Reward-based Crowdfunding Campaigns Research Articles

Untangling signalling strategies contributing to overfunding in reward-based crowdfunding

Crowdfunding is an Internet-based fundraising method that relies on contributions from a large crowd of investors to fund innovative and risky projects. The aim of this paper is to analyse which combinations of signals commonly studied for crowdfunding success lead to overfunding. Based on the information asymmetries between fund-seeking entrepreneurs and the crowd, this paper draws on signalling theory to explore the elements of campaign design that contribute to overfunding (i.e. raising at least 10 % above the funding target). The paper focuses on the entrepreneur's identity as an individual or corporation, pitch video length, budget explanation length, number of images, project abstract length, and number of updates by the entrepreneur. Qualitative comparative analysis (QCA) is performed using publicly available data sourced from 257 socially oriented projects from a reward-based crowdfunding platform. The results show the importance for entrepreneurs of using images and constantly communicating with the crowd. The results also reveal a series of configurations of design features that result in overfunding. These findings have practical implications for the design of reward-based crowdfunding campaigns and contribute to a better understanding of how economic agents interact within crowdfunding.

Uncovering Backers’ Intention to Participate in Reward-Based Crowdfunding: The Role of Value Cocreation

The ongoing dynamic market evolution has reshaped the way companies can create value, thanks to new funding models and new market opportunities, especially in the early business stages. In particular, with the growing development of crowdfunding models, scholars and practitioners are questioning how backers can cocreate value by funding new entrepreneurial initiatives through digital platforms dedicated to this new form of financial support. Therefore, positioning this article in the knowledge and engineering management literature, the current research explores whether two subdimensions of value cocreation (VCC), knowledge sharing and interaction, may help to understand backers’ intention to participate in a reward-based crowdfunding (RBCF) campaign. In particular, using the partial least square structural equation modeling approach on an original sample of 3574 backers, in this article, we find that knowledge sharing, understood as backers’ expertise as well as the preparedness of the proponent team, and the interaction between the campaign actors contribute to explaining backers’ participation in an RBCF initiative. The research supports the relevance of backers’ engagement in terms of VCC as an experiential benefit for the success of an RBCF initiative. From this perspective, our study suggests that both entrepreneurs and platforms should consider VCC in the design and setting of RBCF campaigns.

COVID-19 Effects on Reward-based Crowdfunding Campaigns

Abstract This paper investigates the effects of the COVID-19 pandemic on reward-based crowdfunding campaigns. Using data from the Kickstarter platform, I compare the number and success rates of the reward-based crowdfunding campaigns before and during the pandemic, for 16 different sectors. I find that the number of campaigns generally reduced during the pandemic period, but their success rates increased. I also find that the success rate differences are statistically significant for 6 out of the 16 sectors, and that this difference is positive for all 6 sectors, showing a robust result of better performance in terms of success rates. JEL classification numbers: G30, M20. Keywords: reward-based crowdfunding, COVID-19, success factors.

Environmental Sustainability Orientation, Reward-Based Crowdfunding, and Venture Capital: The Mediating Role of Crowdfunding Performance for New Technology Ventures

Extant literature has investigated the effects of new ventures’ environmental sustainability orientation (ESO) on the crowdfunding (CF) performance and on the ability to secure venture capital, separately and with mixed results. In this article, we address the study of these relationships simultaneously. Specifically, we examine how the presence of ESO features influences new technology-based ventures’ ability to secure funding in reward-based CF campaigns and how the CF performance mediates the effect of such features on attracting subsequent venture capital. Using a sample of new hardware ventures that have launched a CF campaign on Kickstarter, we document a negative effect of the presence of ESO on CF performance. We also find that, for new hardware ventures using reward-based CF, the presence of ESO has a positive direct effect on the likelihood of receiving subsequent venture capital after CF, as well as a negative indirect effect due to its negative impact on the performance in CF.

Entrepreneurship in the age of the digital economy.

Entrepreneurship in the age of the digital economy.

Better to Give Than to Receive: Impact of Adding a Donation Scheme to Reward-Based Crowdfunding Campaigns

The choice funding scheme is an important design dimension in crowdfunding for which platforms should not assume that they are restricted to the use of one funding scheme. In particular, we find that the addition of a donation scheme can increase the success rate of reward campaigns substantially, especially those with prosocial causes. In addition, the donation received is found to have a crowd-in effect on subsequent contributions. To get the most out of donation schemes, crowdfunding sites should provide features that help backers locate reward campaigns for prosocial causes, for example, by providing tags or search filters related to prosocial causes. Second, campaign owners should take steps to highlight the prosocial aspects of their crowdfunding campaign, for example, by revising campaign descriptions to include prosocial keywords/tags. Third, campaign owners should play a more active role in encouraging early donations to enjoy the crowd-in effect that could help their campaigns reach the targeted funding amount. Specifically, the owner’s direct social network is a potentially good source for soliciting these early donations. Relatedly, the campaign owners could benefit by spreading the word about the early donations they receive so as to generate a greater crowd-in effect at later phases of the crowdfunding process.

Quality Signaling Through Crowdfunding Pricing

Problem definition: This paper studies an entrepreneur’s pricing strategy in a reward-based crowdfunding campaign under asymmetric product quality information. We propose two signaling mechanisms and investigate how entrepreneurs can leverage their pricing strategy to signal a high-quality project. Academic/practical relevance: This problem is relevant to practice, as asymmetric quality information is a significant concern in reward-based crowdfunding. High-quality entrepreneurs seek credible mechanisms to signal the quality of projects to customers. Methodology: We develop a stylized game-theoretic signaling model with funding and regular selling periods that captures asymmetric quality information between an entrepreneur and customers. Results: We propose a new theory on quality signaling in crowdfunding. We show that contingent access to the regular selling market after running a successful crowdfunding campaign allows high-quality entrepreneurs to signal their quality through low funding prices (one-price signaling). A high-quality entrepreneur can increase his funding price and still signal his high-quality level if he commits to the future regular selling price (two-price signaling). We show that the distinct feature of crowdfunding, that is, the probabilistic nature of crowdfunding, plays different roles in one- and two-price signaling. It is the driving force for the separating equilibrium in one-price signaling, and in two-price signaling, it affects how the entrepreneur should manipulate his funding and regular selling prices to reduce signaling cost. Managerial implications: Entrepreneurs should be mindful of pricing in funding and regular selling periods because it could play an essential role in signaling quality information. Our findings suggest practical tools for quality signaling in crowdfunding. We also investigate when price commitment is the most beneficial for a high-quality entrepreneur, looking for potential signaling mechanisms. Funding: W. Zhou acknowledges financial support from the National Natural Science Foundation of China [Grant 72192823 and Grant 71821002]. Supplemental Material: The online appendices are available at https://doi.org/10.1287/msom.2022.1177 .

Development of a Theory That Explains Why Funders of Reward-Based Crowdfunding Campaigns Cancel or Decrease Previously Made Pledges

Crowdfunding research has primarily been composed of attempts to identify crowdfunding performance and success factors. A research gap exists concerning funder motivations and behaviors as well as the dynamics that occur with pledge changes during crowdfunding campaigns. Therefore, understanding funder motivations and pledging behaviors during reward-based crowdfunding campaigns was the focus of this inquiry. Using a grounded theory design, I conducted 18 individual semi-structured interviews with funders to understand why they canceled or decreased their already-made pledges to reward-based crowdfunding campaigns. A constant-comparative analysis of the interviews yielded a novel theory describing the factors that motivate and deter funders as well as the contexts in which they occur. The identified funder motivations are reward hunting, financial hardship, purchase later, cost, risk, competition in category, ethical concerns, satisfy others, and goal proximity. Deterrents include rarity and fear of missing out, impact, small company size, trust, and investment. An analysis of these motivations and deterrents in light of recognized crowdfunding success factors is shared, and implications for future reward-based crowdfunding research into funder motivations, behavior, and campaign dynamics are presented. Lastly, I present design principles that fundraisers can use to design and conduct their campaigns in a manner likely to decrease the number of funders canceling and decreasing their pledges while maintaining a plan likely to lead to campaign success or increased performance.

The Process of Reward-Based Crowdfunding Campaigns: Different Ways to Succeed or Fail

The Process of Reward-Based Crowdfunding Campaigns: Different Ways to Succeed or Fail

An Examination of Unaddressed Research Gaps in Reward-Based Crowdfunding Performance and Success

Entrepreneurs’ options for raising capital in the 21st Century have changed dramatically. Of the new options for individuals and businesses to raise funds, none has received more attention in the last decade than Crowdfunding. Crowdfunding, having emerged from crowdsourcing, allows fundraisers to collect funds from funders, usually via the internet, and most often through an intermediary, the crowdfunding platform. The most studied type of crowdfunding is reward-based crowdfunding in which funders receive a reward from the funder for pledging funds to a campaign. What factors impact the performance of reward-based crowdfunding campaigns is of vital importance. Similarly, knowledge of the recent advances in the field including the remaining research gaps, which have so far been underexplored, is also pressing. The purpose of this systematic review was therefore to answer two interrelated, questions: first, what performance and success factors have been recently discovered in the RBCF literature (2018-2021)? Second, what are the remaining unaddressed research gaps in reward-based crowdfunding performance and success? This review produced several key findings. In addition to the many gaps already identified in previous crowdfunding reviews, this review identified several novel gaps. First, the extant literature has not addressed the importance of macroeconomic factors in determining the performance of campaigns. Second, there is a paucity of research concerning the impact of the COVID-19 Pandemic on campaign performance, or how funder motivations and behaviors have been affected. Third, there has been a lack of research on fundraisers whose campaigns are “self-hosted” on their own websites bypassing crowdfunding platforms altogether. Lastly, this review did not identify any studies that attempted to understand the effects of funders canceling or decreasing previously made pledges to a campaign, or what motivates funders to change their pledges mid-campaign.

Exploring the Strategic Elements of Backers’ Persuasion in Reward-Based Crowdfunding

In this paper we investigate the strategic elements that project founders' use in reward-based crowdfunding campaigns to achieve a higher level of persuasion. Exploration of these elements not only provides insights into an entrepreneur's experience with crowdfunding but also provides material for comparing results reported by other (quantitative) studies. We conducted an empirical study with 13 Kickstarter project founders through in-depth, semi-structured interviews which were analysed through a reflexive thematic analysis approach. Drawing from our findings, we propose four strategic elements that founders use to persuade backers and achieve success drawing from individual-level experiences and observations.

Does personality still matter in e-commerce? How perceived hubris influences the assessment of founders’ trustworthiness using the example of reward-based crowdfunding

Reward-based crowdfunding broadens the scope of e-commerce transactions, as prototypical products are pre-sold under conditions of considerable uncertainty. To date, we know little about the mechanisms that underlie decisions to back reward-based crowdfunding campaigns. However, it is likely that startup founders’ possibility of showcasing their personalities in video pitches signals their trustworthiness, particularly, as other features, such as quality seals and customer testimonials, are often unavailable. We use signaling theory to reinforce the move from a feature-oriented perspective to a signaling perspective, as signals can transmit information about startup founders’ otherwise imperceptible qualities and abilities. Based on a survey (N = 108), we investigate how perceived hubris – proven to be particularly salient in startup contexts – influences the funding decision of potential backers. We find that abilities and legitimacy of a startup founder are rated positively when s/he is perceived as hubristic. These results have implications for crowdfunding campaigns and highlight the relevance of personality traits in electronic markets.

Crowdfunding for Design Innovation: Prediction Model With Critical Factors

Online reward-based crowdfunding campaigns have emerged as an innovative approach for validating demands, discovering early adopters, and seeking learning and feedback in the design processes of innovative products. However, crowdfunding campaigns for innovative products are faced with a high degree of uncertainty and suffer meager rates of success to fulfill their values for design. To guide designers and innovators for crowdfunding campaigns, this article presents a data-driven methodology to build a prediction model with critical factors for crowdfunding success, based on public online crowdfunding campaign data. Specifically, the methodology filters 26 candidate factors in the real-win-worth framework and identifies the critical ones via stepwise regression to predict the amount of crowdfunding. We demonstrate the methods via deriving prediction models and identifying essential factors from three-dimensional printer and smartwatch campaign data on Kickstarter and Indiegogo. The critical factors can guide campaign developments, and the prediction model may evaluate crowdfunding potential of innovations in contexts, to increase the chance of crowdfunding success of innovative products.

How to Engage the Crowds to Create Value? Evidence from the Pathfinder Arena Case

Reward-based crowdfunding has emerged in recent years as an interesting channel business that can leverage to obtain new financial resources outside the traditional ones. In this study, we explore how the creators of a reward-based crowdfunding campaign have engaged the crowd to create value and co-create knowledge to reduce both financial and market risks. Accordingly, we analyze the case study of the Kickstarter Campaign for Pathfinder Arena, a board game created by Giochi Uniti, an Italian Gaming Company. Through the lens of the social identity theory, we show that backers can generate the feedback processes needed to improve the product, when they want to belong in a community and when they want to interact with the creators. This research could have important implications for both researchers and future creators of reward-based crowdfunding projects, showing them the way to implement some instrument for involving the crowd to generate value.

Cues that Work: Designing the Optimal Restaurant Crowdfunding Campaign in the US

ABSTRACT This study explores how restaurant entrepreneurs incorporate various intrinsic and extrinsic cues into the design of reward-based crowdfunding campaigns to maximize their probability of success. This study aims to identify the optimal levels of each of these cues to guide entrepreneurs’ strategic behavior. Based on the cue utilization theory and the concept of optimal arousal, this study collected restaurant project data from Kickstarter. Linguistic Inquiry and Word Count (LIWC) was also used to quantify linguistic cues in the project title. Linear and quadratic terms of cues were included in the logistic regression model. An optimal campaign should have 13 pictures, 2 videos, a detailed but succinct description, and many rewards. The project title should have a neutral and conservative style instead of being extremely positive.

Effective entrepreneurial narrative design in reward crowdfunding campaigns for social ventures

One of the most important challenges for social venture entrepreneurs is acquiring resources. Reward crowdfunding is considered a suitable tool for meeting the financing needs of social ventures, whose backers are particularly interested in firm ideas and core values rather than in collaterals or business plans. A strategic factor that is able to influence the outcome of crowdfunding campaigns is the entrepreneurial narrative. Very few scholars have examined the key factors that support a crowdfunding campaign, particularly those on reward-based crowdfunding platforms, and the effects of entrepreneurial narratives on investors’ decisions. Aiming to fill this research gap, this paper investigates how entrepreneurs in the technology industry describe their social ventures and projects on Eppela, an Italian reward-based crowdfunding platform. Thematic analysis was applied to detect the five following key factors of effective entrepreneurial narratives in reward-based crowdfunding campaigns for social ventures: 1) problem/need; 2) project; 3) product; 4) team; and 5) venture. Each key factor includes specific subfactors. Lexical data analysis was then performed to identify the following expected effects of the examined entrepreneurial narratives on potential investors, leading these investors to understand, trust, and approve the project proposal, and thus, finance the social venture’s project: 1) reassurance, 2) reliability, and 3) credibility. Based on these results, this study proposes an explanatory model about how to design effective entrepreneurial narratives to be presented to contribute as much as possible to the success of projects in crowdfunding platforms.

Reward-based Crowdfunding in a Pandemic

How the COVID-19 pandemic has impacted entrepreneurship in America is a critical question. Despite the pandemic, entrepreneurs have been, and still are, looking to finance their ongoing, established businesses, as well as finance new ventures. Reward-based crowdfunding has filled an important gap in alternative finance since the 2008 financial crisis, and many are wondering if it can do the same for the current crisis. By examining 114,838 Kickstarter projects spanning more than a decade, including through the COVID-19 pandemic, this paper tries to answer the following questions: how has the COVID-19 pandemic impacted crowdfunding campaigns in America, and how have different product categories been affected? The analyses show that reward-based crowdfunding campaigns on Kickstarter have reached a global maximum in terms of success rates. Furthermore, the number of backers, the ratio of a campaign’s funds raised to its goal, and the average funds pledged per campaign, have also increased during the pandemic. Furthermore, some product categories have performed dramatically better than others. Each of these findings alone would contribute towards an increased understanding of the effects of the pandemic on crowdfunding; however, taken together, these results contribute substantially towards an understanding of the dynamics of crowdfunding with implications for academics as well as practitioners.

Reward-Based Crowdfunding Campaign Design on Factoring by Credit Tokens Transferred Among Multi-Tier Suppliers

Reward-Based Crowdfunding Campaign Design on Factoring by Credit Tokens Transferred Among Multi-Tier Suppliers

Pricing and observational learning in crowdfunding: The moderate effect of target

This paper studies pricing and observational learning in a reward-based crowdfunding campaign context. The creator sets a funding target and uses different pricing strategies in order to make the project successful: menu price and other static or dynamic price strategies, such as low price, high price, and intertemporal price. In a sequential game, the creator needs to choose the optimal pricing strategy with or without information disclosure. With information disclosure, the follower can infer the quality of the product by observing the former’s decision. We found that this observational learning effect is a double-edged sword and is positively moderated by the target when different pricing strategies are adopted: on one hand, it will benefit the creator from an intertemporal pricing strategy or high price strategy if the target is very high; on the other hand, it has an adverse effect on the profit if menu price (high price) is adopted when the target is relatively (very) low. In some conditions, menu price (high price) without information disclosure will be optimal when the target is relatively (very) low.

A qualitative investigation of factors influencing successful reward-based crowdfunding campaigns in the UK and China

ABSTRACT Crowdfunding is a means of accessing funding for a new project in exchange for equity, interest payments, or nonmonetary rewards that can be physical or digital. It is different from traditional funding in the sense that it relies on large numbers of people investing small sums of money, making it less risky for individual investors, rather than a large sum from a venture capitalist. We interviewed project founders in the United Kingdom and China and the similarities and differences between successful reward-model campaigns were analyzed. It was found that, while there are several similarities, there were some interesting differences. For example, Chinese founders hired click farmers to push their project up the rankings on the crowdfunding site, used certain colors that had cultural significance in their pitch, and a heavily discounted preorder was suggested as the best way of enticing a relatively risk-averse crowd. This article should help those project founders who are considering a crowdfunding campaign in either country to maximize their chances of success.