Release Date: March 3, 2016
BUFFALO, N.Y. — For entrepreneurs using crowdfunding to bring new products to market, high quality photos and video, previous crowdfunding success and positive comments from backers are the keys to a successful campaign, according to new research from the University at Buffalo School of Management.
The study found that by receiving these signals, potential investors, also known as “backers” in crowdfunding, gain valuable information that motivates them to participate and increases the likelihood of a project achieving its funding goal.
“These sources are important because backers of crowdfunded projects have less access to information than typical private equity investors,” says study co-author Yong Li, PhD, associate professor of strategy and entrepreneurship in the UB School of Management. “Private equity investors follow a stringent due diligence process to assess the quality of a startup, while crowdfunding backers rely more on the information on the campaign’s webpage.”
The study also found that these signals interact to impact crowdfunding success. For example, video and photos will be more important when the project founder has no prior crowdfunding success, and positive backer comments certify the credibility of video and photos.
Crowdfunding sites like Kickstarter or Indiegogo allow entrepreneurs to fund their projects through a large number of relatively small contributions via the Internet, bypassing the usual private equity investors like angels and venture capitalists.
Kickstarter is currently the largest and most dominant crowdfunding platform. Globally, crowdfunding campaigns raised nearly $2.7 billion in 2012, and were expected to reach $34 billion in 2015, showing the promise to be a viable option of financing entrepreneurship, according to the study.
The researchers analyzed a sample of more than 170,000 Kickstarter projects from the site’s inception in 2009 through Dec. 27, 2015. To review the backer comments, they used a computer-based algorithm to measure the strength of positive sentiments and examine the impact on crowdfunding success.
Li collaborated on the project with UB School of Management colleagues Supradeep Dutta, assistant professor of operations management and strategy, and Christopher Courtney, Western New York Prosperity Fellow and doctoral student.