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CESifo DIC E Repor t 2/2016 (June) 6
Understanding the strategies
of crowdfUnding platforms1
paUl Belleflamme,2 nessrine omrani,3
and martin peitz4
Crowdfunding can be seen as an open call made through
the internet to provide nancial resources to support
new ventures. Several forms of crowdfunding coexist,
which mainly differ by the type of compensation that
they propose to funders. Compensation can be mone-
tary or may take another form. In the case of monetary
compensation, funders are investors and may be offered
equity stakes (‘crowdinvesting’), interest payments
(‘crowdlending’), or a fraction of prots (‘royalty-based
crowdfunding’). When compensation is not monetary
funders are consumers or donors and may be offered
a product in pre-sale, combined with some perks (‘re-
ward-based crowdfunding’), or some warm glow (‘do-
nation-based crowdfunding’).
Whatever its form, crowdfunding mostly takes place
on crowdfunding platforms (CFPs). Our objective in
this ar ticle is twofold: we wish to show why and how
CFPs facilitate the interaction between ent repreneurs
trying to raise funds (the ‘fundraisers’) and consumers/
investors willing to participate in the nancing of new
projects (the ‘funders’). The ‘why’ has to do with the
external effects that crowdfunding generates, not only
across the groups of funders and fundraisers, but also
within each of these groups; we argue that the complex-
ity of these effects is much more efciently dealt with
by a CFP than through bilateral relationships between
funders and fundraisers. As for the ‘how’, we present the
strategies that CFPs put in place to address the problems
raised by the various external effects.
This a rticle wa s prepa red for the CESifo DICE Repor t; it is la rgely
base d on Belleam me, Omra ni an d Peitz (2015).
2 Un iversité ca tholique de Louvain (COR E and Lou vain School of
Manage ment) and CESifo.
PSB Paris S chool of Busin ess.
4 Universit y of Mann heim, Mann heim Centre for Com petitio n and
Innovation (MaC CI), and CE RRE .
Crowdfunding and external effects
CFPs can be seen as ‘two-sided platforms’: they enable
the interaction between two ‘sides’ (here, fundraisers
and funders) whose demands need to be coordinated.5
The open and large-scale nature of crowdfunding ex-
plains why an intermediary (i.e., a CFP) can achieve this
coordination more efciently – i.e., at lower transaction
costs – than the members of the two sides by themselves.
The transaction costs stem from the presence of exter nal
effects across the two groups: the value that each group
attaches to the interaction depends on the participation
of the other group. Typically, the more funders partic-
ipate, the more crowdfunding becomes attractive for
fundraisers, and vice versa. We therefore expect these
so-called ‘cross-group external effects’ to be positive on
both sides; we also expect CFPs to manage these exter-
nal effects by choosing an appropriate price structure
for access and participation on the platfor m by the two
As we now show, things are slightly more complex.
Firstly, some cross-group external effects may be nega-
tive. Secondly, ‘within-group external effects’ may also
exist, according to which the value that a user attaches
to the interaction with the other g roup also depends on
the participation within this user’s own group. Finally,
CFPs also use a wide array of non-price strategies to
manage the various external effects.
Cross-group external effects on CFPs
Cross-group external effects arise when one group’s
valuation of the platform depends on the participation
of the other group. Let us rst examine the impacts of
funders’ participation on fundraisers. These effects are
positive without any ambiguity. A platform that attracts
a larger pool of potential funders benets fundraisers
in two ways. Firstly, and quite obviously, the presence
of a larger crowd of funders increases any fundraiser’s
chance of nancing their project. Secondly, entrepre-
neurs often use CFPs as marketing channels to evalu-
5 For an intro duction to two-sided platforms, see Bellea mme and
Peitz (2015, Ch apte r 22).
CESifo DIC E Repor t 2/2016 (June)
ate (and possibly stimulate) demand for their product.6
Again, the larger the crowd of consumers/investors, the
more efcient this market testing can be. Yet, to the ex-
tent that fundraisers use a project on a CFP as part of a
price discrimination strategy, they may not always be
interested in an expansion of the pool of funders. A nec-
essary condition for this to happen is that not only the
size, but also the composition of the group of funders on
a CFP will have to change.7
As for the impacts of fundraisers’ participation on
funders, it seems at rst glance that they are also pos-
itive. We can indeed see two reasons why funders are
likely to prefer platforms with a larger number of fund-
raisers: rstly, platforms with more fundraisers provide
funders with a wider choice of projects to fund; sec-
ondly, when compensation is non-monetary, funders
are more likely to obtain rewards that t their tastes on
platforms that attract many f undraisers. A couple of
mitigating factors, however, spring to mind. Firstly, a
larger number of campaigns on a platform could reduce
the chance that any of them would be successful (i.e.,
would reach the required threshold), which would affect
funders negatively. Yet, as such risk results from coor-
dination failures among funders, CFPs can neutralise
it by guiding interested funders to campaigns that are
close to becoming a success. A second negative cross-
group external effect arises if asym metric information
problems become more serious as the number of fund-
raisers on a platform grows larger. As discussed below,
information asymmetries cause two types of issues for
funders on CFPs: funders may not only lack the nec-
essary information to assess the chances of success of
the proposed campaigns; they may also not be able to
control how fundraisers use the funds that they have
collected. W hether these problems are more acute (or
the cost for funders and platforms of alleviating these
problems is larger) on platforms with more fundraisers
is an empirical question.
The fact t hat large compan ies, which h ave easy ac cess to ca pital
market s, use CFPs is indi rect proof that crowdfund ing is not ju st about
fund ing. For instance, Sony has launched a CF P, First Flight, to te st the
popula rity (rat her t han to  nance) its own n ew products (McCormick
2015) .
If fun ders di ffer in t heir in format ional require ments, certa in CFPs
may speci alise and cater to the need s of particula r types of fun ders. For
instance, by setti ng h igher prices o r by providing speci c s ervices, a
CFP may in duce self-s election among fu ndraisers a nd attract on ly high
qualit y project s, which, in turn, wi ll att ract on ly the more demandi ng
funders. Damiano and Li (2008) show in a styli sed set ting how a pla t-
form can u se prices to induce this for m of segmentation .
Within-group external effects on CFPs
Fundraisers and f unders also care about the partici-
pation of their own group members on the platform.
Within the group of fundraisers, external effects are
mostly negative: as fundraisers compete for funders’
contributions, the more campaigns a platform hosts,
the tougher the competition. However, a larger pool of
fellow fundraisers may promote the exchange of good
practices among them, or may attract a larger supply
of consultancy services adapted to crowdfunding. This
suggests that external effects may sometimes be posi-
tive within the group of fundraisers.8
Within the group of funders, external effects can be ex-
pected to be positive. This is certainly the case if a pro-
ject needs to reach a pre-specied threshold of nancing
to be car ried out. This is known as the ‘threshold-pledge’
or ‘All-or-Nothing’ (AON) model (an alternative is the
‘exible funding’ or ‘Keep-it-all’ (KIA) model, which
allows a fundraiser to collect any funds raised, even
when the target is not reached). In this case, the presence
of additional funders on a platform increases the proba-
bility that some project will be realised, which benets
all funders.
Other external effects may also come into play within
the group of funders. They result from the sequential
process that funding follows on CFPs, which induces
a form of dynamic behaviour among funders. We have
already mentioned that asymmetries of information pre-
vail on CFPs as, t ypically, funders have little informa-
tion about the reliability of fundraisers and the quality
of their projects. Because funding is sequential, funders
may try to infer information from the behaviour of fel-
low funders (even if the latter do not possess better in-
formation to start with). In particular, funders may rely
on the existing suppor t for a given project to gauge its
potential, thereby creating a type of peer-effect known
as ‘collective attention effect’. The sign of this effect
i.e., whether it ultimately benets or harms funders
– depends on the rst funders. For instance, if the rst
funders had poor information or made a bad decision,
herding will lead subsequent funders to back the wrong
horse.9 There are reasons to believe that this scenario is
relevant in practice, as funders lack the capabilities and
the incentives to devote the appropriate resources to due
8 Strict ly speak ing, there are p ositive feed back effects bet ween fu nd-
raiser s and CFP-spec ic provider s of consulting service who constitut e
a third side of the platfo rm.
For evidence of herding on crowdlend ing platforms, s ee Chen and
Lin (2014), Lee and Le e (2012), Zhang and Li u (2012).
CESifo DIC E Repor t 2/2016 (June) 8
diligence. There is thus a ‘collective-action problem’ in
that funders nat urally tend to free ride on fellow funders
to collect information about the fundraisers’ chances of
success. Finally, another form of free-riding may cre-
ate a negative external effect: in the AON model, when
the nancing of a project comes close to the threshold,
it may become harder to induce funders to provide the
remaining nancing as they may rely on other f unders
to do it.10
Figure 1 summarises the various cross-group and with-
in-group external effects that crowdfunding generates.
Strategies of CFPs
The presence of strong and intert wined cross-group
and within-group external effects in crowdfunding
limits the ability of fundraisers and funders to conduct
transactions bilaterally in an efcient way. This creates
business opportunities for intermediation, which CFPs
try to seize by designing adequate strategies. These
strategies aim at creating value for the two groups by
driving agents to ‘internalise’ (i.e., to integrate into their
decision-making process) the effects that their actions
have across groups or within their group. Naturally, to
achieve a protable business model, CFPs must nd
ways to capture a sufcient share of the value that they
create for their users. We consider in tur n price and non-
price st rategies.
Kuppuswamy and Bayus (2013) nd that a dditional fu nder support
for a project on Kickstarter (a reward-based CFP) is negatively related
to its in itial suppor t, which is consist ent with this f ree-rider hy pothesis.
Price strategies
Currently, most CFPs charge
only one group or impose a “tax”
on a successful transaction. The
common practice is to charge a
transaction fee to f undraisers as
a percent basis for all successful
campaigns (unsuccessful cam-
paigns are generally not taxed).
As for funders, they usually do not
pay any explicit fee. Yet, insofar
as time elapses between the mo-
ment funders contribute money
and the moment that this money
is either passed on to fundraisers
(when the campaign is successful)
or returned to the funders (if it is
not), funders incur a foregone in-
terest when investing (early) in a project, which can be
seen as an implicit fee.
This reliance on transaction fees is common on two-sid-
ed platforms, especially in new markets where par tici-
pants have little understanding of the value they attach
to the interaction with the other group(s). The reason is
that imposing subscription fees may scare participants
away, which would jeopardize the launch of the plat-
form. Pushing this logic one step further, participation
may even be subsidised for some participants, espe-
cially in the early life of the platform. For instance, it
is not rare that CFPs do not wait for fundraisers to join
the platform, but actively look for the most interesting
among them and subsequently facilitate their campaigns
on the platform.
On top of the tax levied on transactions, CFPs usually
have two other sources of revenues. Firstly, as explained
above, they earn interest on the money pledged by
funders. Secondly, they may also offer additional pay-
ing services to the t wo groups; for instance, CFPs may
charge for handling payments, for suppor ting projects,
or for releasing information on previous projects.
Non-price strategies
CFPs also use non-price strategies to manage cross-
group external effects. First and foremost, CFPs have
to choose a mechanism for raising funds. As described
above, the choice is primarily between the ‘All-or-
Nothing’ (AON) and ‘Keep-it-all’ (KIA) mechanisms.
Fundraisers Funders
Higher chances to fund a project
Better market testing
Wider set of projects to fund
ܫLower chances of success for any campaign
Larger supply of
consultancy services
Better fit of rewards
Exchange of good
ܫLarger information asymmetry
Higher chances
projects get
in due diligence
External effects on crowdfunding platforms
Authors‘ contribution. Source:
Figure 1
CESifo DIC E Repor t 2/2016 (June)
In the AON model, fundraisers rstly have to specify
a target, k nowing that they will not receive any of the
money that has been pledged if this target is not reached.
Although this mechanism may not seem terribly attrac-
tive for fundraisers (compared to the KIA model where
any money pledged can be kept), it has the advantage of
protecting funders as it drives fundraisers to set realis-
tic funding targets that match more closely the funding
that they need to achieve their project. As cross-group
external effects from funders to fundraisers are gener-
ally positive, choosing the AON mechanism to reassure
funders is an indirect way to make the platform more
attractive for fundraisers.
Another indirect advantage of the AON model for fund-
raisers is that it makes some funders ‘pivotal’ insofar as
it is their contribution that enables total funding to reach
the target. This is especially important in the context of
reward-based crowdfunding, whereby funders receive
the project’s product as compensation for their funding.
Fundraisers are then in a position to raise their prots by
charging different prices for their product to consumers/
investors who are pivotal and to those who are not.11
That said, fundraisers may prefer the exibility of the
KIA model (even although CFPs usually charge higher
fees on funds kept by fundraisers in cases where the tar-
get is not reached). If so, choosing AON would discour-
age fundraisers from joining the platform and, through
cross-group external effects, would discourage funders
as well. An alternative is to propose both models and let
fundraisers choose. One benet of this solution is that
it gives funders the option of drawing inferences from
fundraisers’ choices. Indeed it is documented that by
choosing AON, fundraisers credibly signal to funders
that they com mit not to undertake their project if they
do not reach the target; funders may then see the invest-
ment in such projects as less “risky”, which allows fund-
raisers to increase their chances of success.12 The choice
between AON and KIA should largely be driven by the
extent to which the benet from a project depends on the
funding level. If the use of funds below the threshold
level is highly inefcient, AON should be the preferred
funding format.
Apart from managing cross-group effects, CFPs also
design specic strategies to address asymmetric infor-
mation problems (acknowledging, as we have just seen,
See Belleamme, L amber t and Schw ienbache r (2014) for a stylized
model exam ining this possibilit y.
12 See Cum ming, L eboeuf a nd Schwienbacher (2014) for an empir ical
analysis of this iss ue.
that some strategies address the two issues at once).
We can distinguish between two generic types of prob-
lems: hidden information problems (funders often lack
the necessary information to estimate the chances of
success of the proposed campaigns) and hidden action
problems (funders have a hard time to control how fund-
raisers use the collected funds).
A rst instrument in mitigating hidden information
problems is direct screening: CFPs conduct due dil-
igence themselves and reject projects that are deemed
too risky. Alternatively (or complementarily), CFPs may
provide funders with a market-based screening mecha-
nism; for instance, some crowdlending platforms give
funders access to ‘soft’ information about fundraisers
(such as the maximum interest rate they are willing to
pay, a textual description of their reasons for the loan
application, or their pictu re). Studies show that funders
can predict default with greater precision on the basis of
such nonstandard information than with the use of more
traditional screening methods based on credit score.13
Finally, CFPs may also bring sophisticated investors on
board like institutional investors, venture capitalists, or
business angels, who have much larger capacities and
experience in due diligence. Their presence is thus like-
ly to reassure funders, as more information will be made
available about the chances of success of the proposed
As for hidden action problems (such as moral hazard),
a rst immediate measure is to invest in an adequate
monitoring system so as to avoid – or at least lim-
it – severe opportunism problems from being creat-
ed by fund raisers, such as outright fraud. In the same
vein, CFPs can prevent fundraisers from using arriv-
ing funds before the success of a campaign is assured
by taking control of making the nancial transaction.
Another strategy is to install a reputation system.
Naturally, such a system can only work if fundraisers
repeatedly use a given CFP. In such cases, the CFP
can use the t rack record of a given fundraiser to pro-
vide funders with useful information about that fund-
raiser’s reliability. To enrich this reputation system, the
CFP can also tap into the wealth of information avail-
able on social networks: It has indeed been document-
ed that the number of friends that f undraisers have on
Facebook can be used as a predictor of the success of
their projects.14 Finally, CFPs may also nd ways to
See, e.g., Berkovich (2011) or Herzenstein, Sonenshein and Dholakia
See, for example, Mollick (2014).
CESifo DIC E Repor t 2/2016 (June) 10
insure funders against a number of risks; for instance,
some crowdlending platforms choose to partner with
banks to insure against market risks.
Our goal in this ar ticle was to show that crowdfund-
ing platforms are at the heart of current developments
in the different forms of crowdfunding. Without the
intermediation services that these platforms provide,
fundraisers and funders would not be able to interact in
an efcient way. To make our point, we have described
the ‘why’ (i.e., the complex web of external effects that
crowdfunding generates for funders and f undraisers), as
well as the ‘how’ (the price and non-price strategies that
platforms deploy to address these external effects).
Even if crowdfunding is still nascent and is thus bound
to evolve, we believe that the framework of the analysis
proposed here will remain relevant and help us under-
stand future developments.
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... Once the campaign is expired, if the target is achieved the campaign is successful and the funders are obliged to fulfil their promised funding (Etter et al., 2014). If the target is not achieved, the raised capital is returned back to the backers (the "All-or-Nothing" (AoN) model), or alternatively is kept by the founders to carry out the project anyway (the "Keep-it-All" (KiA) model) (Beaulieu et al., 2015;Belleflamme et al., 2016;Mollick and Robb, 2016). This depends on the model adopted by the CF platform. ...
... The complex causal structure of CF is just nuanced in the study by Belleflamme et al. (2016) who highlight the key feedback loops among the three principal subsystems: fundraisers, funders and platforms (see Figure 1). ...
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... There has been a lack of scientific research on crowdfunding in the CEE area. The goal of this paper is to present factors determining the success of non-profits on reward-based crowdfunding platforms in the Czech Republic and Slovakia, especially in terms of the two-sided market theory by Belleflamme, Omrani, and Peitz (2016). Following this theory, potential backers join the market both for altruistic reasons and to seek rewards. ...
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... According to Belleflamme, Omrani, and Peitz,(Belleflamme et al., 2016) there are still undiscovered markets for crowdfunding that could promote further competition among industry players to enhance the benefits and utility of the system. One of the most crucial factors is the benchmark commitment that serves as the foundation for project proposals, as well as the impact that such thresholds have on funders' attitudes and decisions to support the project. ...
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Initially, blockchain was primarily used as the foundation for bitcoin, but people are increasingly observing its application in a range of industries. Future technologies throughout the globe are likely to use blockchain as an efficient means for processing online transactions. Crowdfunding platforms are among the applications for blockchain technology. The most common problem with the current global crowdfunding sector is that campaigns are unregulated and some crowd-funding projects have proven to be fraudulent. The emergence of innovative digital financial technologies, such as blockchain and crowdfunding, presents viable strategies for assisting the financially challenged and impoverished. This paper contributes to the expanding literature on financial technology by examining the case of crowdfunding in financial intermediation. This research aims to demonstrate how crowdfunding may contribute to finance and how blockchain technology might contribute in the expansion of crowdfunding. The evolution of crowdfunding in Nepal is examined by analyzing traditional crowdfunding platforms. This study's findings indicate that crowdfunding is a possible method for increasing economic growth and that blockchain technology could assist platform providers in overcoming some of their current hurdles. This research study seeks to address these concerns by incorporating Ethereum smart contracts into the crowdfunding platform, so enabling the contracts to be fully automated, preventing fraud, and assuring that projects are delivered on schedule.
... According to Belleflamme, Omrani, and Peitz,(Belleflamme et al., 2016) there are still undiscovered markets for crowdfunding that could promote further competition among industry players to enhance the benefits and utility of the system. One of the most crucial factors is the benchmark commitment that serves as the foundation for project proposals, as well as the impact that such thresholds have on funders' attitudes and decisions to support the project. ...
... At the same time, however, being an initiative aimed at raising funds from a large number of individual, amateur investors, it is itself the subject of marketing activities (Sayedi & Baghaie, 2017). Crowdfunding marketing strategies can be analysed at two levels: crowdfunding platform strategies and specific campaign strategies (more on this subject: Belleflamme, Omrani, & Peitz, 2016;Troise, 2019). The existing research on the latter, however, does not address marketing strategies in a holistic way, but rather focuses on selected elements, starting from the identification of the benefits sought by campaign participants (Agrawal et al., 2013;Bagheri et al., 2019;Estrin et al., 2018;Gerber & Hui, 2013;Schwienbacher & Larralde, 2010), through segmentation of participants (Feola, Vesci, Marinato, & Parente, 2021;Ryu & Kim, 2016) (narrow definition of the marketing strategy), to the analysis of tactical solutions related to the different marketing-mix elements of the campaign (broad definition of the marketing strategy) (Hu, Li, & Shi, 2015). ...
The purpose of this chapter is to provide a comprehensive description of crowdfunding and to organise the current knowledge on participant behaviour and marketing management decisions made by campaign initiators. This chapter answers questions such as what is crowdfunding and how does it differ from crowdsourcing? How has crowdfunding evolved and what are the various crowdfunding models and the criteria for their selection by initiators? Additionally, the chapter explores the motivations and decision-making criteria of campaign participants, the different segments of crowdfunding participants, the components of the campaign product, the pricing and distribution strategies, and the most effective marketing communication strategies for achieving campaign objectives. By reviewing existing research, this chapter aims to provide a concise summary of marketing decisions in the area of crowdfunding, making it useful for initiators of campaigns beyond the realm of sports-related activities.
... In this vein, CFPs belong to the class of multisided and precisely two-sided platforms, which provide a matching service between two sides of a "market", even if not still existing. This model sees three actors: fundraiser or seeker, funder and digital intermediary (platform owner company) (Belleflamme et al., 2016). ...
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Purpose Crowdfunding models recently emerged as relevant enhancing systems aimed at fostering innovation and entrepreneurial dynamics. Accordingly, great attention has been paid to seeker firms' characteristics and platforms. For this reason, adopting a holistic knowledge-based perspective on crowdfunding is essential. This paper first identifies and categorizes the potential knowledge-based dimensions grounding crowdfunding and technological scouting strategies to provide a theoretically-grounded framework potentially useful for driving decision-making processes. Then, it is applied to interpret a real crowdfunding strategy developed by an Italian platform in the field of the real estate sector. Design/methodology/approach The paper combines deductive and inductive approaches. After elaborating a conceptual framework identifying the potential knowledge-based dimensions for a crowdfunding strategy, it is tested and applied by re-interpreting a real crowdfunding strategy. Findings The study identifies the potential knowledge assets dimensions grounding a crowdfunding strategy through elaborating a dedicated conceptual framework. Then, the case study enriches the proposed conceptual arguments with a set of empirical evidence. Research limitations/implications The paper provides a conceptual framework capable of fostering a specific research stream and carrying out a first holistic and systematic knowledge-based perspective. The authors believe that their research may provide a relevant contribution to the existing literature, depicting a comprehensive picture of the intellectual capital components that seekers have to identify and manage in crowdfunding. While doing so, the study significantly addresses the challenge launched by Troise et al . (2021) in order to enrich prior but highly fragmented studies on the role of intellectual capital components in crowdfunding. Practical implications The analysis of the models and tools developed and discussed can be useful to support the elaboration and the application of practical knowledge-based approaches, protocols and routines for the value generation in the crowdfunding field and to drive the designer of crowdfunding platforms and strategies to develop more effective and impactful initiatives and campaigns. Accordingly, when elaborating a crowdfunding strategy, it should be effectively highlighted that seekers have and are capable of managing intellectual capital in different manners. This is particularly true for new ventures that are generally challenged to provide information about their quality, in particular about founders, their previous experiences, potential and real networks and partnerships, innovation capacity. Originality/value This paper contributes to the further development of the crowdfunding literature according to a knowledge-based perspective.
... Information asymmetry can be described as the situation when information is not equally distributed, lack of transparency. [25] highlights information asymmetry problem in crowdfunding platform includes hidden information problems where funders lack of necessary information and hidden action problems where funders have difficulties to control how fundraisers use the collected funds. The higher the information asymmetry in the system, the less trust gained. ...
... A visitor to a crowdfunding portal can be both investor and author of a new project. The basic terms are defined as follows (Belleflamme, Omrani, & Peitz, 2016;: ...
Worldwide the nonprofit organizations are experiencing challenging implications of austerity and financial uncertainty, which make them turn to commercial activities in order to meet the emerging survival challenges. Various key concepts describe the phenomenon of nonprofits becoming business-like. This chapter adds to the definitional clarification of the conceptual foundations of the business practices in nonprofit funding. It reviews international theoretical approaches originating in the Western environment with a view to assessing their applicability in the (post-)transitional context, while identifying the elements of their conceptual core. The emphasis of the scientific discourse on nonprofits becoming business-like in (post-)transitional countries provides a basis for investigating the generally positive, normative, and heuristic analysis of the nonprofit sector associated with insights that consider the challenging socio-economic and political environments of the Czech Republic and Slovakia.
This article investigates multimodal elements—images, links, gifs, videos, and galleries—of crowdfunding campaigns on the platform Kickstarter to develop an understanding of characteristics of successful campaigns. The authors scraped 327,586 campaign pages, analyzing the multimodal elements of successful and unsuccessful campaigns. They found that successful campaigns featured more images, links, and gifs and more frequently included a project video than did unsuccessful campaigns. Images, links, and the presence of a project video had a positive impact on success while gifs and project galleries did not. These findings give business communicators practical guidance, develop theoretical aspects of Kickstarter research, and validate previous findings with a larger data set.
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Thoroughly revised according to classroom feedback, Industrial Organization: Markets and Strategies offers an up-to-date and rigorous presentation of modern industrial organization that blends theory with real-world applications and derives implications for firm strategy and competition policy. This comprehensive textbook acquaints readers with the most important models for understanding strategies chosen by firms with market power and shows how such firms adapt to different market environments. The second edition includes new and revised formal models and case studies. Formal models are presented in detail, and analyses are summarized in 'lessons' which highlight the main insights. Theories are complemented by numerous real-world cases that engage students and lead them to connect theories to real situations. Chapters include review questions, exercises, and suggestions for further reading to enhance the learning experience, and an accompanying website offers additional student exercises, as well as teaching slides.
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This paper provides a description of the crowdfunding sector, considering investment based crowdfunding platforms as well as platforms in which funders do not obtain monetary payments. It lays out key features of this quickly developing sector and explores the economic forces at play that can explain the design of these platforms. In particular, it elaborates on cross-group and within-group external effects and asymmetric information on crowdfunding platforms.
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The basic idea of crowdfunding is for an entrepreneur to raise external finance from a large audience (the "crowd"), where each individual provides a very small amount, instead of soliciting a small group of sophisticated investors. The entrepreneur uses her social networks and established platforms on the Internet to directly interact with the crowd. The paper compares two different forms of crowdfunding: individuals are offered either to pre-order the product, or to advance a fixed amount of money in exchange for a share of future profits. In either case, "crowdfunders" are rewarded by "community benefits" that increase their utility. Using a unified model, we show that the entrepreneur prefers pre-ordering if the initial capital requirement is relatively small, and profit-sharing otherwise. Our conclusions have implications for managerial decisions in the early development stage of firms, since the entrepreneur needs to build a community of individuals with whom she must interact.
Online peer-to-peer (P2P) lending is a form of online microloan market that enables borrowers to reach individual lenders through online lending platforms rather than through traditional financial institutions such as banks. We investigate the lenders’ rationality via the perspective of herding behavior in this study. Based on the data from, the largest online P2P lending market in China, we found that herding phenomenon is salient in P2P lending market in China, and such herding is dominated by irrationality. Such result is quite different from what obtained based on the data from the in USA. We attribute this difference to the cultural and economical factors.
Rewards-based crowdfunding campaigns are commonly offered in one of two models: “Keep-it-All” (KIA) where the entrepreneurial firm sets a fundraising goal and keeps the entire amount raised regardless of whether or not they meet their goal, and “All-or-Nothing” (AON) where the entrepreneurial firm sets a fundraising goal and keeps nothing unless the goal is achieved. We provide large sample evidence consistent with the view that the usage of AON is a credible signal to the crowd that the entrepreneur commits not to undertake the project if not enough is raised. This signal reduces the risk to the crowd, thereby enabling the AON entrepreneurial firms to set higher goals, raise more money, and be more likely to reach their stated goals. In contrast, KIA projects tend to be less successful, since the crowd bears the risk that an entrepreneurial firm undertakes a project that is underfunded and hence more likely to fail after the campaign. Entrepreneurs use the KIA model for scalable projects; that is, projects that are still feasible with partial funding. Further, we provide evidence that the crowd is much more sensitive to information provided by AON projects. We show that these findings are robust to a number of robustness checks, including but not limited to use of instrumental variables and propensity score matching.
Microloan markets allow individual borrowers to raise funding from multiple individual lenders. We use a unique panel data set that tracks the funding dynamics of borrower listings on, the largest microloan market in the United States. We find evidence of rational herding among lenders. Well-funded borrower listings tend to attract more funding after we control for unobserved listing heterogeneity and payoff externalities. Moreover, instead of passively mimicking their peers (irrational herding), lenders engage in active observational learning (rational herding); they infer the creditworthiness of borrowers by observing peer lending decisions and use publicly observable borrower characteristics to moderate their inferences. Counterintuitively, obvious defects (e.g., poor credit grades) amplify a listing's herding momentum, as lenders infer superior creditworthiness to justify the herd. Similarly, favorable borrower characteristics (e.g., friend endorsements) weaken the herding effect, as lenders attribute herding to these observable merits. Follow-up analysis shows that rational herding beats irrational herding in predicting loan performance. This paper was accepted by Pradeep Chintagunta, marketing.
Entrepreneurs are turning to crowdfunding as a way to finance their creative ideas. Crowdfunding involves relatively small contributions of many consumer-investors over a fixed time limit (generally a few weeks). In online crowdfunding communities, potential donors can see the level of support from other project backers as well as its timing before making their own funding decisions, suggesting that social information (i.e., others’ funding decisions) will play an important role in the ultimate success of a project. Two years of publicly available panel data on successfully and unsuccessfully funded projects listed on Kickstarter is used to empirically study the role of social information in the dynamic behavior of project backers. Building off the well-established social psychology theory around diffusion of responsibility effects, we show that additional backer support is negatively related to its past backer support. Many potential backers do not contribute to a project that has already received a lot of support because they assume that others will provide the necessary funding. Consistent with the deadline effect widely observed in bargaining and online auctions, we also show that the diffusion of responsibility effects diminish as the project funding cycle approaches its closing date. Moreover, as the project deadline draws near we find that project updates tend to increase as the project creators make a final plea for help to reach their funding goal. Reduced diffusion of responsibility effects, together with the positive influence of project updates, lead to generally increasing project support in the final stages of funding. This is particularly the case for projects that successfully achieve their goals as they are more likely to have an update in the last weeks of funding and generate more excitement from recent backers than projects that fall short.
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. Crowdfunding has been drawing substantial attention from policy makers, managers, and entrepreneurs, but relatively little notice from academics, even though it touches on many topics of importance to scholars of entrepreneurship, including the determinants of venture success and the geography of entrepreneurship. Drawing on a dataset of over 48,500 projects with combined funding over $237M, this paper offers an initial description of the underlying dynamics of success and failure among crowdfunded ventures. It suggests that personal networks and underlying project quality help predict the success of crowdfunding efforts, and that geography plays a role in both the type of projects proposed and successful fundraising. Finally, I find that the vast majority of founders make serious efforts 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.
We examine the role of identity claims constructed in narratives by borrowers in influencing lender decision making regarding unsecured personal loans. We study whether the number of identity claims and their content influence decisions of lenders and whether they predict longer-term performance of funded loans. Using data from the peer-to-peer lending website, we find that unverifiable information affects lending decisions above and beyond objective, verifiable information. Specifically, as the number of identity claims in narratives increases, so does loan funding but loan performance suffers, because these borrowers are less likely to pay back. In addition, identity content plays an important role. Identities about being trustworthy or successful are associated with increased loan funding but ironically they are less predictive of loan performance compared with other identities (moral and economic hardship). Thus, some identity claims are meant to mislead lenders while others are true representations of borrowers.