Investor Motivations and Barriers to Crowdfunding Adoption for SMEs in Emerging nations: A Qualitative Investigation Using Agency Theory

Crowdfunding is an alternative financing model which can revolutionize the funding process of SMEs and startups in emerging economies, however, usage of this alternative financing is extremely low in emerging nations due to increasing digital infrastructure. The present study explores what barriers and motivations stop investors from participating in crowdfunding in the SME ecosystem of Pakistan. The method used was qualitative using a phenomenological approach, with 22 Samuel, which consists of 18 investors and 4 domain experts were selected purposively. NVivo-assisted content analysis with open coding, axial coding and selective coding was employed for the analysis of data. The study is based on Agency Theory and Information Asymmetry Theory, and categorizes the sixteen barriers into three thematic clusters, namely institutional barriers (regulatory gaps, lack of legal protection), informational and behavioural barriers (awareness deficit, fear of fraud, financial illiteracy, herd behaviour) and technical and social barriers (limited technology, lack of expertise, illiquidity, gender disparity, physical appearance bias). The top three deterrents were limited legal protections (22/22), limited technology access (21/22), and fear of fraud (18/22). The study also highlights six investor motivations financial returns, portfolio diversification, startup growth potential, social/emotional investing, platform accessibility and platform trust. Theoretically, the study's findings contribute to the Agency Theory literature, adding that in the weak institutional environment, relation trust can be considered as an incomplete substitute for investor protection through contract. The recommendations are directed towards the Securities and Exchange Commission of Pakistan (SECP), microfinance regulators, and operators of the crowdfunding platforms. Keywords: crowdfunding, investor barriers, SMEs, Agency Theory, Pakistan, qualitative research, information asymmetry, digital finance