Abstract
The literature on crowdfunding, the practice of collecting money (fundraising) from a “crowd” of Internet users, has devoted the bulk of its attention to identifying the determinants of success of crowdfunding campaigns. Thanks to the support of the crowd, crowdfunding helps people to enact their projects and entrepreneurial ideas, being particularly important for those who have typically encountered problems accessing traditional sources of finance. Nevertheless, the benefits of crowdfunding are not just limited to raising money. In this chapter, we review the literature on this research and we highlight the main empirical results that have emerged on the topic. We describe the elements and characteristics of crowdfunding campaigns and we discuss how they relate to crowdfunding success. We show that the debate is still in its infancy with several areas in need of further investigation. In the conclusion, we call readers’ attention to some existing gaps.
Crowdfunding, the practice of collecting small amounts of money from the crowd of Internet users (Belleflamme et al., 2013), is gaining more and more resonance worldwide (The Economist, 2013). Although it is difficult to measure the real magnitude of the phenomenon, it is fair to say that it involves huge amounts of projects and capital. Only in 2014, technology projects raised a total of $139.8 million on Kickstarter, which corresponds to 13.7 percent of the total amount collected on the platform (Colombo et al., 2015a).
The term crowdfunding appeared for the first time in Wired Magazine in 2006 (Howe, 2006)1 and it relates to the earlier concepts of crowdsourcing (Afhua & Tucci, 2012) and microfinance (Robinson, 2001; Harrison, 2013). Thanks to the support of the crowd, crowdfunding helps people to enact their projects and entrepreneurial ideas (Beaulieu & Sarker, 2013), this being particularly important for those who have typically encountered problems accessing traditional sources of finance (e.g., Dushnitsky & Marom, 2013; Mollick & Robb, 2016). Nevertheless, the benefits of crowdfunding are not just limited to raising money. Indeed, in accordance with the essence of crowdsourcing, crowdfunders often provide valuable feedback and ideas that fundraisers (i.e., those who publish projects and collect money through crowdfunding) can exploit to develop further their projects and entrepreneurial ideas (e.g., Riedl, 2013; Colombo et al., 2015b; Skirnevskiy et al., 2017).
The large resonance of crowdfunding in the popular press has gone hand in hand with a growing scholarly research effort (Gerber & Hui, 2013), with many researchers from multiple fields investigating this novel phenomenon. Moreover, several panels on crowdfunding have been organized during important conferences at the Academy of Management or the Strategic Management Society, and dedicated special issues have been published by several journals (California Management Review, Entrepreneurship Theory and Practice, Venture Capital, etc.).
In particular, the growing literature on crowdfunding has devoted the bulk of its attention to identifying the determinants of success of crowdfunding campaigns2 (Short et al., 2017). Accordingly, for the sake of relevance, in this chapter, we review and systematize this literature strand. Specifically, our review offers a quick gateway to crowdfunding research for scholars who intend to enter this new and fascinating area, thus serving as a starting point for their future studies. Moreover, the review attempts to provide a summary useful to practitioners, who wish to learn more on what makes a successful campaign.
To ensure the comprehensiveness of the literature review, we conducted a systematic search in the main publication databases for the keyword “crowdfunding” in the title, abstract, and keywords of papers. First, we used the Scopus database (http://www.scopus.com) to collect all articles already published or in press in scientific journals as of March 2017. Second, we searched the SSRN (http://www.ssrn.com) and Google Scholar (http://www.scholar.com) databases to gather very recent contributions that have not yet appeared in press. The search process resulted in 702 articles. After a first screening of the abstracts (or papers when the abstract was absent), we reduced our sample to 179 relevant articles, considering only those which were in line with the aim of this review. As we explain in the following paragraph, we focus on a few specific models of crowdfunding, and consequently we excluded all papers that fall beyond these models.
We chose to organize the review as follows. In the next section (Crowdfunding: Its Features and Definitions), we provide a general overview of the crowdfunding phenomenon. First, we discuss its origins and main characteristics, presenting the diverse models of crowdfunding and the actors involved, and specifying the rationales behind selection of the models considered in the review. Moreover, we discuss the multifaceted nature of crowdfunding and the related definitions that exist of this phenomenon. We discuss alternative definitions and, more interestingly, we integrate these into a novel and more comprehensive definition.
In the subsequent section (Achieving Crowdfunding Success), we introduce the concept of success of a crowdfunding campaign. Specifically, we show that crowdfunding success has a multi-dimensional nature (Ahlers et al., 2015), being responsive to both monetary and non-monetary benefits (Dushnitsky & Marom, 2013; Gerber & Hui, 2013). We then define the entities involved in a crowdfunding campaign, distinguishing the project, the fundraiser, and the crowdfunders (i.e., those who finance fundraisers’ projects) and discuss how they relate to the probability of success, also considering the interaction among fundraisers and their crowdfunders. Then, we further describe the features of a crowdfunding projects like the project category (e.g., design, music, technology, etc.), the target capital, the duration, the rewards, and more generally the information provided by the fundraisers. We synthetize state-of-the-art findings about the impact of the choices regarding project features on the likelihood of campaign success. Following this, we move on to consider the characteristics of fundraisers and crowdfunders and examine the answers that current studies have provided to the following questions: Who are they? What are their individual characteristics? Why do they decide to post crowdfunding projects or to fund them? How do crowdfunders’ characteristics influence crowdfunding success? Then, we focus on contributions that have examined how interactions among the fundraisers and their crowdfunders affect the success of crowdfunding campaigns (e.g., Colombo et al., 2015b). Lastly, we draw conclusions and highlight avenues for future research.
In this paragraph, we summarize the main features of crowdfunding and clarify the terminology used in this literature and in this chapter. To this end, we discuss the multiple definitions of crowdfunding currently adopted by the literature and we integrate them to propose an updated and more general definition than those used before.
Crowdfunding is a novel phenomenon, which still lacks a widely accepted definition. Currently, many definitions coexist, which are often specific to the context of the study (Tomczak & Brem, 2013). Nevertheless, we believe that providing a general definition is fundamental for tracing the boundaries of a phenomenon, which is one of the crucial steps towards its analysis (von Krogh et al., 2012). For instance, financial studies conceive crowdfunding as a method of raising funds for projects by simultaneously addressing a large pool of potential investors (Tirdatov, 2014), while innovation scholars view this funding method as a new way to finance innovative projects and connect innovative ideas to the crowd of Internet users (Riedl, 2013). Of course, attempts have been made to bridge these different views. Among them, the most popular is the definition by Schwienbacher & Larralde (2010: 4), who describe crowdfunding as an open call, essentially through the Internet, for the provision of financial resources either in form of donation or in exchange for some form of reward and/or voting rights in order to support initiatives for specific purposes. This definition is an insightful starting point, however in our opinion it requires fine tuning to mirror the recent development of the literature. To this end, we describe crowdfunding and its characteristics with the purpose of proposing here an updated and comprehensive definition of the phenomenon.
In essence, crowdfunding is a combination of microfinance (Robinson, 2001) and crowdsourcing (Howe, 2006; Harrison, 2013). Akin to microfinance, crowdfunding entails the provision of relatively small amounts of money (Harrison, 2013) and helps people to acquire financial resources for their projects and entrepreneurial ideas (Beaulieu & Sarker, 2013). Like in microfinance, many of those who raise money with crowdfunding are those who would normally encounter difficulties in obtaining financial resources from banks and other traditional financial operators. Likewise, crowdfunding has elements that are typical of crowdsourcing. Similar to crowdsourcing, crowdfunding involves an open call through the Internet and necessitates the voluntary participation of a distributed network of individuals (Belleflamme et al., 2013). Similarities with crowdsourcing are however not limited to use of the Internet and to open participation. An important similarity is that crowdfunding facilitates the interaction with a crowd of potential future users and customers (Ordanini et al., 2011) and offers the opportunity of collecting feedback and suggestions from the crowd of the Internet users (Colombo et al., 2015b). These inputs favor the emergence of a collaborative design (Gerber & Hui, 2013) and, ultimately, the development of better products (Riedl, 2013), in ways that are common to other crowdsourcing initiatives (Afuah, 2018; Šundić & Leitner, 2018). What makes crowdfunding unique is the fact that Internet users provide both the capital necessary to enact ideas and entrepreneurial projects (Burkett, 2011) and the knowledge to improve the quality of these projects (Gerber & Hui, 2013). Hence, in outlining a definition of crowdfunding, it is important to remember that crowdfunding does not only relate to collecting money, but it also relates to collecting feedback and suggestions.
Furthermore, a comprehensive definition should not overlook that there are diverse participants in any crowdfunding campaign and that several crowdfunding models do exist.
Main participants in a crowdfunding campaign. The nascent literature on crowdfunding has evidenced three kinds of players: the fundraisers, the crowdfunders, and the managers of crowdfunding platforms. Fundraisers are those who propose the ideas and/or projects to be funded (Mollick, 2014). The crowdfunders are those who support the crowdfunding campaigns by providing financial backing to the fundraisers. Typically, crowdfunders are proactive and are a source of feedback and new ideas in addition to financial resources. It is worth observing that many individuals operate both as fundraisers and crowdfunders of different projects (Hardy, 2013) and that there are even self-ruled open calls for successful fundraisers to become active sponsors of other crowdfunders (e.g., the “Kicking it Forward” initiative).3 Finally, the crowdfunding platforms are intermediaries that work to enable transactions between the fundraisers and the crowdfunders. These intermediaries own and manage the websites, serve as matchmakers, and earn a fee or share on the transactions (Burkett, 2011; Koch & Cheng, 2016). The platforms manage the search engines, check the legal requirements, provide online payment mechanisms, and, in some cases, perform an initial screening aimed at filtering out low quality projects (Löher, 2017). In so doing, crowdfunding platforms reduce search costs (Agrawal et al., 2014) and coordination costs (Crosetto & Regner, 2014) between the fundraiser and the crowdfunders, lowering the potential for opportunistic behaviors (Löher, 2017).
As a result of the low entry costs, the number of platforms in operation has seen dramatic growth over time, although different countries have different growth rates (Dushnitsky et al., 2016). At the end of 2016, about 500 platforms were estimated to be operating worldwide (Ramos & González, 2016).
Crowdfunding models. Since 2012, several scholars have proposed taxonomies of crowdfunding models. A popular classification (e.g., Griffin, 2012; Lehner, 2012; Mitra, 2012; Ahlers et al., 2015) revolves around what crowdfunders receive in exchange for their contributions. Following this classification, crowdfunding models are generally broken down into four types: donation-based, reward-based, equity-based, and lending-based. Belleflamme et al. (2014) have compared these diverse crowdfunding models and found that fundraisers prefer to opt for a reward-based campaign when the capital requirement is small in comparison with the market size, otherwise, fundraisers would choose an equity-based crowdfunding model. Selecting equity-based crowdfunding is highly recommended when fundraisers are highly interested in receiving feedback from the crowd (Miglo, 2016); moreover, Cholakova & Clarysse (2015) find that only the financial motives related to equity crowdfunding play a role for individuals.
Let us focus in greater depth on these models. The donation-based model entails no remuneration in exchange for the money pledged by the crowdfunders. On the contrary, in other models of crowdfunding the crowdfunders receive a specific return. In the reward-based model, crowdfunders pledge money in exchange for a product, a gadget, or a service chosen from a list. Sometimes the reward is merely symbolic (e.g., “a grateful thank you from the proponent”), such that the distinction between reward and donation-based crowdfunding can often be blurred. In other cases, the reward involves the pre-purchase of a product or a service. Reward-based crowdfunding is gaining increasing popularity among fundraisers, who typically use it to finance projects in the cultural and creative fields (Kuppuswamy & Bayus, 2017). A third model is equity-based crowdfunding, where crowdfunders provide money in exchange for a share of the risk capital of a firm. In this case, they acquire ownership and voting rights, with the intention of participating in the distribution of future profits. This crowdfunding model is highly regulated due to a risk profile and liabilities typical of other seed financing activities, such as business angeling, venture capital, and IPOs (Lasrado & Lugmayr, 2013). The public offering of equity shares on the Internet further exacerbates these liabilities.
In peer-to-peer-lending, the fundraisers seek to borrow certain amounts of money from the crowd in the form of loans, at the cost of an interest rate. The interest rate is flexible and typically regulated by an algorithm that lowers the interest rate when more lenders place bids. Some scholars consider peer-to-peer lending as a crowdfunding model, while other scholars view it as a partially different model.
In respect of this taxonomy, it is worth highlighting that in this review, we consider only papers focusing on donation, reward, and equity crowdfunding. Here, we exclude contributions referring to the lending model because it differs from the other crowdfunding models in several respects. First, lending-based crowdfunding entails a limited interaction with the crowd and thus it generates limited advantages in terms of collection of feedback and suggestions ascribable to the phenomenon of crowdsourcing, which is the core of this book. Second, microcredit lending has existed for a long time offline, and its coupling with Internet media has not qualitatively altered its essence, such that peer-to-peer lending can arguably be considered the online version of a pre-existing funding mechanism, rather than a new funding channel. For these reasons, contributions on lending-based crowdfunding strongly relate to the partly separated literature of microcredit, and share limited analogies with the emerging crowdfunding literature, which largely focuses on donation, reward, and equity crowdfunding.
Other (less known) taxonomies do not consider the reward type and rather propose alternative criteria of classification. These are the timing of the campaign with respect to the state of the project (Kappel, 2008), the money collection scheme implemented in the platform (Cumming & Johan, 2013), and the presence or absence of an intermediary that facilitates the matching between the parties of the transaction (Kaufman et al., 2013). The first taxonomy distinguishes between ex-ante crowdfunding, when the campaign precedes the starting of the project, and ex-post crowdfunding, when the campaign takes place only once the project has been realized. The second taxonomy distinguishes between all or nothing, in which the fundraisers receive the funds only if they reach the threshold set at the launch of the crowdfunding campaign, and keep it all; where the fundraisers can retain money only when at least the target amount was collected at the day of closure. A study by Wash & Solomon (2011) provided evidence that the all or nothing scheme helps fundraisers to collect money for risky projects and allows collection of a greater amount of capital compared to the keep it all. Finally, scholars differentiate indirect crowdfunding, which involves a third party that works as intermediary between fundraiser and crowdfunders, and direct crowdfunding. However, to date, indirect crowdfunding, intermediated by a crowdfunding platform active on the web, represents the standard and overwhelming majority of the market, making this taxonomy of relatively little use.4
This brief survey has highlighted three aspects that a comprehensive definition of crowdfunding should include: the provision of feedbacks from crowdfunders, the crucial role of crowdfunding platforms, and the existence of several crowdfunding models. Accordingly, we propose the following definition that we consider appropriate to grasp the recent evolution of crowdfunding:
Crowdfunding is the act of collecting monetary contributions together with feedback and suggestions from a crowd of contributors (in the form either of donation or in exchange for some forms of reward) through an open call on enabling web platforms.
A fundraiser can achieve several benefits by running a crowdfunding campaign. As previously mentioned, the first and most straightforward one is raising money needed to support a project or an entrepreneurial idea (e.g., Gerber & Hui, 2013; Mollick, 2014; Mollick & Kuppuswamy, 2014). However, looking closer, several non-monetary benefits exist and these are often the primary motive for engaging in crowdfunding (Dushnitsky & Marom, 2013; Gerber & Hui, 2013). Specifically, the main non-monetary benefit of crowdfunding for a fundraiser consists in accessing quickly and without intermediaries a source of customers who are often willing and ready to experiment with new products. Very much in line with the users’ innovation and crowdsourcing literature (West & Sims, 2018), crowdfunding allows a fundraiser to develop a virtual community of followers (Butticè et al., 2017), which provides a valuable source of information for those who are in the process of testing and improving early versions of innovative products. This holds true for both reward-based and donation-based campaigns (Dushnitsky & Marom, 2013; Hui et al., 2014) and for equity-based campaigns (Agrawal et al., 2014; Di Pietro et al., 2017). Users typically highlight defects, suggest product improvements, and provide feedback that reduce the development time and costs and eventually take the product to a higher quality level, thus making it ready for the mass market. In reward-based crowdfunding, sometimes fundraisers even ask the crowdfunders to participate in the development of products/services after the end of the campaign, but before actual product shipment, eventually becoming co-creators of the product. Even when the involvement of the customer base is minimal, the campaign proves useful as a means of marketing (Belleflamme et al., 2013; Gerber & Hui, 2013), and to test customers’ willingness to pay (Belleflamme et al., 2013, 2014). In equity-based crowdfunding, it has been proved that fundraisers can use campaigns to gain information about the size of the potential demand (Agrawal et al., 2014) and that crowdfunders can occasionally become involved in the management of the firm (Di Pietro et al., 2017), but this does not appear to be the norm. Collectively, a successful crowdfunding campaign can serve as a means to help start-ups and entrepreneurs to achieve legitimacy (Frydrych et al., 2014), learn about the market, and improve the attractiveness in the eyes of other potential funders, like venture capitalists or business angels.
In terms of measuring crowdfunding success, one main metric is meeting the target amount within the project duration, i.e., raising at least the amount of money stated as the campaign goal within the time span of the campaign (Colombo et al., 2015b). However, this definition of success applies only to all or nothing campaigns. As these campaigns have a clear-cut definition of success, scholars have devoted to them the bulk of their research effort. Virtually all of the empirical papers studying the determinants of crowdfunding success included in this review adopt a notion of success based on meeting the target amount (e.g., Boeuf et al., 2014; Agrawal et al., 2015). To the best of our knowledge, only a few scholars make a step forward to consider other dimensions of success. These include (i) the total amount of capital raised (e.g., Belleflamme et al., 2013; Colombo et al., 2015b), (ii) the total number of crowdfunders (e.g., Colombo et al., 2015b), and (iii) the speed of investments (specifically the equity-based study by Ahlers et al., 2015). Nonetheless, these metrics would be incapable of measuring success in terms of the feedback and overall legitimacy that a campaign might bring. Consequently, we encourage scholars to identify measures of success capable of representing non-monetary benefits. Based on the nature of existing studies, in the remainder of this paragraph, we review these studies referring to the basic definition of success: reaching the target capital.
It is worth stressing that, so far, few studies have looked at equity-based crowdfunding. Those that did5 produced results consistent with the literature on donation- and reward-based crowdfunding. For these reasons in the remainder of the chapter, we refer directly to the literature on donation- and reward-based crowdfunding and highlight, whenever available, whether the results would also extend to equity-based crowdfunding.
Crowdfunding campaigns encompass several features. In this following, we introduce five main features, which have been shown to correlate with campaign success: (i) typology of project content, (ii) target capital, (iii) duration of the campaign, (iv) rewards (when present), and (v) information made available.
In terms of project content, crowdfunding spans a large number of categories and sectors. A significant number of projects are aimed at developing a product with a technological core (Colombo et al., 2015a; Mollick, 2016). Among these projects, the chances of being funded appears to depend in part on the type of innovation that is being developed (Chan & Parhankangas, 2017). Projects aimed at developing incremental innovations usually have favorable funding outcomes, possibly because their content is more directly understandable by the average crowdfunder. By contrast, projects that feature radical innovations have less favorable funding outcomes, possibly because they are riskier or because their content is more difficult to communicate to the crowd. Aside from technological projects, many projects have an orientation to sustainability. Calic & Mosakowski (2016) found that these projects have a higher chance of receiving funds. Finally, many crowdfunding campaigns aim at supporting artistic works (Galuszka & Bystrov, 2014), like for instance theatre (Beaulieu & Sarker, 2013; Bœuf et al., 2014; Josefy et al., 2017), dance, photography, movies (including documentary movies, Sørensen, 2012), and videogames. Other projects are about design (e.g., Beaulieu & Sarker, 2013), fashion and crafts, agriculture (Liao et al., 2015), food, and journalism (Jian & Usher, 2014; Jian & Shin, 2015). At the same time, many donation-based crowdfunding projects aim at covering personal medical expenses (Sisler, 2012) or at financing scientific research (Marshall, 2013; Marlett, 2015). An important criterion of distinction that has proved useful is whether the project is non-profit versus for profit, the former being found more likely to succeed than the latter (Pitschner & Pitschner-Finn, 2014; Liao et al., 2015).
Two further features of the campaign are the target capital and the duration, which consists in the time span over which the project is open for money collection. Scholars unanimously consider the setting of the right target capital as a crucial determinant of the success of the campaign. Indeed, consistent evidence exists that the target capital has a negative impact on a project’s success, namely, the higher the target capital, the lower the probability of success (see e.g., Gleasure & Feller, 2014; Mollick, 2014; Zheng et al., 2014; Colombo et al., 2015b; Liao et al., 2015 among others). More specifically, the target capital influences the number of crowdfunders and the amount of money that these would pledge. Colombo et al. (2015b) have noted that crowdfunders increase with the target capital, but they provide smaller amounts of money. In addition, Frydrych et al. (2014) find that projects with higher target capital experience great difficulty in achieving legitimacy and their fundraisers have to make more effort to obtain funds. If we shift our attention to duration, we notice that scholars have come to opposite findings. Namely, Frydrych et al. (2014) and Mollick (2014) have found a negative relation between duration and the probability of success, while Liao et al. (2015) affirm that longer campaigns favor achievement of the target capital. This difference in results may depend on the country of analysis: United States for Frydrych and colleagues (2014) and for Mollick (2014), China for Liao and colleagues (2015). As confirmation of this, when comparing Chinese and United States contexts, Zheng et al. (2014) find a positive relation between duration and success in China, and a negative relation in the USA.
Rewards are another important feature of crowdfunding campaigns when they allow crowdfunders to choose from a menu of alternative rewards. According to prior empirical works (Gerber & Hui, 2013; Boeuf et al, 2014), the number and types of rewards seems to influence the success of a campaign. Bœuf and colleagues (2014) distinguish between two types of reward: symbolic rewards and material rewards. The former consist in acknowledging the crowdfunders for the support received. Acknowledgment can be given privately, for instance in the form of a thank-you email, or publicly, for instance by listing the crowdfunder’s name on a website or in the credits of a movie (Butticè & Colombo, 2017). The latter consist in gadgets and gifts, or in a product, which is often the outcome of the project for which funding is sought. Thürridl & Kamleitner (2016) recognize that projects aimed at financing social causes tend to offer symbolic rewards. By comparison, projects aimed at financing market products offer mainly material rewards (e.g., a product). Concerning the degree to which these two kinds of rewards could be a substitute for one another, Bœuf and colleagues (2014) find that the use of symbolic rewards in crowdfunding campaigns intended to finance theatre plays is valuable only in the case where the fundraiser offers no other material reward.
A fifth important feature for the success of a crowdfunding campaign consists in the amount and quality of the information made available by the fundraiser to potential crowdfunders. Several contributions have documented empirically that the amount and quality of information provided by fundraisers have a positive correlation with the probability of success (Gleasure & Feller, 2014; Burtch et al., 2015). For example, the odds of success are higher when fundraisers include links to external webpages and resources (Colombo et al., 2015b; Butticè et al., 2017), and provide frequent project updates throughout the duration of the campaign (Gleasure & Feller, 2014; Xu et al., 2014). These results hold also for equity-based campaigns (Block et al., 2016; Beckwith, 2016). Another strong predictor of success is the provision of videos (Mollick, 2014; Zvilichosky et al., 2015) and images in the project description (Colombo et al., 2015b). Dushnitsky & Marom (2013) note that effective videos tend to be short, smart, and targeted to potential crowdfunders and their motivations. Parhankangas & Renko (2017) show that using a simple and easily understandable language in the videos that pitch campaigns increases the probability of success for projects intended to support social causes, while this positive effect of videos tends to disappear in for-profit projects. The probability of success increases also when displaying the contributions already received (Colombo et al., 2015b). Finally, having comments posted in the project page correlates positively with crowdfunding success, but in this case the relation becomes negative if the number of comments becomes too large (Gleasure & Feller, 2014). To sum up, as noted by Ahlers and colleagues (2015), the positive relation between providing information and the probability of success depends on the reduction of information asymmetries between the fundraiser and the crowdfunders allowed by the disclosure of information. However, quite interestingly, the information provided might have drawbacks. For instance, an overly long text (Xu et al., 2014) and the existence of spelling errors relate negatively to success (Mollick, 2014). Finally, several recent studies also focus on linguistic cues as a factor that can potentially influence success, given the importance of the so-called entrepreneurial narrative in the judgement formation of the crowdfunders (Kim et al., 2016). Manning & Bejarano (2017) maintain that there are two basic narrative styles, which they call “ongoing journeys” and “results-in-progress,” and that successful project pitches often combine both these styles. The “ongoing journey” style centers around a long-term bold vision. The “results-in-progress” style is anchored to the present reality and describes the technological merit of the project. Mitra & Gilbert (2014) focus on a different textual characteristic and highlight the importance of language as a means to persuade and to generate a sense of reciprocity in crowdfunding projects. In this respect, Tirdatov (2014) identifies twenty-one categories of rhetorical appeals frequently reported in successful projects. These rhetorical appeals are ascribable to the three Aristoteles’ means of persuasion: ethos (i.e., the way to achieve credibility), pathos (i.e., the way to produce emotions in the audience), and logos (i.e., logical arguments to support the claims).
Fundraisers have a key role in crowdfunding, being those who give rise to crowdfunding campaigns. In the following, we review the studies that have analyzed fundraisers’ motivations and characteristics, highlighting how these affect the success of crowdfunding campaigns.
The literature has discussed several reasons for using crowdfunding instead of traditional ways of funding. First, fundraisers see crowdfunding as a way of overcoming difficulties in accessing traditional sources of financing. Crowdfunding is indeed an (apparently) easy, safe, and well-organized way to raise money and thus it is extremely valuable for those who are not able to obtain funds from banks, venture capitalists, or business angels (Gerber & Hui, 2013; Kim & Hann, 2014; Mollick, 2014; Mollick & Kuppuswamy, 2014; Fleming & Sorenson, 2016). Through crowdfunding, fundraisers can reduce the cost of capital (Agrawal et al., 2016) since they can search for finance on a global scale, sell on the crowdfunding platform products for which traditional markets are difficult to penetrate, and provide a greater amount of information to crowdfunders, thus increasing their willingness to pay (Agrawal et al., 2015). Moreover, with crowdfunding, fundraisers can maintain control over their product (Gerber & Hui, 2013) and simultaneously show to the traditional financial operators that there is demand for their products (Hornuf & Schwienbacher, 2014; Mollick, 2014; Colombo & Shafi, 2016). Second, crowdfunding is a way of sharing creative ideas (Kuo & Gerber, 2012) and obtaining feedback about products from the crowd of users of the Internet (Dushnitsky & Marom, 2013). Third, crowdfunding is particularly valuable for marketing purposes (Mollick, 2014; Mollick & Kuppuswamy, 2014). It allows access to public attention (Lambert & Schwienbacher, 2010; Gerber & Hui, 2013; Belleflame et al., 2014) and increases awareness around the project. Through crowdfunding, fundraisers can obtain approval for themselves and their work (see again Gerber & Hui, 2013). They can learn new communication skills, get in contact with other people, establish long-term interactions (Kuo & Gerber, 2012; Gerber & Hui, 2013), and enlarge their personal, business network (Schwienbacher & Larralde, 2010) and their fan base (Gerber & Hui, 2013). However, in spite of all the aforementioned advantages, crowdfunding has some disadvantages, which may reduce fundraisers’ willingness to resort to its use. For instance, fundraisers may fear public failure, or an inability to attract enough crowdfunders, and they may be scared by the time and effort required to attract a large crowd (Gerber & Hui, 2013). Even when they succeed in attracting this large crowd, fundraisers face high costs in managing their numerous crowdfunders, who (usually) provide only small amounts of money (Gerber & Hui, 2013).
Apart from studying their motivation, the literature has also devoted attention to the different kinds of fundraisers, noting that they may be individuals, teams, or organizations. Many fundraisers describe themselves as would-be entrepreneurs, aiming to collect funds to develop their business ideas (Jian & Shin, 2015), startups (Meer, 2014), corporations (Dushnitsky & Marom, 2013), charitable organizations (Meer, 2014), or other non-profit entities. Various studies exist on the diverse types of fundraisers, analyzing whether and how they have different likelihoods of success. Specifically, scholars have mainly investigated three features: the profit versus non-profit organizations, fundraiser gender (male versus female), and the role of fundraisers’ social capital (Kim & Hann, 2014; Mollick, 2014).
Profit versus non-profit. In line with what has been highlighted previously, non-profit organizations usually tend to be more successful than for-profit ones (Belleflamme et al., 2013, 2014; Pitschner & Pitschner-Finn, 2014; Liao et al., 2015). One possible explanation is that non-profit organizations and projects are of broader interest or could potentially affect a larger share of society (Marshall, 2013; Belleflame et al., 2014). Another possible explanation is that non-profit organizations are usually more oriented towards the quality of their project, rather than purely on the collection of money. In so doing, they can attract a large share of crowdfunders who are not primarily motivated by monetary rewards, but by the social impact of the project (Belleflamme et al., 2014). However, in spite of achieving the target more easily, on average, non-profit projects appear to attract comparatively fewer crowdfunders and a lower amount of capital, compared with for-profit projects (Pitschner & Pitschner-Finn, 2014).
Male versus female. A growing stream of research has investigated gender issues in the crowdfunding realm. The topic is especially relevant in light of the known difficulties that women experience in raising finance through traditional sources (Kuppuswamy & Mollick, 2015; Greenberg & Mollick, 2017). Overall, studies on crowdfunding support the view that the gender of fundraisers matters in determining the outcome of a crowdfunding campaign (Frydrych et al., 2014; Kuppuswamy & Mollick, 2015; Greenberg & Mollick, 2017). Specifically, individual female fundraisers have higher success rates than their male counterparts (Frydrych et al., 2014; Colombo et al., 2015b; Greenberg & Mollick, 2017). Further works have looked at cases in which a team with or without women proposes a crowdfunding project (e.g., Greenberg & Mollick, 2017). It emerges that projects with at least one woman in the team of fundraisers perform better than projects proposed only by men. Specifically, the former have higher success rates and attract more female crowdfunders, especially in the case of technological projects (Greenberg & Mollick, 2017). The authors explain this result using what they term activist choice homophily. In areas where women are under-represented (e.g. technology), female crowdfunders would have a strong tendency to fund the few projects led by female fundraisers, making females comparatively more successful. This dynamic seems to exist also in equity crowdfunding (Vismara et al., 2016). However, scholars also notice that women are on average less likely to start and fund projects than men (Kuppuswamy & Mollick, 2015), and attribute this to lower confidence and hubris of women compared with men. These characteristics would contribute to reducing women’s overall entrepreneurial activity. Specifically, low confidence prevents women from pursuing low-quality opportunities, while low hubris leads women to pursue fewer high-quality opportunities. Moreover, women are less likely than men to be serial fundraisers and rarely launch more than one campaign, irrespective of whether or not their prior campaigns were successful. These gender-associated differences hold consistently across different studies. The only exception is work by Radford (2016), which shows that in donation-based crowdfunding women are penalized when they have male-stereotypical job roles (e.g. college professors).
Fundraisers’ social capital. A well-established stylized fact in the crowdfunding literature is that social capital, i.e. networks, norms and social trust that facilitate coordination and cooperation for mutual benefit (Putnam, 1995: 1), helps fundraisers to achieve success (Mollick, 2014; Zheng et al., 2014; Colombo et al., 2015b; Butticè et al., 2017). Contributions to this stream of research have looked at several different notions of social capital. Butticè and colleagues (2017) focus on social capital that accrues to serial crowdfunders from past campaigns and show that this social capital helps fundraisers to achieve funding, but the effect is short-lived and disappears quickly. By contrast, Colombo et al. (2015b) and Liao et al. (2015) distinguish between external and internal social capital, depending on whether the fundraisers have developed social capital outside or within the crowdfunding platform. Liao et al. (2015) find positive effects on success for both types of social capital, with the type of project moderating both of these effects. Conversely, Colombo et al. (2015b) do not find any direct effect from external social capital and show that higher internal social capital allows more crowdfunders to be obtained in the early stages of the campaign, which in turn is a strong predictor of success. These results are consistent in the literature on equity-based crowdfunding (Vismara, 2016b), the only exception being work by Ahlers et al. (2015) which shows that social capital has little or no impact on crowdfunding success.
Recent studies have turned their attention to a broader set of variables. A few new studies look at fundraisers’ prior history (Polzin et al., 2017) and show that having prior experience within the crowdfunding platform (Butticè et al., 2017; Skirnevskiy et al., 2017) and in the entrepreneurial ecosystem (Courtney et al., 2017; Ralcheva & Roosenboom, 2017) eases the way to collection of funding. Two studies focus on the personality traits of fundraisers and how these relate to the odds of success. They find that success is more likely when the fundraiser shows openness (Thies et al., 2016) and conscientiousness (Bernardino & Santos, 2016). One study looks at fundraisers’ race/ethnicity and points to a disadvantage for African-American fundraisers (Younkin & Kuppuswamy, 2017). Another study looked at the location of fundraisers in the USA and found that these reside also in locations that have traditionally being deserted by professional investors such as venture capitals (Sorenson et al., 2016).
Crowdfunders are the engine behind crowdfunding campaigns and are a critical element of crowdfunding during and after the collection of financial resources (Hardy, 2013). However, only a few studies have examined crowdfunders and their relation with project success.
We have stressed before that the crowdfunder’s role goes beyond the offering of financial contributions and extends to the provision of ideas (Gambardella, 2012) and feedback (Martin, 2012). In many cases, crowdfunders offer the initial customers’ base to the fundraisers for testing completely new products (Ordanini et al., 2011), and sometimes they contribute to product design by becoming real co-developers (Gerber & Hui, 2013). In addition, those crowdfunders that back a project in the early days of a campaign work as predictors that reduce uncertainty (Burtch et al., 2013) and facilitate the attraction of further contributions (Colombo et al., 2015b). This effect depends on three different mechanisms: observational learning, word-of-mouth, and uncertainty reduction through extensive feedback. Observational learning occurs when the crowdfunders are unclear about the quality of a project and take the observation of large support from others as a signal of confidence in the quality of the project (Mohammadi & Shafi, 2015). Second, early crowdfunders trigger information cascades that generate word-of-mouth (Colombo et al., 2015b; Hornuf & Neuenkirch, 2016; Vismara, 2016a) around the project thanks also to social networks (Mollick, 2014). Finally, early contributions make immediately available suggestions and feedback that fundraisers use to modify their projects and meet the needs of a broader audience (Colombo et al., 2015b). These three mechanisms concur to explain why early crowdfunders are of crucial importance (Ordanini et al., 2011), and several studies have noted that they are closely associated with the overall success of a crowdfunding campaign. In this regard, Colombo et al. (2015b) document that, in the context of reward-based crowdfunding, contributions collected in the early days of a campaign have a strong positive effect on the probability of reaching the target capital. Vismara (2016a, b) obtains a similar result using data on equity-based crowdfunding. In addition, scholars in computer sciences have investigated the role of early crowdfunders on project success, finding results consistent with the managerial literature. Rao and colleagues (2014) build a metric based on the contributions collected in the first five days of the campaign and show that this correctly predicts 84% of successful campaigns. Similarly, Etter et al. (2013) propose a method for predicting the success of reward-based crowdfunding campaigns by utilizing the initial 15% of money inflows raised.
Researchers who have investigated patterns of contributions over the entire duration of crowdfunding campaigns typically report the existence of three distinct phases (Ordanini et al., 2011; Walsh, 2014; Kuppuswamy & Bayus, 2017). In the first phase, there is a quick and significant flow of contributions from crowdfunders, who often have kinship and friendship relationships with the fundraiser (Agrawal et al., 2015). In the same phase, additional support may come from other fundraisers from the same platform, drawn by feelings of reciprocity (Colombo et al., 2015b). In the second phase of the process, there are often fewer contributions and slow progress (Ordanini et al., 2011; Kuppuswamy & Bayus, 2015). This is a critical phase and only a minority of projects are able to avoid being stuck at this point (Ordanini et al., 2011). Those that succeed eventually enter the third and final phase, where there may be a rapid growth of contributions and the target is reached (Ordanini et al., 2011; Crosetto & Regner, 2014; Kuppuswamy & Bayus, 2017).
The emerging literature on crowdfunding calls for more research on the motivations that drive crowdfunders to support a campaign. At present, scholars have singled out five main possible motivations: economic rewards, philanthropy, sense of community belonging, social recognition, and formalization of contracts. These motivations seem to drive participation in both reward- (Gerber & Hui, 2013) and equity-based crowdfunding (Agrawal et al., 2014) but, to the best of our knowledge, no study has yet quantified their relative importance. In the following, we discuss the five motivations in detail.
Economic rewards. The first and possibly most obvious motivation for participating in a crowdfunding campaign is the desire to obtain an economic return. This motivation is relevant in the reward-based model, where crowdfunders obtain rewards in exchange for their contributions, and in equity-based, where crowdfunders become shareholders of the company (Ordanini et al., 2011).
Philanthropy. Many studies of online communities, such as those on the Open Source community (see von Krogh et al., 2012, for a comprehensive discussion), have reported that individuals contribute because of altruism and a desire to help others. It seems likewise plausible that altruism and philanthropy would play a role in crowdfunding, especially for projects supporting social causes and for donation-based crowdfunding (Agrawal et al., 2014). Philanthropy has thus an intrinsic nature (Deci, 1980) and has much in common with the psychological factors that influence decisions on charitable giving (Agrawal et al., 2014). Interviews with crowdfunders indicate that they report feelings of satisfaction and pleasure from the realization of the projects they have supported (Hemer, 2011), especially when they have actively contributed to the success by sharing their knowledge with the fundraisers (Zheng et al., 2014). Philanthropy appears to be important especially when support is sought by fundraisers with whom the crowdfunder feel they have some connection (Hemer, 2011), and when support is sought for social causes that are perceived to be aligned with their own identity (Gerber & Hui, 2013). Interestingly enough, preliminary results also seem to confirm the importance of philanthropic motivations in the case of equity crowdfunding. Indeed, crowdfunders, driven by the intent of contributing to the diffusion of innovations are especially committed to the funding of innovative products (Agrawal et al., 2014).
Sense of community belonging. Gerber & Hui (2013) report that many crowdfunders contribute to crowdfunding campaigns for the sake of feeling part of a community. For these individuals, contributing is a way to express feelings of belonging to or membership of a group (Ordanini et al., 2011). The prominence of these motivations is evidenced when several crowdfunders publish the logo of a project on their Facebook profile (Harms, 2007) or buy gadgets or apparel (e.g. a T-shirt or hat) that display the logo (Colombo et al., 2015b).
Social recognition. Several studies have suggested that aiming to improve one’s social position among crowdfunding users may contribute to driving participation in a campaign. Crowdfunders may indeed envisage the campaign as a means of obtaining reputational gain (Burtch et al., 2015) and social recognition (Agrawal et al., 2014). For example, some could be driven by the desire to be part of the elite of pioneer early adopters of a new product or new technology (Hemer, 2011). Along this line of reasoning, Burtch et al. (2013) have noted that the visibility of contributions to peers increases the level of satisfaction of some crowdfunders.
Formalization of contracts. This motivation is an important driver in supporting the participation of fundraisers’ families and friends (Agrawal et al., 2015). In this respect, crowdfunding is one way of transforming a liberality or an act of friendship into a legal obligation (Frydrych et al., 2014). This helps to mitigate concerns of crowdfunders and fundraisers that participation would jeopardize friendship (Agrawal et al., 2014).
Here we describe how relations between the fundraiser and crowdfunders influence the likelihood of obtaining sufficient money to fund a project. We start by looking at the proximity of the two parties and we then conclude considering other forms of fundraiser/crowdfunder relationships.
A large literature has shown that the geographical proximity of the parties of a transaction influences the transaction itself. This also seems to hold in the case of crowdfunding, despite the omnipresent reach of the Internet. Specifically, evidence exists that local crowdfunders contribute earlier in campaigns and, when making their funding decisions, they attach less importance to the amount that fundraisers have already collected. However, the debate on the role of geography in crowdfunding is still ongoing. Agrawal and colleagues (2015) argue that crowdfunding reduces distance-related economic frictions, such as monitoring and due diligence, and observe that the effect of geographical proximity depends on crowdfunders who have personal connections with the fundraisers and live close to them. In their study of funding dynamics in Brazil, Mendes-Da-Silva and colleagues (2015) highlight a negative association between fundraiser/crowdfunder geographical distance and the value of contributions. They find that long-distance crowdfunders contribute smaller sums to projects. Hornuf & Schmitt (2016) obtain a similar result in the context of equity-based crowdfunding. Furthermore, Günther and colleagues (2016) note that geographical distance is negatively correlated with investments within the home country of the fundraiser, while potential investors that are in a different country are no longer sensitive to geographic distance. Originally, Giudici et al. (2017) focus on the role of the characteristics of the local area where crowdfunders reside. Focusing on entrepreneurial projects posted on reward-based platforms, the authors find that fundraisers who reside in areas where people have high levels of altruism are more likely to succeed; thus supporting the view that geography matters in crowdfunding.
Research on relationships between fundraisers and crowdfunders does not take into account only the geographical dimension. Social proximity or homophily appears to matter. Evidence exist that fundraising is easier when fundraisers and crowdfunders have similar occupational and/or educational backgrounds (Jian & Shin, 2015). Results on gender homophily are less clear. Greenberg & Mollick (2017) find that women outperform men in fields that are largely male-dominated. This result stands in stark contrast to expectations concerning homophily, but could likewise be explained by female crowdfunders funding female fundraisers (Greenberg & Mollick, 2017). Contrary to this argument, the work of Mohammadi & Shafi (2015) highlights the tendency of women to invest in equity-based projects in which the proportion of male investors is comparatively higher.
Finally, fundraiser–crowdfunder interactions that occur within crowdfunding platforms may also affect the probability of success. Colombo and colleagues (2015b) show that fundraisers with a track record of support for prior projects have a comparatively greater chance of success net of their prior experience on the platform. The authors propose that this effect likely depends on feelings of direct or indirect reciprocity. Similarly, Xu et al. (2014) highlight that fundraisers that interact with crowdfunders by providing reminders and updates on the progress of the projects have a greater chance of success in collecting funds.
Moving from an updated definition of crowdfunding, which incorporates the latest insights of scholarly research on the topic, this chapter offers a comprehensive review of the existing literature on the drivers of success of crowdfunding projects. The review shows that the debate on this topic is still in its infancy. Many studies end in opposite results and adopt diverse conceptual lenses, methodologies, and test-beds, thus raising concern about their generalizability.
As with any research, this work has limitations, which open up avenues for future research. First, in identifying articles to be included in our literature review, we used only the keyword “crowdfunding.” It is the broadest possible keyword and additional keywords might also be relevant. Specifically, there might be articles belonging to different streams of literature and referring to neighboring phenomena, which could be of help in understanding how crowdfunding works. Second, we focus attention on the determinants of crowdfunding project success in terms of their achievement of the target capital. In so doing, we disregard other kinds of crowdfunding success, such as, for instance, the success of the crowdfunding platforms or of the projects in terms of market acceptance. Therefore, we welcome future research that extends this work in this direction and takes in to account other success dimensions. In spite of these limitations, this chapter also highlights several areas in need of further investigation. Accordingly, we sketch here a research agenda that serves as a starting point for identifying new lines of inquiry. To this end, we highlight factors influencing funding success that scholars have so far largely neglected. Then, we stress the importance of inquiring about what happens after the end of the crowdfunding campaign. Providing an exhaustive list of research topics is beyond our scope, we only wish to call readers’ attention to some existing gaps.
Extant literature on the determinants of the success of crowdfunding projects has mainly focused on understanding the role of the main actors involved during a crowdfunding campaign. In so doing, it has broadly under-remarked the role of the rewards. Although initial contributions have addressed this aspect (Bœuf et al., 2014; Frydrych et al., 2014), at present, the relative importance of various kinds of rewards has never taken central stage in the debate. We believe that a deeper empirical investigation of rewards can significantly advance the debate. This is especially true in reward-based crowdfunding, wherein fundraisers are encouraged by platforms to propose a variety of rewards to push crowdfunders’ participation. As of now only a few, if any, studies have distinguished reward types. These studies hint that offering rewards that facilitate social interactions and social identification (e.g. official merchandising) correlate with the likelihood of success (Colombo et al., 2015b; Butticè & Colombo, 2017).
A second area of importance for future investigations relates to the post-campaign outcomes. The fact that crowdfunding provides a viable way to raise money for those who usually cannot raise money from traditional sources does not tell us much about the efficiency of crowdfunding in financing valuable projects. A related question is: would fundraisers be able accomplish the projects that they commit to? We know from the literature that fundraisers in reward-based crowdfunding deliver with large delays (Mollick, 2014; Kim et al., 2017), but we need to learn more in this regard.
Finally, it would be interesting to understand whether crowdfunding would be comparatively more likely than other sources of finance to support innovative or high-risk projects. As we have stressed in this chapter, crowdfunding seems a powerful financing mechanism for innovative projects because it provides a quick and effective means for testing and receiving feedback (Dushnitsky & Marom, 2013; Gerber & Hui, 2013). Industry experts and the popular press have stressed widely the claim that many of the most important projects—including novel 3-D printers, electronic watches, video game consoles, and computer hardware—were initially funded by the crowd (Jeffries, 2013). Although this argument is plausible, few if any contributions have tried to confront this anecdotal evidence with rigorous empirical data.
We hope that this review of the literature will serve as a stimulus for continuing research in this interesting and relevant field.