Dynamic Strategies for Successful Online Crowdfunding

Abstract

Crowdfunding is an emerging internet fundraising mechanism for soliciting capital from the crowd to support entrepreneurial ventures, often vowing future products in return. This paper empirically investigates consumer investors’ backing behaviors in the presence of network externalities and a deadline. The proposed model captures how investors form their expectation on the prospect of a project based on its current funding status and time progress. Model estimation shows that investors are more likely to back a project that has already attracted a critical mass of funding goal (positive network externalities). For the same amount of achieved funding, the backing propensity declines over time (negative time effects). These two opposing forces give rise to a critical mass of funding the project must attain on time to achieve successful funding. Simulation studies show that projects may fail to attain the critical mass because of unfavorable shocks in investor visits at the early stage of the funding cycle. We discuss dynamic seeding strategies for project creators to maximize the probability of funding success.