Firma

CROWDFUNDING
convenzione
Politecnico di Milano e Veneranda Fabbrica
delButticè,
Vincenzo Duomo di Milano
(vincenzo.buttice@polimi.it)
Study Material: Butticè V., Franzoni C., Rossi-Lamastra C., Rovelli P. The Road to
Crowdfunding Success:Aula Magna
A Review – Rettorato
of Extant Literature, forthcoming in Tucci, C.,
Afuah, A., Viscusi, G. (Eds.)
Mercoledì 27 maggio 2015
 The long tail

Nome Cognome, assoc.prof. ABC Dept.

 Toward a comprehensive definition

Interest in crowdfunding is growing

• The keyword “ crowdfunding” first appeared on Wired Magazine in
2006 (Howe, 2006)
• A widely accepted definition does not yet exist
• Many definition, but specific to the context of the study (Tomczak &
Brem, 2013)

First holistic attempt: (Lambert & Schwienbacher, 2010, p.6)

“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”
It is a good starting point, but requires fine-tuning to mirror recent
developments

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 Let’s update this definition. What we need?

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 Main features:
Microfinance meets crowdsourcing

CF is a combination of:
• Microfinance
• Provisions of relatively small amounts of money (Harrison, 2013)
• Helping entrepreneurs to acquire financial resources for their
projects (Beaulieu & Sarker, 2013)
• Crowdsourcing
• Open call through the Internet (Lambert & Schwienbacher, 2010)
• Voluntary participation of a distributed network of individuals
(Gerber & Hui, 2013)
• Interaction with a community of potential future users and
customers (Ordanini et al., 2011)
• Opportunity of collecting feedback and suggestions from the
crowd of the Internet users (Colombo et al., 2015b)

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 Main features:
Key players

Main participants in a CF campaign

• Fundraisers
Propose the ideas and/or projects to be funded

• Crowdfunders/Backers
Support CF campaigns by providing financial backing to the
projects; they also provide feedback and new ideas

• Crowdfunding platforms
Intermediaries that enable the transactions between fundraisers and
crowdfunders

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 Main features:
Crowdfunding models

4 models exist basing on what crowdfunders receive back for their

contribution (e.g., Ahlers et al., 2015, Mitra, 2012, Griffin, 2012, Lehner, 2012):
• Donation-Based crowdfunding
No remuneration in exchange of the money pledged
• Reward-Based crowdfunding
Crowdfunders receive a product, a gadget, a service, or a
symbolic reward chosen from a list
• Equity-Based crowdfunding
Crowdfunders receive shares of the firm’s risk capital
• Few empirical studies, results consistent with those of the previous two
categories
• Lending-Based crowdfunding or peer-to-peer lending
Fundraisers borrow money at the cost of an interest rate.
• No clear agreement on considering it as CF

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 Proposing an updated and comprehensive definition

A comprehensive definition has to highlights the three main aspects

of CF
• The provision of feedback from crowdfunders
• The crucial role of CF platforms
• The existence of several CF models

Crowdfunding is the act of collecting monetary contributions together

with feedback and suggestions from a crowd of voluntary contributors
(either in form of donation or in exchange for some forms of reward)
through an open call on enabling web platforms

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 Other important taxonomies

Other taxonomies exist basing on:

• Money collection scheme

• All or nothing
• Keep it all

• Timing
• Ex-ante crowdfunding
• Ex-post crowdfunding
• Presence or absence of an intermediary
• Indirect crowdfunding
• Direct crowdfunding

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 DATA ON CROWDFUNDING

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 Funding Volume 2015

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 Crowdfunding by sectors

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 Very successful crowdfunding campaigns

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 Focus on Kicktstarter

https://www.kickstarter.com/help/stats?ref=footer

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 CROWDFUNDING SUCCESS

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 Achieving crowdfunding success (1/3)

A fundraiser can achieve several benefits with a CF campaign

• Monetary benefits
• Raising money (e.g., Gerber & Hui, 2013, Mollick, 2014, Mollick & Kuppuswamy,
2014)
• Non-monetary benefits
• Access without intermediaries to a basis of customers prone to
experiment with new products that allows to test and improve
early versions of innovative products (e.g., Agrawal et al., 2004, Di Petro &
Prencipe, 2015, Dushnitsky et al., 2013, Hui et al., 2014)
• Use it as a marketing means (Belleflamme et al., 2010, Gerber & Hui, 2013)
• Understand customers’ willingness to pay (Belleflamme et al.,
2010; Belleflamme et al., 2014)
• Size the potential demand (Agrawal et al., 2014)
• Help start-ups and entrepreneurs to achieve legitimacy
(Frydrych at al., 2014)

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 Achieving crowdfunding success (2/3)

Empirical literature used different metrics to measure CF campaigns’

success
• Meeting the target amount within the project duration (Mollick, 2014)
• Raising at least the amount of money stated as the campaign
goal (i.e., target capital) within the time span of the campaign
(Colombo et al., 2015; Butticè et a., 2017)

• Total amount of capital raised (e.g., Belleflamme et al., 2013, Colombo et al., 2015)
• Total number of backers (e.g., Colombo et al., 2015b)
• Speed of investments (e.g., Ahlers et al., 2015)

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 Achieving crowdfunding success (3/3)

As empirically demonstrated, the success of a CF campaign may be

determined by

• The characteristics of campaign

• The characteristics of the fundraiser/s

• The contribution of crowdfunders

• The proximity between fundraiser/s and crowdfunders

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 The determinants of crowdfunding success:
The elements of a crowdfunding campaign (1/3)

Five main features of CF campaigns may affect their success

1. Project content
• Broad spectrum of projects: artistic works (e.g., Galuszka & Bystro, 2014),
technology and design (e.g., Beaulieu & Sarker, 2013), personal medical
expenses (Sisler, 2012), scientific research (Marlett, 2015, Marshall, 2013), etc.

2. Target capital
• Negative impact on projects’ success: higher target
• Greater number of crowdfunders, but lower amount of
capital they pledge (Colombo et al., 2015)
• Grater difficulties in getting legitimacy (Frydrych et al., 2014)
• Lower probability of success (e.g., Butticè et al., 2017, Gleasure & Feller,
2014, Mollick, 2014)

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 The determinants of crowdfunding success:
The elements of a crowdfunding campaign (2/3)

3. Duration of the campaign

• Opposite findings basing on the country (Zheng et al., 2014). Longer
campaigns have a
• Negative effect in United States (Fryfrych et al., 2014, Mollick, 2014)
• Positive effect in China (Liao et al., 2015)
3. Rewards
• Material (e.g., gadgets, gifts, products) or symbolic (i.e., public
or private acknowledgement) rewards to the crowdfunders
• Favor success (Colombo et al., 2015; Butticè & Colombo, 2016; Butticè et al.,
2017)
• Symbolic rewards are valuable only if no material rewards
is offered (Boeuf et al., 2014)

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 The determinants of crowdfunding success:
The elements of a crowdfunding campaign (3/3)

5. Information made available by the fundraiser to potential

crowdfunders
• Positive correlation with the probability of success (Gleasure &
Feller, 2014, Colombo et al., 2015)

• Project updates (Gleasure and Feller, 2014; Xu et al.,2014)

• Links to external webpages (Colombo et al., 2015b)
• Provision of a video (Mollick, 2014; Zvilichosky et al., 2014)
• Have to be short, smart, and targeted to potential
crowdfunders and their motivations (Dushnitsky et al., 2013)
• Images in the description (Colombo et al., 2015b)
• Contributions already received (Colombo et al., 2015)
• (Medium-high number of) comments posted in the project
page (Gleasure & Feller, 2014)

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 The determinants of crowdfunding success:
The fundraisers’ characteristics (1/2)

Fundraisers have a key role in CF

• Single vs. group
Groups of individuals succeed more than individual fundraisers
(Colombo et al., 2015, Frydrych et al., 2014)

• Profit vs. non-profit

Non-profit organizations are usually more successful than for-profit
ones (Liao et al., 2015; Pitschner and Pitschner-Finn, 2014)
• Projects are of broader interest or could affect a larger share of
society (Lambert & Schwienbacher, 2010, Marshall, 2015)
• More oriented to quality, rather than merely collecting money
(Lambert & Schwienbacher, 2010)
• Easier to achieve the target, but with less crowdfunders and
lower amount of capital (Pitschner & Pitschner-Finn, 2014)

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 The determinants of crowdfunding success:
The fundraisers’ characteristics (2/2)

• Female vs. male

• Women are less likely to start projects and be serial
fundraisers (Kuppuswamy & Mollick, 2015) due to their lower confidence
• But, individual female fundraisers and groups with at least
a woman are more likely to succeed (Frydrych et al., 2014; Greenberg
& Mollick, 2014; Colombo et al., 2015b)

• Female fundraisers attract more female crowdfunders,

especially in technological projects (Greenberg & Mollick, 2014)
• Activist choice homophily: in sectors where women are under-
represented, female crowdfunders fund female fundraisers to make
them relatively more successful (Greenberg & Mollick, 2014)
• Fundraisers’ social capital
Both external (Mollick, 2014) and internal (Colombo et al., 2015; Butticè & Colombo,
2016; Butticè et al., 2017) social capital boost the success

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 The determinants of crowdfunding success:
The role of crowdfunders

Crowdfunders are a critical element in determining success both

during and after the CF campaign (Hardy, 2013)
• Provide new ideas (Gambardella, 2012) and feedback (Martin, 2012)
• May become co-developers of product’s design (Gerber & Hui, 2013)
• Initial customers' base to test new products (Ordanini et al., 2012)
• Early crowdfunders work as a predictor that reduces the
uncertainty (Burtch et al., 2013) and facilitates the attraction of further
contributions (Colombo et al., 2015b)
• Observational learning
When potential crowdfunders are not sure about the quality of the project
they rely on former crowdfunders (Mohammadi & Shafi, 2015)
• Word-of-mouth (Virmara, 2015, Colombo et al., 2015)
• Extensive feedback that fundraisers may use to align the project
to audience’s needs (Colombo et al., 2015)
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 The determinants of crowdfunding success:
Fundraisers-crowdfunders proximity

The proximity between fundraisers and crowdfunders affects success

• Geographical proximity
Strong geographic component in the flow of contributions
• Local crowdfunders contribute earlier and are less focused on
the cumulative amount already collected (Agrawal et al., 2015)
• Due to lower distance-related economic frictions or crowdfunders’
personal connections with the fundraiser
• More distant crowdfunders contribute with smaller amounts of
capital (Mendes Da Silva, 2015)
• Social proximity or homophily
• The probability of success increases if fundraisers and
crowdfunders have the same occupation and/or educational
background (Jian & Shin, 2015)

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