Reward-based Crowdfunding Research Articles

Entrepreneurial e-equity crowdfunding platforms: antecedents of knowledge acquisition and innovation performance

PurposeThe crowdfunding concept and activities have recently been the focus of attention of many researchers and practitioners over different business contexts. However, there is a dearth of literature considering the main aspects of e-equity crowdfunding activities and their impact on the innovation performance for entrepreneurial business. Therefore, this study aims to explore how entrepreneurs' engagement in e-crowdfunding activities could enhance both knowledge acquisition and innovation performance.Design/methodology/approachThe conceptual model will be proposed based on three main theoretical perspectives: relationship marketing orientation (RMO); Kirzner's alertness theory; and the DeLone and McLean model of information systems. The data of the current study were collected using an online questionnaire from a sample of 500 entrepreneurs who have actively engaged in e-crowdfunding in Saudi Arabia.FindingsThe statistical results of structural equation modelling (SEM) approved the impacting role of RMO, entrepreneurial alertness, system quality and service quality on the entrepreneurs' engagement in e-equity crowdfunding, which in turn, predicts both knowledge acquisition and innovation performance.Research limitations/implicationsThere are several limitations which could be addressed in future studies, for example, this study has only considered one form of crowdfunding (equity based crowdfunding) and due to its nature these findings would not be easily generalized to other kinds of crowdfunding (i.e. donation-based crowdfunding; rewards-based crowdfunding; and debt-based crowdfunding). Future studies could consider these kinds of crowdfunding activities.Originality/valueThis study has contributed to the understanding of e-equity crowdfunding in several aspects. For example, this study presents results that assist both researchers and practitioners in the Middle East and Saudi Arabia to develop an in-depth knowledge of e-equity crowdfunding by considering new dimensions such as RMO and information system success factors.

Stretching the success in reward-based crowdfunding

The use of crowdfunding as a funding method has increased considerably over the last decade. However, competition for crowdfunding money is tough, and goal setting is critical for fund seekers. We investigate the impact of initially set stretch goals and the project creators' communication openness on project funding performance. Empirical results based on a large dataset from Kickstarter show that the stretch goals and higher levels of communication openness increase the likelihood of project funding success. Furthermore, communication openness positively moderates the relation between stretch goals and funding success. Moreover, projects with aggressive stretch goals are more likely to succeed if the goals are communicated well. The results provide practical implications for project creators to increase funding performance by communicating openly with the crowd.

Games of Norms: Why Category Switching Is Penalized in Crowdfunding Platforms

While strategic change is key to the effective adaptation of new organizations, it often breeds doubt and assessment by resource holders. This study explores this dynamic by studying how resource holders guided by a community logic respond to category switching, a critical change in a producer’s positioning. Using reward-based crowdfunding as an empirical context, we theorize that backers assess category-switching creators as less trustworthy and committed to the values, ideals, and advancement of a specific community than nonswitching creators, therefore reducing their funding and support. The extent of these penalties, however, may vary depending on the attributes of both creators and backers. We hypothesize that backers may reduce the severity of sanctions to category switchers who demonstrate trustworthiness and competence either by indicating past success or presenting a more typical identity. In contrast, we expect that experienced backers, who hold a stronger sense of belonging and identification, will penalize switchers more harshly than new audience members and be less lenient toward competent or typical creators. We test our hypotheses using an extensive longitudinal sample of 34,701 entrepreneurial projects in Kickstarter from 2009 to 2016 and find support for most of our hypotheses. We discuss implications for studying how change affects resource acquisition when resource holders are guided by a community logic and for research studying categorical nonconformity.

Formal Institutions and Relaunching in Crowdfunding: Novice vs Serial Entrepreneurs

The proliferation of international reward-based crowdfunding platforms as a popular source of financing for new ventures has spurred considerable research in recent years. Researchers have examined the individual and transaction-related factors that affect entrepreneurs’ use of crowdfunding platforms. However, they have paid limited attention to examining the effect of the country’s institutional factors on entrepreneurs’ reliance on these international platforms. They have also failed to differentiate between novice and serial entrepreneurs, ignoring the importance of experience in this regard. Using the institutional lens, we discuss the relationship between a country’s formal institutions and entrepreneurs’ campaign launching decisions on these platforms. We probe our research questions using a dataset of 177,499 Kickstarter campaigns launched by entrepreneurs located in the top 25 countries represented on the platform. We complement Kickstarter data with macro-level data from the World Banks’s Doing Business reports and World Development Indicators to perform our multi-level analyses. Our results show that novice entrepreneurs factor policies governing local credit conditions and resolving insolvency in their decision to finance their venture when using international crowdfunding platforms. However, the effect of local credit conditions no longer persists after developing a record of accomplishment on these platforms, becoming serial. As for laws protecting minority investors and resolving insolvency, its effects on the relaunching decision is amplified for serial entrepreneurs. Our findings offer insights into entrepreneurial finance and serial entrepreneurship, which is useful for designing and guiding public policies focused on promoting entrepreneurship.

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.

Gateway Signals and Shared Underlying Activities: Evidence From the Crowdfunding Context

Signals are effective at reducing information asymmetries largely because they are costly to obtain. Additionally, so long as they are not redundant, multiple signals are more effective at reducing asymmetries and capturing the attention of the intended receiver than single signals. However, the very property that makes signals effective also makes accumulating and sending many of them prohibitive to resource constrained organizations. This poses a particular challenge for new ventures, who must send multiple signals to cut through a noisy signaling environment, even with acute resource constraints. To begin to address how organizations can economize the accumulation of multiple costly signals, I introduce the concept of gateway signals (i.e., signals whose underlying acquisition costs are shared with other signals, reducing the costs to attain those other signals). Gateway signals facilitate the acquisition of further signals, and thus have indirect effects on outcomes via other signals. I empirically illustrate the gateway signal phenomenon by testing product development as a gateway signal that impacts fundraising outcomes both directly and indirectly via endorsement signals in the context of reward-based crowdfunding, using a sample of 1,394 Kickstarter campaigns. Implications for theory and practice are discussed.

Crowd Reactions to Entrepreneurial Failure in Rewards-Based Crowdfunding: A Psychological Contract Theory Perspective

Rewards-based crowdfunding (RBC) has recently gained popularity as an alternative means of finance to help entrepreneurs bring novel projects to life. We theorize that crowdfunding backers perceive an implicit psychological contract with campaign creators. When promised rewards fail to materialize post fundraising, backers may perceive entrepreneurs’ failure to deliver rewards as a violation of their psychological contract with him or her. Drawing on psychological contract theory and using Eisenhardt’s comparative case methodology, we generate insights about crowd reactions to creators’ failure to deliver rewards to backers. Our research generates the novel insight that in the event of delivery failure, backers who perceive a transactional psychological contract with creators are more likely to display negative emotional reactions, while backers who perceive a relational psychological contract are more likely to display positive emotional reactions. Furthermore, we identify three progressive stages of backers’ interaction with creators in failed RBC campaigns, ‘committing’, ‘crisis handling’, and ‘coping-up’ and highlight the crowds’ emotional valence associated with each stage. Our analyses of the campaign comments reveal insights of interest to RBC players and hold implications for the future development of crowdfunding.

Hotel resuscitation by reward-based crowdfunding: A critical review and moderated mediation model

This study endeavoured to investigate the impacts of motivation on financial contribution intention (FCI) for the hotel customers as well as electronic word-of-mouth (E-WOM) by the mediating roles of perceived risk and customers' trust, and the moderating effects of social consciousness and media coverage in the Middle East and North Africa (MENA) region. We also used a systematic review to deliver a comprehensive overview of crowdfunding in the tourism and hospitality context. Using a sample from a survey of 405 hotel customers in Egypt and Oman. The measurement invariance and multi-group analysis revealed that there is no variance in the measurement models for the different groups being considered. The results revealed that media coverage moderates the mediation of customers' trust between motivation and FCI. The study adopted an integrative framework drawing on the theory of planned behaviour (TPB), risk theory, and trust theory that will be of interest to both academics and practitioners.

Financing the cultural and creative industries through crowdfunding: the role of national cultural dimensions and policies

The trend towards digitalisation and technological innovation has reshaped the cultural and creative industries (CCIs) by changing the existing funding models and structures. The aim of this article is to explore the impact of cultural dimensions and policies on the adoption of reward-based crowdfunding as a new form of finance for firms in the CCIs in 12 different European countries during the 2015–2019 period. Our results show that national cultural dimensions and policies significantly affect the demand for cultural and creative crowdfunding. Specifically, the adoption of crowdfunding is broader in individualistic countries and in societies characterised by higher uncertainty avoidance, indulgence, short-term orientation, and lower levels of discrimination between genders. Furthermore, we find that the liberal welfare state model, characterised by limited government interference, market orientation, privatisation and a focus on self-responsibility, and the Southern European welfare model, based on a weak and inefficient state, increase the adoption of crowdfunding in the CCIs. The presence of a central ministry with cultural competence also increases the adoption of crowdfunding in the CCIs. Our findings show a U-shaped relationship between European grants and the demand for crowdfunding, mainly driven by a high or low European involvement within these sectors. We also identify a moderation effect of EU grants on the relationship between cultural dimensions and crowdfunding adoption, suggesting that the magnitude of this relationship depends on the amount of EU grants awarded in a specific country. As a robustness check, we run a set of Poisson regressions with correlated random effects (CREs), confirming our main results.

Crowdfunding and Marketing Performance of Microfinance Banks in Akwa Ibom State

Crowdfunding has developed from being just a fundraising tool to a versatile marketing tool. Raising funds through crowdfunding has become a vital tool for start-up companies and most recently in the Microfinance banks to obtain investments they otherwise might not receive from more traditional sources such as banks, angel investors and stock markets. This adoption of crowdfunding for marketing purposes is not without its problems. Organizations would be well advised to consider not only the opportunities these platforms provide, but also their limitations, risks and the best crowdfunding platforms that will fit into their marketing objectives. In this regard, this study was carried out in order to assess the relationship between crowdfunding and marketing performance of microfinance banks in Akwa Ibom State. The researcher adopted a survey research technique in the study. The population size 16 microfinance banks within Uyo metropolis of Akwa Ibom State and a sample size of 366 employees was studied. The crowdfunding variables (independent variables) considered in the study were Equity-based Crowdfunding, Reward-based Crowdfunding and Lending-based Crowdfunding. The dependent variable was Marketing Performance. The hypotheses stated were tested using Spearman Correlation Coefficient at a 5% level of significance. From the data analysis, the major findings revealed a positive and significant relationship between Equity-based Crowdfunding and marketing performance of microfinance banks in Akwa Ibom State, (R = 0.770; P<0.05). The study revealed Reward-based Crowdfunding has having a positive and significant relationship on marketing performance of microfinance banks in Akwa Ibom State, (R = 0.855; P<0.05). The study also revealed that there is a positive and significant relationship between Lending-based Crowdfunding and marketing performance of microfinance banks in Akwa Ibom State, (R = 0.805; P<0.05). From the findings, it was concluded that there was a positive and significant relationship between Crowdfunding and marketing performance of microfinance banks in Akwa Ibom State. In line with this, it was recommended that companies, start-up businesses and financial institutions should adopt various crowdfunding platforms in their businesses as one of the means of raising finance for the company in order to boost their marketing performance.

A study on the social and economic sustainability of rewards-based crowdfunding in Africa

A study on the social and economic sustainability of rewards-based crowdfunding in Africa

Funding decisions and the role of trust: a qualitative study of reward-based crowdfunding in the creative industries

PurposeThe purpose of this paper is to investigate funders' decisions in supporting reward-based crowdfunding (RBCF) in the creative industries by providing insights into the role of trust in the decision-making process of funders. In doing so, the authors examine how trust is developed through online interaction.Design/methodology/approachData were collected from interviews and participation at short-term immersive events and gatherings. In addition, data were gathered from online discussions and social media platforms related to RBCF campaign. Qualitative analysis was performed to offer a deeper understanding of funder decision-making processes.FindingsNew insights were revealed into funder decision-making processes. Using foraging practices, funders participating in RBCF campaigns build trust before framing their final funding judgments. The paper’s findings highlight the interplay of organizational competency with previously uncharted relational dimensions associated with funder decision-making processes. The authors also revealed how nascent and experienced funders differ in their evaluation of risk.Originality/valueThis study offers an understanding of funder decision-making processes in creative RBCF campaigns. Their support of RBCF campaigns in the creative industries can present some potential risks. Further investigation is still required to reveal the funder's decision-making process. By looking at the roles of trust, the authors provide a conceptualization of competence and the relational dimension of trust, and how trust is developed as a means for mitigating risk.

To buy or to back? Backers' motivations for fashion crowdfunding projects

PurposeAlthough fashion products feature a short lifespan owing to rapid changes in trends, fashion is one of the most active sectors in reward-based crowdfunding. This study aims to explore what drives backers to be involved in fashion projects despite the delay in obtaining rewards.Design/methodology/approachThis study used the mixed method approach by conducting a critical incident technique and two online surveys with 801 crowdfunding backers.FindingsEight dimensions of backers' motivations were identified: altruism, enjoyment, novelty, information, economic incentive, reward, recognition, and social relationship. The finding was validated by testing the relationship with external variables.Research limitations/implicationsThe findings provide the empirical foundation for studies on reward-based crowdfunding motivation and marketing strategy development appealing to backers' specific motivations. They highlight the importance of motivations in funding fashion projects and sharing information.Originality/valueThis study applies three motivational orientations and reflects the characteristics of product categories of rewards.

Developing an Islamic crowdfunding model: a new innovative mechanism to finance SMEs in the Middle East

PurposeThe purpose of this study is to investigate and discuss the viability of Islamic crowdfunding (ICF) as an alternative form of financing small and medium enterprises (SMEs) in the Middle Eastern and Islamic business environment. This study raised essential questions: what is the perception of ICF in the Middle East? Does the Middle East region really need an Islamic crowdfunding model to support SMEs? Is it possible to create a crowdfunding platform complaint with Sharia? What are the requirements for developing an Islamic crowdfunding model?Design/methodology/approachThe methodology followed to answer these questions is a qualitative research design depends on in-depth interviews, literature review, historical analysis and critical discussion. Data analysis was conducted using NVivo to analyze 25 in-depth interviews with Islamic scholars, Sharia board members and Islamic finance experts from different Middle East countries such as Saudi Arabia, Kuwait, Egypt, Iraq, UAE and Bahrain. In addition, more than 115 transcriptions, memos and research articles were used.FindingsThe study provides a new Islamic Sharīʿah-compliant crowdfunding model as the main outcome of this study. In addition, the content analysis revealed four main themes to be the essential pillars to develop the ICF model. These provisions of Islamic Sharia are: Project Idea (Halal) (28.5%), Funding Goal (36%), Return and Risk (14%) and Funding Commitments (21.5%). The findings also revealed that the four types of crowdfunding (reward-based crowdfunding, donation-based crowdfunding, loan-based crowdfunding and equity-based crowdfunding) are legal and supported by evidence from Quran and Sunnah.Originality/valueDespite the critical development in Islamic finance and the expanding number of young Muslims slanting digital Islamic services, empirical studies exploring this issue in the Middle East is still inadequate. Further, ICF has increased attention and there is an urgent need for financing new SMEs in the Middle East.

Who said what: Mining semantic features for success prediction in reward-based crowdfunding

• Novel semantic features for success prediction in reward-based crowdfunding. • Proposed features rooted in information asymmetry and herding behavior theories. • Informational comments and inclinational comments of different actor roles. • Empirical evaluation demonstrates the utility of the proposed framework. As the reward-based crowdfunding market is growing rapidly, it becomes increasingly important for stakeholders to effectively predict fundraising outcomes (i.e., success or failure). More and more participants share and discuss facts and opinions about projects by posting comments, which can influence investors’ funding decisions. Previous studies have mainly focused on quantity, sentiment, and linguistic features of comments, largely overlooking the value of semantic features, in predicting fundraising success. Rooted in information asymmetry and herding behavior theories, we posit that discovering semantic signals from comments and distinguishing actor roles may benefit fundraising success prediction. We propose a framework with novel latent semantic features of comments. Empirical evaluation using data from a prominent platform demonstrates the utility of the framework and reveals interesting patterns in the dynamic predictive effects of semantic features for different actor roles.

Signaling innovativeness in crowdfunding entrepreneurial narratives: the moderating roles of entrepreneurial passion and social endorsement

PurposeThe purpose of this study is to investigate the effects of the innovativeness-related language of crowdfunding pitches on funding outcomes under different boundary conditions specified by two context-relevant signals, entrepreneurial passion and social endorsement.Design/methodology/approachThis study develops six hypotheses about the focal impacts of innovativeness-related language (i.e. incremental and radical) and the moderating effects of entrepreneurial passion and social endorsement. The hypotheses are tested with a sample of 1,057 real projects collected from a typical platform with a computer-aided content analysis method.FindingsThis study finds that pitches containing more incremental innovativeness language can generate more funds and that those containing more radical innovativeness language can lead to less favorable funding outcomes. While incremental innovativeness language interacts with entrepreneurial passion language to positively affect funding outcomes, radical innovativeness language requires social endorsement to diminish its negative effect on funding outcomes.Research limitations/implicationsThis study demonstrates that the content of messages of entrepreneurial narratives does indeed drive funding success in the context of reward-based crowdfunding and confirms the relevance of the consumer perspective of reward-based crowdfunding by using a real dataset.Originality/valueThis work joins a number of entrepreneurial narrative studies investigating the impacts of the innovativeness-related language of pitches (issue-relevant content) and their interactions with informational signals (i.e. entrepreneurial passion and social endorsement) on funding outcomes in the context of reward-based crowdfunding.

An attractive proposition? Persuading retail consumers to prefer reward-based crowdfunding for owning upcoming technologies

Can ordinary consumers be persuaded to choose reward-based crowdfunding over retail purchase to own new technologies? To investigate, we developed a C2P (consumer-to-patron) Persuasion Model and tested it using mixed-factorial experimental design. Results showed positive influence of crowdfunding discounts on consumers’ likelihood to fund/refer which was negatively moderated by the expected waiting time to receive product. Affective cues helped with getting referrals but not donations. Technology attractiveness and price, along with consumers’ gender and risk-propensity had significant influences. Based on the findings, we recommend technopreneurs to consciously target ordinary consumers for funding, and e-commerce and crowdfunding platforms to form design synergies.

Regional social capital and moral hazard in crowdfunding

We contribute to institutional and social capital theory by developing a theoretical framework that suggests that informal and formal institutions are important in mitigating moral hazard in reward-based crowdfunding. We analyze a large sample of Kickstarter campaigns to test these predictions. We find a strong positive relationship between entrepreneurs' home-county social capital and their crowdfunding performance. A rule change that strengthens entrepreneurs' obligation to provide backers with the promised rewards is associated with a reduction in the effect of social capital, suggesting that formal institutions can substitute for informal ones and provides causal evidence of the effect of social capital.

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.

Implications of warm-glow effect and risk aversion in reward-based crowdfunding

Introducing a downside risk model, this paper examines the impacts of two conflicting behavioral factors, backer warm-glow effect and creator risk aversion, on the creator’s optimal decisions of selling price and financing target of an All-or-Nothing reward-based crowdfunding project. We find that a less risk-averse creator should choose a high-price high-financing-target strategy when backer warm-glow effect is strong, or vice versa. The creator should only target at backers who have high project valuation when there is a large variation among backer valuation, and should target at all potential backers when the variation is small. In addition, we also explore the impacts of backer risk aversion. We reveal that the creator can only select a low-price low-financing-target strategy when the overall backer risk-aversion is high. However, the creator is not restricted to the low-price low-financing-target strategy when the overall risk-aversion is low. Last, by formulating the problem as a Stackelberg game with the platform acting as the game leader and the creator as the follower, the platform’s optimal cultivation level is derived. We provide several insights and implications for future research and crowdfunding practice.