Abstract
This chapter explains that reward-based crowdfunding campaigns are commonly offered in one of two models via fundraising goals set by an entrepreneur: “keep-it-all”, where the entrepreneur keeps the entire amount raised regardless of achieving the goal, and “all-or-nothing” (AON), where the entrepreneur keeps nothing unless the goal is achieved. This chapter hypothesizes that AON forces the entrepreneur to bear greater risk and encourages crowdfunders to pledge more capital enabling entrepreneurs to set larger goals. This chapter further hypothesizes that AON is a costly signal of commitment for entrepreneurs yielding a separate equilibrium with higher quality and more innovative projects with greater success rates. Empirical tests are provided in this chapter in support of these hypotheses.
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