Community Engagement and Collective Evaluation in Crowdfunding

Abstract

The emergence of crowdfunding could significantly ease the burden of raising funds for startup companies, and ultimately transform the nature of entrepreneurship and new firm creation. Under traditional funding mechanisms, entrepreneurs face considerable difficulties in obtaining external funding. Start-ups also struggle to increase their visibility and establish legitimacy to acquire necessary resources. In contrast to traditional funding, the role of crowdfunding platforms in connecting entrepreneurs and funders provides new avenues for entrepreneurs to acquire legitimacy and to engage with a pool of funders. Using the comprehensive theoretical lens of social network theory and electronic word-of-mouth, we examine the impact of crowds’ and entrepreneurs’ behaviors along with entrepreneur characteristics on crowdfunding success. We collect data about startup projects and funders from a reward-based crowdfunding platform in the U.S., as well as additional data from online social network sites and blogs. Our sample includes a total of 722 technology-related projects (March 2012 - January 2013) and more than 177,700 funders. The empirical results show that the networks of interactions among funders as well as the entrepreneurs’ social engagement with the crowdfunding community are key antecedents of funding success. Interestingly, these factors dominate the effects of the entrepreneurs’ characteristics. This study contributes to crowdfunding, crowdsourcing, and entrepreneurship literature by providing a comprehensive framework to understand the fundraising mechanisms in a novel funding. Implications for potential funders and entrepreneurs are discussed.