Study finds three key factors to crowdfunding success

March 4, 2016 by Kevin Manne, University at Buffalo
Study finds three key factors to crowdfunding success

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 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 success.

Explore further: Study indicates women are winners when it comes to crowdfunding

Related Stories

Crowdfunding gaining momentum, study says

April 8, 2013

Crowdfunding, a practice which allows startup firms to raise money from small investors over the Internet, picked up steam in 2012 with some $2.7 billion invested, a study showed Monday.

Kickstarter levels the financial playing field for women

August 18, 2014

Numerous studies have shown that women engage less than men in either entrepreneurship or business investing. Women also launch firms with significantly less capital than men, which limits their ability to grow their firms ...

Federal regulators go after crowdfunding scam

June 11, 2015

Federal regulators are going after people who raise money online through crowdfunding sites like Kickstarter and GoFundMe but don't follow through on their promises.

Preparing for the chaos of equity crowdfunding

July 18, 2013

Equity crowdfunding is not yet legal, but when it is, expect a period of "chaos" before those involved learn how to make the most of its benefits and minimize its risks, say University of Toronto researchers.

Recommended for you


Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.