Abstract
In this paper, we investigate rewards-based crowdfunding as an innovative financing form for startups and firms. Based on game-theory models under asymmetric information, we test research hypotheses about the positive effects of two main campaign features: funding target and number of rewards. Furthermore, we examine how and when these characteristics are effective in attracting crowdfunders, by signaling high-quality projects (target) and by pricing according to backers’ preferences (rewards). Conditional process analysis is applied to a dataset of 1613 projects launched on the Spanish platform Verkami from 2015 to 2018. As expected, our study shows that market size is positively influenced by the target and the number of rewards, separately. Further analysis gives some interesting findings. Firstly, we find significant and positive mediating roles of social networks (in the relationship between target and market size) and of backers’ preferences (between rewards and market size). Secondly, the main orientation of a campaign, commercial or social, is relevant to explain previous relationships. While high funding targets are more effective in commercial projects, a high number of rewards is more effective in the social projects. This research provides new insights into the design of optimal crowdfunding, with theoretical and empirical implications.
Highlights
Crowdfunding has experienced a dramatic growth in the past decade as a groundbreaking funding tool for startups and small- and medium-sized firms
We focus on two main aspects of rewards-based crowdfunding: the signaling of project quality and price discrimination
We present the main elements of two theoretical models, which support the basis for our main research hypotheses: (i) a signaling model, which tackles the information asymmetry problem about project quality and, (ii) a price discrimination model, which analyses the effective learning of demand through multiple prices/rewards
Summary
Crowdfunding has experienced a dramatic growth in the past decade as a groundbreaking funding tool for startups and small- and medium-sized firms. This growing phenomenon enables entrepreneurs to kick off innovative projects by raising funds from large crowds through digital platforms. The study of the conditions in which a campaign design (defined mainly by target and reward level) is effective in attracting large heterogeneous crowds is determinant for explaining campaign success. This is the main purpose of our paper
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