The wisdom of the crowd in funding: : Information heterogeneity and social networks of crowdfunder (original) (raw)
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The wisdom of the crowd in funding: information heterogeneity and social networks of crowdfunders
Small Business Economics, 2017
Crowdfunding has enabled large crowds to fund innovative projects. This type of funding might tap into the wisdom of crowds who were previously disconnected from the funding process. We distinguish between in-crowd and out-crowd funders (with and without ties to project creators) in order to test for heteroge-neity in their information use. Based on the analysis of a large-scale survey amongst project funders, this paper shows that in-crowd investors rely more on information about the project creator than out-crowd investors. Out-crowd investors do not seem to attach more importance to information about the project itself than in-crowd investors, except in the case of donation-based crowdfunding. For financial return crowdfunding, financial information becomes less important once a strong relationship with the project creator is established. Our study allows project creators to target information to specific audiences based on their relationship strength across different types of crowdfunding projects.
Technological Forecasting and Social Change
Crowdfunding is a diffused project finance practice for funding early-stage projects by directly involving a large number of people by means of remote interaction through ICT-enabled platforms. Based on the original collection of empirical evidence from 10,000 Kickstarter crowdfunding projects, this paper develops a conceptual framework to understand and estimate the key predictors of success or failure for these funding campaigns. The main focus is on developing and testing specific hypotheses about the role that crowdfunding platforms play in facilitating the activity of signalling to mitigate the negative consequences of asymmetric information both in terms of moral hazard and adverse selection. The developed hypotheses were separated into two main categories, depending on whether signalling originated from the creator of the crowdfunding campaign, or the network supporting the crowdfunding project. Moreover, by providing an original longitudinal database, this paper emphasises the path-dependent nature of crowdfunding processes that together with additional proxies capturing social capital, reputation, patience and ambition, allows a significantly improved understanding and predictability of success or failure of these projects.
The Dynamics of Crowdfunding: An Exploratory Study
Journal of Business Venturing, 2013
Crowdfunding allows founders of for-profit, artistic, and cultural ventures to fund their efforts by drawing on relatively small contributions from a relatively large number of individuals using the internet, without standard financial intermediaries. Drawing on a dataset of over 48,500 projects with combined funding over $237 M, this paper offers a description of the underlying dynamics of success and failure among crowdfunded ventures. It suggests that personal networks and underlying project quality are associated with the success of crowdfunding efforts, and that geography is related to both the type of projects proposed and successful fundraising. Finally, I find that the vast majority of founders seem to fulfill their obligations to funders, but that over 75% deliver products later than expected, with the degree of delay predicted by the level and amount of funding a project receives. These results offer insight into the emerging phenomenon of crowdfunding, and also shed light more generally on the ways that the actions of founders may affect their ability to receive entrepreneurial financing.
Resolving Information Asymmetric and Social Network Theories Challenges in Crowdfunding Campaigns
International Journal of Academic Research in Business and Social Sciences, 2021
Using Asymmetric Information and Social Networking theories the paper highlights the relevance of these two theories to crowdfunding. The study combines these theoretical perspectives with the practical aspects of startup companies raising finance using the crowd. The key concepts of these theories are critically considered and the study is conducted in the form of a review of the literature and expressing of opinion. Consequently, the experiential justification of the theories presented is not within the scope of this paper. The study is also limited generally to the field of crowdfunding as an alternate source of funding for start-up companies. We evaluate and discuss how lack of information between project initiators and backers can result in the project's inability to meet the project goal. We also consider how social network connection affects fundraising using the crowd. First, crowdfunding has some information difficulties because it involves the raising of funds using internet platforms. Second, the number of a founder's social network connections is associated positively with the capital raised from a project.
The product, the mind and the heart of crowdfunding: the effect of signals on technology projects
International Journal of Services and Standards, 2017
Signalling theory is useful for describing behaviour when two individuals or organisations have access to different information. The current research intends to explain how technology entrepreneurs can successfully utilise this theory to secure crowdfunding. Specifically, we predict that the innovativeness of a project, the skills, abilities, honesty and kindness of individual workers, can positively affect crowdfunding achievement. We also hypothesise and test that positive emotional characteristics in the workplace can strengthen the relationship between products usefulness and funding success. Data was collected from Kickstarter platform to test our theory. Our analyses show that specific individual skill (entrepreneurs' industry experience) negatively influences their funding success, but entrepreneur's personal characteristics (previous funding experience and frequent updates) are positively related to crowdfunding achievement. In addition, the level of education positively influences the relationship between innovation and funding success. Social factors dominate crowdfunding more than economic soundness. Crowdfunding can be used to fund innovative and traditional projects.
RESOLVING INFORMATION ASYMMETRY: SIGNALING, ENDORSEMENT, AND CROWDFUNDING SUCCESS
Entrepreneurship Theory and Practice
This paper draws on information economics to examine when signals and endorsements obtained from multiple information sources enhance or diminish one another’s effects. We propose that signals through startup actions (use of media) and characteristics (crowdfunding experience) can mitigate information asymmetry concerns about project quality and founder credibility, enhancing the project’s likelihood of attaining funding. Further, we posit that while startup-originated signals offset each other’s effects, third party endorsements (sentiment expressed in backer comments) validate and complement startup-originated signals. Empirical analyses based on a comprehensive dataset of crowdfunding projects on the Kickstarter website during 2009-2015 confirm our predictions.
Triadic Social Structure Facilitates Backing for Crowdfunding Projects
2018 IEEE International Conference on Big Data (Big Data), 2018
Crowdfunding is a new funding method through which founders request small amounts of funding from a large number of people through an online platform. Crowdfunding facilitates a new type of social capital and exhibits a unique form of social dynamics, thus attracting the interest of sociologists and other social scientists. Previous studies have focused on social relationships in crowdfunding such as direct reciprocity and consider how they contribute to the success of funding. The social structure of crowdfunding, however, involves more complex social relationships and it may contribute to the success of a new venture or project in many ways. In this study, we focus on a specific type of triadic social structure, the buddy relation, which can be described as a relationship through which project founder x, who previously backed another founder z's project, receives financial backing from the other backers of z's project. We found that the buddy relation occurs significantly more often than randomly, concluding that this structure facilitates the gathering of financial backing and may contribute to the success of a crowdfunded project.
Winning the crowd in online fundraising platforms: The roles of founder and project features q
ELSEVIER, 2017
Crowdfunding is regarded as a novel way of collecting money for innovators to introduce products or services they ultimately wish to launch. The question arises, however, of what makes funding projects on these online platforms, with their different features of project evaluation and risk management, more successful than traditional fundraising approaches. We examine this question in the context of a preordering model, which is also known as the reward-based crowdfunding model. A large-sample data analysis based on 116,956 crowdfunding projects on Kickstarter showed that most founder (i.e., identity disclosure and prior experience) and project (i.e., comments, updates, description elaborateness, and campaign duration) features have a positive effect on successful crowd fundraising. We also found a negative relationship between the funding goal amount and successful fundraising. Our findings may contribute not only to knowledge accumulation in crowdfunding research, but also to founders by offering evidence-based guidelines on the design of successful crowdfunding projects in an online fundraising platform.
Winning the crowd in online fundraising platforms: The roles of founder and project features
Electronic Commerce Research and Applications, 2017
Crowdfunding is regarded as a novel way of collecting money for innovators to introduce products or services they ultimately wish to launch. The question arises, however, of what makes funding projects on these online platforms, with their different features of project evaluation and risk management, more successful than traditional fundraising approaches. We examine this question in the context of a preordering model, which is also known as the reward-based crowdfunding model. A large-sample data analysis based on 116,956 crowdfunding projects on Kickstarter showed that most founder (i.e., identity disclosure and prior experience) and project (i.e., comments, updates, description elaborateness, and campaign duration) features have a positive effect on successful crowd fundraising. We also found a negative relationship between the funding goal amount and successful fundraising. Our findings may contribute not only to knowledge accumulation in crowdfunding research, but also to founders by offering evidence-based guidelines on the design of successful crowdfunding projects in an online fundraising platform.