Perceived violations of reward delivery obligations in reward-based crowdfunding: an integrated theoretical framework

Anthony Macari,Grace Chun Guo

doi:10.1108/neje-08-2019-0035

Anthony Macari, Grace Chun Guo

Open Access

https://doi.org/10.1108/neje-08-2019-0035

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Abstract

PurposeThis conceptual paper focuses on a common observation in the implementation stage of reward-based crowdfunding (RBC) – entrepreneurs' failures and delays in delivery of rewards to investors, which, in turn, may be perceived as violations of reward delivery obligations.Design/methodology/approachDrawing on entrepreneurial personality theory and psychological contract theory, this paper develops propositions and identifies factors related to both entrepreneurs (overconfidence and narcissism) and factors related to investors (types of motivators and psychological contracts) that may explain the perceived violations of reward delivery obligations. Implications for theory and practice are also discussed.FindingsThe theoretical analysis, by wielding two independently developed literatures, has demonstrated that it is important to investigate factors that are related to both investors and entrepreneurs in understanding issues and challenges at different stages of the RBC model. The authors believe that the current analysis provides an integrated understanding and a solid foundation for researchers to further examine these issues by empirically testing these propositions.Originality/valueThe authors examined two previously understudied psychological factors in the context of RBC – entrepreneurial traits, mainly overconfidence and narcissism, and the type of psychological contracts formed between investors and entrepreneurs, both of which, according to McKennyet al.(2017), need greater attention from researchers studying crowdfunding.

Highlights

Crowdfunding has emerged as a significant and growing source of capital for entrepreneurs who may not have access to capital markets via banks, venture capital or other traditional sources (Allison et al, 2015; McKenny et al, 2017; Short et al, 2017)
In the rest of the paper, we review the literature on the rewardbased crowdfunding (RBC) model as a contractual relationship and discuss legal issues associated with the RBC model
We argue that the lack of contractual details in the terms of use (TOU) of the RBC platforms and the lack of strict legal regulations in RBC will likely make the evaluations of obligation violations subject to individual perceptions by the investors

Summary

Introduction

Crowdfunding has emerged as a significant and growing source of capital for entrepreneurs who may not have access to capital markets via banks, venture capital or other traditional sources (Allison et al, 2015; McKenny et al, 2017; Short et al, 2017). Even for those crowdfunding platforms like Kickstarter, which follows the rule of all-or-none, meaning the entrepreneur cannot collect funds until the entire funding goal is reached, control mechanisms or detailed contractual requirements for spending the funds or defining deadlines for acceptable reward delivery are relatively minimal. Prior studies identified various causes, mostly entrepreneurs’ individual-level factors, including entrepreneurs’ inability to estimate costs and plan key variables, lack of experience and capabilities of implementing funded projects or fulfilling the obligations of reward delivery. While 61% of these projects failed to deliver rewards on time, the authors found lateness in every category of product They did not find significant relationships between variables such as the number of team members or prior exposure to Kickstarter, where the expectation was that those factors would have an impact. According to O’Boyle et al (2014), DT traits may supplement the Big Five Factor model by focusing on less desirable personality traits

Extrinsic Motivator

Findings

Conclusion