the financial model. From this, five different valuations of the company are derived, based on different methods. The final report is 10–15 pages long and is divided into two parts: the Business Plan Scanner and the Executive Summary. The Business Plan Scanner shows the main features of the project in the form of icons. Colors indicate the impact of a specific feature on the overall quality of the startup (green for positive, red for negative). The purpose is to provide an immediate overview of the startup’s quality and to be able to compare different projects based on the same criteria. The Executive Summary provides a detailed analysis of the business plan based on the following evaluation methods: the Scorecard method (26%), the Check-list method (26%), the VC method (16%), Discounted Cash Flows (DCF) with LTG  (16%), and DCF with multiples (16%).
51Along with OFF platform evaluation activities, such formalized valuation reports are viewed as an important element allowing dealing with uncertainty, which is intrinsic to entrepreneurial finance, including crowdfunding. Although they do not state the final value of a company, they are supposed to offer valuable information for potential investors who may not have enough experience to assess the company’s value on their own.
The Investiere Business Model Innovation
52Investiere  is a Swiss crowdinvesting platform for direct investment in early-stage startups. Established in 2009, with the first financing round in 2010, the platform claims to have evolved within only three years into the largest private investors’ network in Switzerland, and perhaps even the most important online investment community in Europe, with annual investment potential of CHF 40 million . Today, Investiere claims that the platform assembles a community of over 4000 members, including Swiss innovative startups, international industry experts, Swiss and international individual and professional investors, and various private/public and media partners. The platform’s business model, which is called “success-based” by its founders, combines a one-off transaction fee (3-6%), depending on the investment amount, and a 15% performance fee on the profit from the investment. This reward model is put forward as different from the traditional VC investment costs, which include an annual management fee (2% of investment amount), and 20% of realized gain .
53Following its launch, the company’s main strategy was to develop a dynamic, interactive and fast-growing community of private investors, with a stated objective to distinguish them from other crowdinvesting platforms. Intensive ON platform relational work stimulates and consolidates the community, aiming at attracting the best young ventures. The company strives to provide entrepreneurs with top investors as there is a belief that people with a good network, industry expertise, and investment experience, are worth much more than their money .
54For Investiere’s founders, the term ‘top investor’ refers to two distinct categories of investors. The first relates to successful entrepreneurs who are interested in passing on their experience. Such investors are likely to have the knowledge and skills that are necessary to assess the value of early-stage startups.
The reason why they are well-suited to be investors is because they understand what the company is worth […] at a certain point. They say, for example, that this goal is not difficult to achieve, so I’m happy to say that the company is worth $3 million or whatever.
56The second category concerns well-known Swiss institutional investors who have both an established reputation and financial means. It includes banks such as Zürcher Kantonalbank (ZKB), big companies such as IBM, and VC funds such as Swisscom Ventures. The platform managers believe that involving reputable investors in fundraising campaigns is a powerful lever that reduces perceived risk and uncertainty. Other community investors are expected to feel reassured by their presence and be encouraged to participate in financing rounds, although they may be unable to evaluate the startup business plan and market potential. Otherwise, Investiere has set a high barrier to entry, as the minimum investment is fixed at $10k.
57Interestingly, the platform’s sociotechnical infrastructure draws upon well-known social media platforms such as LinkedIn or Facebook. The idea is to use social media strong points for organizational knowledge sharing, and therefore encourage strategic networking in order to increase informational benefits for community members (Utz, 2015; Chauvel, 2016).
58The next section outlines the Investiere platform-based evaluation process, which combines community and expert evaluation, therefore differing significantly from the traditional VC expert-based approach . Such a process takes the form of three steps that aim to establish the ‘social proof’ calculative space enabled by the platform’s infrastructure: (i) screening the startup ecosystem and pre-evaluation; (ii) further evaluation through curation and due diligence; and (iii) final evaluation through interactive fundraising campaign.
The Investiere Evaluation Process
59A young company looking for financing via Investiere passes through a multi-stage evaluation, which can be viewed as parts of a unique calculative space called here a ‘social proof’ space. The evaluation is carried out by three categories of actors: the Investiere team, community investors, and the startup’s founder (Figure 1).
Investiere startup evaluation through the ‘social proof’ calculative space
Investiere startup evaluation through the ‘social proof’ calculative space
60Every Investiere fundraising campaign begins when the entrepreneur creates the company’s profile, thus joining an ecosystem of more than 100 registered startups. The pool of startups hosted by the platform is continuously screened by the Investiere team, who are looking for a promising investment opportunity. Profiles are standardized and comprise a description of the company’s mission, a list of relevant industries, and its staff (managers, board members, advisers, employees, etc.). The newly-created venture enters the ‘social proof’ calculative space when it becomes visible to all community members: investors, entrepreneurs, industry experts, etc. It also enters into competition with the other companies in the ecosystem.
61At this point, the young venture is compared to other similar ventures and singularized, which means that its distinctive characteristics are defined. The comparison is based on objective and standardized information (industry, short description of the concept, market potential) and opinion criteria (Orléan, 2011). The latter is derived from the attention given to it by community members, which is estimated by the number of followers (low- or high-ranking) and their quality (reputation, experience, skills, etc.). For example, when a reputable top investor such as a big company, a successful entrepreneur, or an experienced BA, follows a startup, this is interpreted as a signal that it is worth keeping a close eye on the company. Followers receive updates about any companies they follow. This ‘social proof’ approach suggests that the evaluation of a new company is highly dependent on the interest it generates in the community, which is as important as objective criteria related to market potential, capital requirements, and stage of development (proof-of-concept) .
62If a startup is pre-evaluated as promising, it passes to the next phase of curation and due diligence. Both of these activities are performed by the Investiere team. The main goal of curation is to seek the advice of a broad network of industry experts, investors, entrepreneurs and potential clients on the pros and cons of the concept and its market positioning. If the startup passes the curation test, Investiere contacts the entrepreneur to discuss further collaboration. Due diligence consists in verification of the company’s documentation and definition of the terms of investment (consistent with traditional VC good practices). Finally, the startup moves into the third part of the social proof calculative space, which is the first financing round. In this final stage, evaluation is performed mostly through ON platform relational work (Zelizer, 2012), which involves three categories of actors: the startup’s founders, the Investiere team, and potential investors.
63Selected startups appear on the platform in the category of Investment Proposal. Only community investors who are approved by Investiere have access to this information. The Investiere team helps the founder to prepare the Investment Proposal. The presentation must be designed to catch investors’ attention and make all the important information readily available. The Proposal is shown in Figure 2. It begins with a short movie that presents the company. This is followed by the name of the company, together with its logo, a short description of the concept, related industries, and links to the company’s social media profiles (Twitter, LinkedIn, Facebook). Next, potential investors are provided with information about lead investors, target and minimum amounts, and the level of investor commitment and interest.
The Investment Proposal
The Investment Proposal
64Potential investors have access to a detailed description of the business plan, which explains the concept, business model and go-to-market strategy. The entrepreneur can include the logos of reputable business partners or clients under the heading ‘Trusted By’. This is a key element of the Investiere philosophy:
The company can add people as part of the company, people that help or advise the startup. If these people (their profiles) are linked to the company and others see it, it confirms that this person is helping them.
66This ON platform presentation is designed to provide potential investors with the key information they need to evaluate the company and decide whether or not to invest. In addition, every investor in the community receives emails informing them of new investment opportunities and highlighting important elements that could influence their decision-making. For example, they are told the amount that has already been committed by relevant investors and provided with the names of the most reputable companies.
67The platform enables community investors to know who the other potential investors are, follow them, ask questions, and consequently obtain more information. They are able to click on investors’ profiles and see further details. For example, it is possible to find out which companies the investor has invested in, where they have worked as a board member, which other investors follow them, and who they follow. This information sends a signal to other community members about the potential and value of a young company. On the other hand, the startups’ founders can influence the evaluation process by being both active and reactive: they can respond to investors’ inquiries, provide additional information, and meet investors during OFF platform events. Finally, the Investiere team stimulates the financing round by actively promoting the new investment opportunity, organizing investor meetings, taking shares in the startup, and sending updates to community investors.
How Can Entrepreneurs Use “Social Proof” Mechanisms To Promote Their Startups?
68The ‘social proof’ test described above implies that the decision of the Investiere team to work with a new company relies heavily on the interest the company is able to generate within the community of investors. It appears that some startups were able to use the ‘social proof’ mechanisms strategically, in order to inflate the buzz around the company and influence its valuation. This statement is illustrated by the following example of a startup founder  who successfully executed a strategic ‘social proof’ plan that enabled his company to achieve the stages of curation and due diligence.
69His main goal was to create rapidly-growing interest in his company in order to stand out from the crowd and appear at the top of the most-followed startups in the Investiere ecosystem. His strategy unfolded in three steps. First, he emailed his professional contacts asking them to join Investiere and follow his company. After this first operation, the new company was ranked third in the list of most-followed startups. Second, he identified several ‘influencers’—the most reputable and followed community members—and sent them a carefully-prepared email designed to encourage them to follow his startup and thereby promote it within the community (and probably their private channels). He also emailed a targeted list of potential investors who he had identified through their profiles published on the platform. This step-by-step strategy created a buzz that attracted even more followers. The snowball effect was made possible through the platform’s sociotechnical devices (for example, community members are rapidly informed of any investment interest shown by leading investors). Finally, an email sent to Investiere’s founders was positively received, which was unsurprising considering the high level of interest generated by the company within only a few days. The entrepreneur was invited to meet the Investiere team in person in order to discuss conditions for further collaboration.
70This section compares the two approaches to startup evaluation implemented on the Investiere and c-crowd platforms. Drawing on the pragmatist valuation perspective (Dewey, 1939; Callon, Muniesa, 2005; Muniesa, 2011) and the concept of ‘substantive’ vs ‘significant’ knowledge (Crevoisier, 2016), it discusses the characteristics of the two calculative spaces. In particular, it examines the mechanisms and dynamics of the singularization process.
Startup Evaluation from the Traditional VC Perspective
71First of all, the innovative approach to startup evaluation, implemented by some actors of crowdfinancing, has to be analyzed with respect to the traditional practices of venture capital firms. Taking into account the fact that early stage startups present a very high level of uncertainty, information asymmetry and agency costs (Gilson, 2003), it appears that traditional VC and crowdinvesting platforms manage such risks in different ways (Salomon, 2016). More specifically, during the phase of project selection and assessment VC firms undertake thorough due diligence, based on various decision-making criteria (entrepreneur, technology, product and market-related) (Festel, Wuermseher, Cattaneo, 2013). Due diligence is then completed by a standard financial ratio analysis (Metrick and Yasuda, 2011), as well as the use of detailed investment contracts and the strategy of staged financing (Gilson, 2003; Ibrahim, 2015). Conversely, due diligence carried out by crowdinvesting platforms is lighter and simplified, which implies that every individual investor might take sole responsibility for the final decision to invest. As private investors often have insufficient specialist knowledge, they need to rely on the expertise of some other, more experienced, recognized, and better-informed investors (Salomon, 2016). The necessary trust-building process therefore relies on particular calculative spaces based on socio-technical devices embedded into the platform’s environment and operated through ON/OFF platform networking and relational activities.
Investiere vs C-Crowd Calculative Spaces and Evaluation Strategies
72The calculative space is organized very differently on the Investiere and c-crowd platforms (Table 2). On c-crowd, the investment potential of a startup is evaluated by the platform’s founders through standard due diligence and face-to-face negotiations. The startup cannot move into the online space until there is unanimous approval from the Board of Directors. Once online, the fundraising campaign can begin. C-crowd startups carry out intensive OFF platform relational work throughout the first financing round.
Investiere, c-crowd and traditional VC: calculative space, type of knowledge and evaluation/singularization process compared
Investiere, c-crowd and traditional VC: calculative space, type of knowledge and evaluation/singularization process compared
73C-crowd managers consider that physical meetings between entrepreneurs and investors (e.g. Investor events) are essential for startup promotion and valuation. In the absence of objective determinants of value such as financial performance or sales revenues, investors (experienced or not) can seek assurance through personal negotiations with the startup’s founders. This relational work allows entrepreneurs to promote their company and convince potential investors of their managerial capacities. At the same time, investors can gain a deeper understanding of the concept in order to decide if it is worth investing in, and if the company’s valuation is accurate.
74While Investiere managers also view meetings as essential to negotiations, the calculative space mainly consists of an online environment. In this case, the valuation infrastructure is designed to encourage interactions between community investors, on the one hand, and the fast-growing startup ecosystem, on the other. The platform’s sociotechnical devices (e.g. lists of followers, viewable advisors or reputable partners) facilitate the sharing of knowledge about new companies, their founders, concepts, partners, existing and potential customers, interested investors and their networks, etc. This shared (significant) knowledge helps investors to form an opinion of the company’s value, by strengthening positive elements or, conversely, revealing weak points. The scope and impact of ‘significant’ knowledge can partly rely on ‘substantive’ knowledge, which refers to content that is inherent in the concept (and may eventually be patented) and due diligence. This is unlike the c-crowd platform where most significant knowledge is shared OFF platform during investor events.
75On Investiere, two ‘social proof’ tests form part of the evaluation process. In the first test, new startups join the online space (ecosystem); the decision to continue the evaluation is based on the observable interest that the company attracts from community investors. During this phase, the use of shared knowledge builds on the hierarchy of co-investors (status, reputation) within the community. The sociotechnical calculative devices (e.g. ranking) provided by the platform help some companies to stand out from the rest. These companies are viewed as promising as a result of social approval. The second ‘social proof’ test is based on the following elements: the amount committed, and the number and quality of interested investors, partners and advisors, staff, etc. Other signs of quality such as sharing on social media (Twitter, Facebook, LinkedIn), reports and journal articles help investors to form an opinion about a new investment proposal.
76This use of the platform’s calculative devices to influence the startup’s evaluation calls for a reconsideration of the role and determinants of substantive and significant knowledge within the context of crowdinvesting platforms. Unlike the traditional VC approach, according to which the company’s value is assessed by a team of VC managers, the online platform environment is based on interactions between several categories of actors (entrepreneurs, investors, platform managers, industry experts), which can lead to tension between owned and shared knowledge. Taking the example of c-crowd, the process begins with a fairly traditional evaluation that forms the basis of the decision about whether it is worth moving to the (crowd)fundraising campaign.
77On the Investiere platform, the evaluation model is based, first of all, on a shared opinion of the company’s potential that is gradually transformed into shared value, leading finally to a standard evaluation by experts. In this second case, significant knowledge (based on the reputation of those producing and sharing it) appears to take precedence over substantive knowledge (based on patent potential and due diligence). The Internet plays an essential role as it facilitates the dissemination of shared value within particular ‘communities of knowledge’ (Hafkesbrink, Schroll, 2011), and can be used as an active marketing device to promote a new startup.
Conclusion and Avenues for Future Research
78This paper has explored and shed light on innovative evaluation strategies developed and applied by crowdinvesting platforms for startup financing. Case studies of c-crowd and Investiere platforms provided new insights, related to how these companies construct and share value through the online community’s social dynamics and the platform’s interactive environment. However, the assumption that investment in startups has been democratized as a result of the low entry cost for small investors and their evaluation based on ‘social proof’ remains questionable. The newness of the crowdinvesting phenomenon and the lack of research that specifically addresses the evaluation of startup projects mean that further investigation is necessary. It would be interesting to conduct comparative cross-country and cross-industry case studies in order to provide in-depth understanding of different evaluation approaches within different crowdfunding business models.
79Furthermore, future research avenues should pay particular attention to emergent alternative crowdfunding models based on fast developing applications of blockchain  technologies. Indeed, in the field of financial innovations, recent and still nascent research explores the potential of blockchain-based crowdfunding models and their practical applications (Zhu and Zhou, 2016). For example, more research is needed to explore the implication of some salient characteristics of blockchain in the domain of equity crowdfunding (i.e. security, low-cost transactions, smart contracts, distributed voting systems, etc.).
The ‘social proof’ concept refers to an innovative platform / community-based approach to startup evaluation which is greatly dependent on the interest and enthusiasm generated by a new project within potential and broader community members (Salomon, 2016).
In this case, intellectual capital refers to patents.
The term “sociotechnical calculative devices” refers here to various evaluation procedures enabled through interactive digital features provided on multi-sided platforms.
As part of the everyday life calculation/evaluation process, the supermarket is a good example of a singularization process through ongoing classification, clustering and sorting that make products both comparable and different. It can be viewed as a meaningful illustration of diverse mechanisms of positioning, assortment and reassortment, where actors (market professionals and consumers) constantly examine the relation between products according to various quality standards (Callon, Muniesa, 2005).
For example, internet proficiency may add value to the use of a smartphone (Crevoisier, 2016).
Interview notes (IN).
Startups eligible for ‘Crowdfunding’ space must be registered as a Société Anonyme (a public limited company) and have their head office in Switzerland.
(LGT) Long-Term Growth
Lucas Weber, ‘Investiere snapshot’ at the II Swiss New Finance Conference 2013 (http://www.swissnewfinance.ch/swissnewfinance/index.html).
Investiere.ch and interview notes
See Salomon (2016) for more detailed comparative analysis of traditional Venture Capital and crowdinvesting platforms’ strategies of startup evaluation.
See https://www.investiere.ch/content/selection-process-0 for further details of the selection process.
The blockchain (i.e., a decentralized and encrypted digital ledger) was recently acknowledged as one of the top 10 emerging technologies by the World Economic Forum 2016. This technology serves as a ledger for fast and low-cost transactions, providing trust within a system of unknown users, because it cannot be tampered with or forged (Deloitte, 2016).