Open Innovation, Open Wallets? Innovation Strategy Congruence in Crowdfunding

Abstract

New ventures using an external open innovation strategy face a more complex path to resource acquisition. On the one hand, openness removes the barriers for both collaboration and widespread adoption; on the other, openness offers little to no intellectual property protection, thus creating a scenario where virtually anyone can appropriate value from property as they without necessarily providing a benefit to the creator. As such, open innovation can be a disadvantage in early-stage resource acquisition because the strategy is incongruent with professional investor expectations, which typically seek to maximize returns. Despite these concerns, the rapid rise of crowdfunding has created a more communal and democratic method for innovators to access capital markets and have created opportunities for open innovation strategies. In this paper, we take a multi-methodological approach to test whether an open innovation strategy provides unique advantages in the crowdfunding context. We theorize that openness yields greater trust, which in turn leads to superior financing outcomes. Our results from an archival study using Kickstarter data and through a randomized experiment provide consistent support that an open innovation strategy is indeed advantageous in the crowdfunding context. These results are also mediated by perceptions of trust.