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The Phenomenon of Project Overfunding on Online Crowdfunding Platforms – Analyzing the Drivers of Overfunding

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On online crowdfunding platforms, three stakeholder groups, i.e., platform operators, project founders , and funders, encounter each other and influence funding outcomes by their actions and behaviors. Interestingly, among the successfully funded projects, some projects are heavily overfunded. By our research paper, we address this phenomenon of project overfunding. Especially in reward-based crowdfunding, massive overfunding can lead to severe problems for project founders when vast amounts of rewards have to be delivered. Some people even argue that the amount of money that leads to overfunding should better be pledged to good but undervalued projects that fail to reach their funding goal. However, it is also a powerful mean to generate publicity and to sell products. In order to help understanding this phenomenon, we analyze its drivers. Our analysis gives evidence for all three stakeholder groups contributing to overfunding. We provide arguments for all three stakeholder groups to have certain egoistic incentives for a further backing of already funded projects instead of prioritizing a more demand-oriented distribution of funding. Our findings extend the understanding of funding processes on crowdfunding platforms and are of high interest for practitioners in the field.
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Twenty-Fourth European Conference on Information Systems (ECIS), İstanbul,Turkey, 2016
THE PHENOMENON OF PROJECT OVERFUNDING
ON ONLINE CROWDFUNDING PLATFORMS
ANALYZING THE DRIVERS OF OVERFUNDING
Research
Koch, Jascha-Alexander, Goethe University Frankfurt, Frankfurt am Main, Germany,
jaskoch@wiwi.uni-frankfurt.de
Abstract
On online crowdfunding platforms, three stakeholder groups, i.e., platform operators, project found-
ers, and funders, encounter each other and influence funding outcomes by their actions and behaviors.
Interestingly, among the successfully funded projects, some projects are heavily overfunded. By our
research paper, we address this phenomenon of project overfunding. Especially in reward-based
crowdfunding, massive overfunding can lead to severe problems for project founders when vast
amounts of rewards have to be delivered. Some people even argue that the amount of money that leads
to overfunding should better be pledged to good but undervalued projects that fail to reach their fund-
ing goal. However, it is also a powerful mean to generate publicity and to sell products. In order to
help understanding this phenomenon, we analyze its drivers. Our analysis gives evidence for all three
stakeholder groups contributing to overfunding. We provide arguments for all three stakeholder
groups to have certain egoistic incentives for a further backing of already funded projects instead of
prioritizing a more demand-oriented distribution of funding. Our findings extend the understanding of
funding processes on crowdfunding platforms and are of high interest for practitioners in the field.
Keywords: Crowdfunding, Online Platforms, Kickstarter, Project Overfunding, Altruism, Egoism.
1 Introduction
Online crowdfunding platforms offer both project founders and potential funders a virtual place to find
and meet each other (Ingram et al., 2014; Belleflamme et al., 2014). Today, using an online platform
for acquiring the necessary project funding is a valuable option for project founders besides traditional
funding sources, such as banks, venture capitalists, or governmental initiatives. Crowdfunding plat-
forms offer all the relevant services around creating a project website, presenting the project online,
and coordinating the funding payments. Another valuable advantage of such established platforms is
that they are already well-known to a considerable number of Internet users (Etter et al., 2013). This
means that Internet users can come across a project and, then, may decide to back it by funding.
Kickstarter, Indiegogo, and RocketHub are well-known examples for such crowdfunding platforms.
For project founders, it is important to know how they can support reaching the funding success of
their crowdfunding campaigns, i.e., reaching a certain goal amount of funding. Therefore, research has
dealt predominantly with two questions so far. First, research has investigated the reasons why funders
pledge money to projects in order to understand the underlying intentions (e.g., Gerber et al., 2012;
Kuo and Wu, 2014). Second, research has analyzed which factors contribute to funding success to ex-
plain how founders can design a more successful campaign (e.g., Mollick, 2014; Xiao et al., 2014; Xu
et al., 2014; Koch and Siering, 2015). The empirical results, insights, and implications of these studies
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Twenty-Fourth European Conference on Information Systems (ECIS), İstanbul,Turkey, 2016 2
help founders to plan and conduct a successful crowdfunding campaign and give valuable advice of
how to design the project presentation in order to attract funding and reach the funding goal.
In our opinion, an optimal crowdfunding platform supports those projects that are worth funding and
helps to distribute the sum of potential funding in a way that respects all stakeholders' interests in the
best way as possible. However, looking at funding results on crowdfunding platforms makes obvious
that some campaigns' amount of pledged funding does not just reach the funding goal but massively
exceeds this goal. That is, some projects receive a funding that is distinctly higher than their defined
funding goal while other projects that would also be worth funding fail to reach their funding goal
(Malave, 2012). An example of extreme overfunding that has recently reached popularity represents
the case of the Kickstarter crowdfunding campaign "Pebble Time - Awesome Smartwatch, No Com-
promises" (conducted in march 2015), which had a targeted funding goal of USD 500.000. The final
funding of this campaign exceeded this goal by an incredible sum of USD 19.8 million − becoming the
highest funding that has ever been reached on Kickstarter (Hope King, 2015).
Such extreme funding results have been discussed as potential functional weaknesses on crowdfunding
platforms (Malave, 2012). However, overfunding can also be highly beneficial for those project
founders that desire to generate publicity and to sell their products or services. Overfunding is also
relevant for founders that plan a project with so-called stretched goals, e.g., a PC game that will con-
tain more game levels according to the available (over)funding. Here, the level of overfunding decides
on how much of the additional features can be implemented. Even the platform operators themselves
benefit from overfunded campaigns through additional traffic they generate on the platform, the indi-
rect promotion for the platform as well as higher resulting revenues. Thus, the question of how mas-
sive overfunding of some projects affects overall welfare is not easy to answer and has not yet been
discussed intensively. Before effectively analyzing market quality, we hold it to be substantial to in-
vestigate the factors that lead to project overfunding. Therefore, by our research, we address the ques-
tion of what are the drivers of project overfunding. Although some publications refer to overfunding as
a phenomenon of crowdfunding (Malave, 2012; Mollick, 2014; Barbi and Bigelli, 2015; Gabison,
2015; Frydrych et al., 2014), research has not yet investigated the underlying reasons sufficiently. To
close this research gap, we propose a research model, conduct an empirical analysis taking into ac-
count all three stakeholder groups, and discuss the drivers of project overfunding. Hereby, we reveal
the influence of platform-, founder-, funder- as well as project-related aspects on overfunding.
Our research paper proceeds as follows. In a first step, we review the background of and the most im-
portant research on crowdfunding as well as related theories to allow for an optimal linkage to the in-
sights of our research. Then, we characterize our data set that we have used for descriptive and empiri-
cal analyses. Next, we present our extensive analysis of project overfunding and its drivers. Herein, we
provide a graphical pre-analysis, present our research model to explain overfunding, and evaluate this
model using data from Kickstarter. Finally, we discuss the findings, address limitations, and conclude.
2 Background and Related Research
2.1 Online Crowdfunding Platforms
Crowdfunding platforms are so-called two-sided markets that intermediate between project founders
searching for funding and funders willing to provide money (Belleflamme et al., 2014). Furthermore,
they can be seen as the meeting place of three stakeholder groups, i.e., platform operators, project
founders, and project funders (Valančienė and Jegelevičiūtė, 2014; Collins and Pierrakis, 2012). On
such platforms, project founders create a campaign website to, first, advertize their project and, se-
cond, attract and convince potential funders to back the project by their pledge of funding. Typically,
both a funding period (e.g., 30 days) and a funding goal (e.g., USD 20,000) have to be defined initially
by the project founders. After the initially defined period of time, the crowdfunding campaign ends
and the amount of pledged funding determines whether the campaign reached the funding goal or not.
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Twenty-Fourth European Conference on Information Systems (ECIS), İstanbul,Turkey, 2016 3
Generally, crowdfunding can be categorized into five types (Abushaban, 2014; Rossi, 2014; Schramm
and Carstens, 2014), which are donation-based crowdfunding (where funders support projects by
funding without claiming any compensation), reward-based crowdfunding (where funders are com-
pensated for funding by a non-monetary reward), lending-based crowdfunding [crowdlending] (where
funders are compensated for funding by a later repayment and interest payments), equity-based
crowdfunding [crowdinvesting] (where funders are compensated for funding by a share of equity), and
royalty-based crowdfunding (where funders are compensated for funding by royalty payments for the
use of a patents/licenses/etc.). According to the crowdfunding model, different outcomes of the cam-
paign are possible (Wheat et al., 2013; Gerber et al., 2012; Cumming et al., 2014): the all-or-nothing
model allows project founders to keep the amount of pledged money only if the funding goal is
reached and the keep-it-all model allows project founders to get the amount of pledged money in any
case. The platform Kickstarter, for example, applies an all-or-nothing model and allows for a combi-
nation of reward-based as well as donation-based funding. Concerning platform usage costs, platform
operators define a fee pricing structure, that determines the costs for platform users. Typically, the
platforms keep a fixed percentage, e.g., 4 or 5 per cent, of the collected funding.
2.2 Research on Crowdfunding Success and Overfunding
For project founders, it is especially important to know which factors support the successful funding of
projects. Therefore, research has analyzed successfully and unsuccessfully funded projects to deter-
mine the success factors of crowdfunding. Accordingly, it has been confirmed that the higher the fund-
ing goal, the less likely is funding success (Koch and Siering, 2015; Mollick, 2014). A more extensive
description text of the project presentations leads to a higher probability of successful funding (Koch
and Siering, 2015; Barbi and Bigelli, 2015; Xiao et al., 2014). Also, the usage of media, i.e., pictures
and videos, increases the success probability (Koch and Siering, 2015; Barbi and Bigelli, 2015; Xiao
et al., 2014; Mollick, 2014). Furthermore, it has been shown that updating the projects by posts and
giving further information on the project stages is also supportive (Mollick, 2014; Xu et al., 2014;
Xiao et al., 2014). Moreover, Zvilichovsky et al. (2014) find indications that a project is more likely to
be successfully funded if its founder has backed other projects by funding before. Also, founders' ex-
perience in form of previously created crowdfunding campaigns on the platform has a significant posi-
tive influence on campaigns' success (Zvilichovsky et al., 2014; Koch and Siering, 2015). Mitra and
Gilbert (2014) analyze the language of project descriptions and find that there are typical phrases that
lead to projects being more likely to be successfully funded. Moreover, it has been shown that cam-
paigns with a shorter funding period are more likely to be successfully funded (Xiao et al., 2014;
Mollick, 2014; Barbi and Bigelli, 2015). And, finally, Zheng et al. (2014) find indications that there
are cultural differences in crowdfunding. They argue that findings for the USA need not to be neces-
sarily the same for other geographical regions. In Chinese, e.g., they find a positive influence of the
length of funding periods on funding success − in contrast to its negative influence in the USA.
Concerning the dynamic rise of funding, Mollick (2014) argue that an early growth of pledged funding
leads to further funding by other funders because funding growth is seen as a signal of project quality.
Moreover, researchers explain that social interconnection and social networks' dynamics function as
multipliers and that communication via social networks supports funding success by spreading the
word of mouth (Frydrych et al., 2014; Cheung et al., 2008; Hui et al., 2014).
Furthermore, research has discussed the intentions for projects founders to use crowdfunding. Certain-
ly, founders use crowdfunding platforms to collect money (Gerber et al., 2012). But we also find other
reasons like selling products, e.g., in a pre-selling campaign (Kuo and Wu, 2014), increasing commu-
nities' awareness and publicity (Gerber et al., 2012), establishing relationships (Gerber et al., 2012)
and receiving support, validation as well as commitment (Gerber et al., 2012). Funders also have vari-
ous intentions to participate in crowdfunding. For example, joining a crowdfunding community can be
driven by a positive feeling as a result of being socially connected (Gerber et al., 2012). Individuals
pledging money to projects can be interested in the project reaching its aim (Gerber et al., 2012;
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Twenty-Fourth European Conference on Information Systems (ECIS), İstanbul,Turkey, 2016 4
Kuppuswamy and Bayus, 2013), e.g., building a monument/memorial, or focus on receiving the prod-
uct that results from the project (Kuppuswamy and Bayus, 2013; Gerber et al., 2012; Haas et al.,
2014), e.g., technical products, or intend to receive any other form of profit for their funding (Haas et
al., 2014; Kuppuswamy and Bayus, 2013), e.g., future payments, or expect future acts of reciprocity
from supported individuals (Zvilichovsky et al., 2014), or enjoy feeling content through helping and
supporting others altruistically (Haas et al., 2014; Kuppuswamy and Bayus, 2013). Therefore, it can be
distinguished principally between motives to "enhance the welfare of the needy" (altruistic) and mo-
tives to "somehow enhance a person's own welfare" (egoistic) (Bendapudi et al., 1996).
Among all successfully funded projects, there are some projects that exactly reach their goal while the
funding of most projects exceeds the goal to a certain extent. Such projects are overfunded. In the lit-
erature, the term of overfunding is used in two slightly different ways. Principally, a project is called
overfunded the moment its funding exceeds the goal (e.g., Frydrych et al., 2014). Sometimes, the term
is especially used when a project's funding is considerably higher than its funding goal (e.g., Mollick,
2014). However, concerning overfunding, there have been only very few research findings so far.
Mollick (2014) finds that overfunded projects tend much more to delays in delivering the promised
rewards. And Malave (2012), in his paper, addresses the question of how Kickstarter could better cater
the needs of its users by redesigning and changing some platform principles and model parameters. He
also captures the idea that lowering overfunding could help to fund undervalued projects that other-
wise fail to reach their goal. Recently, one first attempt of explaining overfunding has been made
(Cordova et al., 2015). However, this paper suffers from several weaknesses. Many important factors,
e.g., all founder-related aspects and all factors of project information disclosure, which already have
been shown to be important for the explanation of funding results, have been completely disregarded.
On the other hand, the number of funders and the logarithm of funders' average funding contribution
have been included as explanatory variables. Obviously, these variables are highly correlated with the
independent variable of overfunding because the sum of overfunding is the result of multiplying the
number of funders with the mean funding contribution. Consequently, research has to adjust the model
or to propose a different approach in order to identify the true underlying reasons for overfunding.
2.3 Related Theories
Whenever money or goods are exchanged, overall welfare and utility are influenced by activities and
decisions of all individuals concerned. In the case of crowdfunding platforms, project founders, fun-
ders, and platform operators have an influence on the distribution of funding and compensations.
While it is reasonable that individuals usually desire own optimal outcomes, it is much more difficult
to determine when the optimal overall outcome is achieved. Especially interesting is the fact that pro-
jects are competing for funding (Burtch, 2011). The funding of a project has negative external effects
on all other projects as these cannot receive this amount of money anymore. Such (uninternalized) ex-
ternalities can be seen as a form of market failure (Williamson, 1971). In general, crowdfunding plat-
forms are both open to the crowd and open to free funding decision making. As a result, funding out-
comes are likely to be biased by market failure and need not to reflect optimal results.
In comparable context, Harrison and Wicks (2013) explain that overall performance cannot only be
measured by revenues that are generated. Whenever many individuals and parties are concerned, a
multi-stakeholder approach is necessary to measure performance and to estimate the overall utility of
the outcome. Harrison and Wicks (2013) conclude that performance should be measured as the "total
value created by the firm through its activities, which is the sum of the utilities created for each of a
firm's legitimate stakeholders". Therefore, stakeholder theory (Freeman, 1994; Freeman et al., 2004)
advise to regard responsibilities concerning all stakeholders whenever business is conducted or deci-
sions are made. He et al. (2014), for example, discuss stakeholder theory in the context of crowdsourc-
ing. In crowdsourcing, a task or problem is outsourced to the crowd in form of an open call that asks
the crowd for solving the problem or completing the task (Brabham, 2008; Howe, 2006). He et al.
(2014) demonstrate that in this crowd-based context various types of stakeholders with different spe-
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Twenty-Fourth European Conference on Information Systems (ECIS), İstanbul,Turkey, 2016 5
cific attributes and interests can be found. That is, for an optimal overall outcome, all different types of
stakeholders have to be considered and respected.
However, as long as platform rules do not ensure that all individuals contribute actively to an overall
optimal outcome, every individual tend to maximize his or her own profits and benefits. Therefore, we
suggest that theoretical aspects on individual behavior, decision making as well as egoism and altru-
ism yield valuable indications and implications in the context of crowdfunding. All three stakeholders
are confronted with many questions and decisions. For example, the funders have to choose projects
that they find interesting and worth funding but also trustworthy (Hui et al., 2014; Lehner, 2013). The
project founders have to decide on how to present the projects and on how to set the funding period
and funding goal (Mollick, 2014; Xu et al., 2014; Xiao et al., 2014). And the platform operators have
to determine key parameters of the crowdfunding model or decide on how campaigns are displayed on
the platform website. In all such decisions, altruism and egoism are important driving forces. While
egoism leads individuals to maximize own profits, the reasons for altruistic behavior are more com-
plex (Andreoni, 1990). When explaining why individuals help others, it is often referred to the norm
of reciprocity (Gouldner, 1960; Leeds, 1963). Reciprocity explains 'giving' as a compensation for hav-
ing received something previously or in hope to receive something in future (Gouldner, 1960). How-
ever, apart from this explanation, research discusses other possible reasons for altruism, for example,
friendship, respect, prestige, and social as well as psychological objectives (Olson, 2002). Concerning
funders, we find both traces of egoism (e.g., funders focusing only on receiving the rewards) (Haas et
al., 2014; Gerber et al., 2012) and traces of altruism (e.g., funders helping without taking rewards)
(Haas et al., 2014). Thus, we assume that in crowdfunding especially aspects of egoism and altruism
explain a large part of stakeholders' behavior and, thus, of funding outcomes.
3 Analyzing Drivers of Project Overfunding
3.1 Data set and data acquisition
For our descriptive and empirical analyses in the following sections, we use a data set of projects from
the crowdfunding platform Kickstarter. This data set comprises successful project campaigns (i.e., pro-
jects that have reached their funding goal) as well as unsuccessful project campaigns (i.e., projects that
have failed to reach their funding goal). We took an almost balanced data set of successful and unsuc-
cessful projects going back from the end of November 2014. In total, we have collected 40,833 pro-
jects in our data base: 19,745 successful and 21,088 unsuccessful project campaigns.
On Kickstarter, projects are assigned to one of fifteen different categories: Art, Comics, Crafts, Dance,
Design, Fashion, Film&Video, Food, Games, Journalism, Music, Photography, Publishing, Technolo-
gy, or Theater, which we will regard in later analyses. Moreover, on Kickstarter, projects cannot only
be denoted in USD − but projects in USD are noticeably more frequent. For our empirical analysis of
overfunding, we use all successfully funded projects that are denoted in USD to avoid problems of
currency conversion. This results into a final data set of 15,824 project campaigns.
3.2 Graphical pre-analyses
In a first step, we apply a graphical analysis of the crowdfunding data in order to gain initial insights
into funders' funding behavior and its relation to overfunding. We examine the distribution of the
amount of funding that crowdfunding campaigns have reached. Therefore, we do not regard the abso-
lute amount of funding but we set the finally reached funding X into relation to the initially defined
funding goal Xgoal of the project, so that: Rfund = X / Xgoal. For unsuccessfully funded projects, this
funding extent Rfund ranges always in the interval of [0, 1[. Successfully funded projects always have a
Rfund 1, while a value of Rfund = 1 means that a project has exactly reached the funding goal. We de-
fine a project to be overfunded if Rfund > 1. In other words, the higher this extent of funding Rfund of a
successfully funded project, the stronger it is overfunded.
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Twenty-Fourth European Conference on Information Systems (ECIS), İstanbul,Turkey, 2016 6
For a graphical presentation of the distribution of Rfund, we slice the continuum into intervals of the
size of 0.05. Figure 1 shows the resulting distributions of Rfund for the fifteen categories on Kickstarter.
The resulting typical curves' shapes are in line with the research findings of Lu et al. (2014), Mollick
(2014), and Kuppuswamy and Bayus (2013). These authors find that there are many projects that do
not even start reaching funding dynamics and that most projects exceed their goal by only little mar-
gins. However, these authors do not distinguish explicitly between the different categories.
Figure 1. Distributions of funding extents according to categories
Although the curves of Figure 1 (b) are relatively flat, overfunding is not a niche phenomenon. The
finally reached funding of about 27.5% of all successfully funded projects exceed the 2-fold of the
original funding goal (17.5% exceed the 5-fold and 5.6% even exceed the 10-fold). Admittedly, the
two graphs in Figure 1 do not allow to have a closer look on the curve shapes of the different catego-
ries. Thus, we zoom in on the curves of the successful project campaigns and find that there are char-
acteristic differences in the distributions of Rfund of the different categories. In the graphs of
Figure 2, we see that project categories differ noticeably concerning their distributions of Rfund. For a
better interpretation, we may add that the higher a curve is on the left-hand side, the less projects in a
category are overfunded. In contrast, the higher a curve is on the right-hand side, the more projects in
a category show higher overfunding. For example, we find that the distribution of the funding extents
Rfund of projects in the categories of Music or Dance show a relatively high occurrence rate of low
overfunding (Figure 2, left graph) and low occurrence of strong overfunding (Figure 2, right graph). In
contrast, the distribution for the category of Games or Design shows a relatively low occurrence rate
of low overfunding and a higher occurrence rate of stronger overfunding. Here, a first explanation for
projects of Dance and Music to be less overfunded might reflect that these offer less often attractive
rewards, while projects of the categories Games or Design more often attract reward-focused funders.
Figure 2. Distribution of funding extents according to categories (successfully funded projects)
rel. amount of projects
rel. amount of projects
( 0.8 80% )
funding extent [Rfund]
funding extent [Rfund]
(a) Funding Distribution of
Unsuccessfully Funded Projects [Rfund<1]
(many projects
remain with
low funding)
(very few projects
narrowly miss
their funding goal)
(growing overfunding)
(a) Interval [1, 1.2]
(b) Interval [1.2, 2.5]
rel. amount of projects
rel. amount of projects
rel. amount of projects
funding extent [Rfund]
funding extent [Rfund]
funding extent [Rfund]
Games
Music
Music
Games
(c) Interval [2.5, 3.0]
(rel. many projects with
low overfunding)
(rel. few projects with low overfunding)
(rel. many projects
with high overfunding)
(rel. few projects with high overfunding)
Zooming on the Funding Distribution of Successfully Funded Projects of Figure 1 (b)
( 0.45 45% )
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Twenty-Fourth European Conference on Information Systems (ECIS), İstanbul,Turkey, 2016 7
On Kickstarter, both donation-based and rewards-based funding is possible. Hence, the projects on the
platform are generally funded both partially reward-based, Xrew, and partially donation-based, Xdon.
Consequently, the total sum of funding results as X = Xrew + Xdon. On Kickstarter, it can be distin-
guished how much a project has been funded by donation and how much funding has been given to the
project in return for a funding compensation in form of a reward. Hence, for every project, this results
into a specific relation between both funding types, so that the share of donation-based pledging is
Sdon = Xdon / (Xrew + Xdon) = Xdon / X, which always takes values between zero and one including these
borders, i.e., Sdon [0, 1]. We analyzed this share of donation-based pledging Sdon of successfully
funded projects and distinguished again between the 15 project categories on Kickstarter. By this, we
find noticeable differences between the distributions of Sdon of the project categories.
For graphing the distribution of Sdon, we slice the range of [0, 1] into intervals of the size of 0.05. Fig-
ure 3 shows the resulting distributions of Sdon for the fifteen categories on Kickstarter. While we have
in total 15 categories on Kickstarter, we present these in three separate graphs, each of which shows
five categories. On the one hand, we decided to use this separation to improve visual clarity because a
graph with 15 curves is difficult to interpret. On the other hand, by this separation, we want to show
that we find different characteristic shapes of the curves. We see that the project categories reveal dif-
ferent distributions of the shares of donation-based funding. For a better interpretation, we may add
that the higher a curve's shape is on the left-hand side of the graph, the more projects with a low dona-
tion-based funding are in the respective category. In contrast, the higher a curve's shape is on the right-
hand side, the more projects with a higher donation-based funding are within the project category.
This graphical analysis reveals that founders' funding behavior differs between project categories.
Figure 3. Different donating behavior according to the project categories
In the graph (a) of Figure 3, we find curves with a noticeable peak on the left-hand side. This means
that in these five project categories one finds a relatively high number of projects with a very low level
of donation-based funding. This implies that many funders of these projects decide to take a reward
instead of giving money without a compensation, which represents a relatively more reward-focusing
style of funding. In the graph (c), the curves show more even shapes with a relatively higher level of
the curves on the right-hand side. The project categories in this graph include more projects with a
higher level of donation-based funding. Thus, funding in these projects is less reward-driven. And for
completeness, the projects in the categories of graph (b) are in between. Interestingly, by this grouping
based on the share of donation-based funding, categories that are likely to create real products (De-
sign, Fashion, etc.) and those of arts and culture (Music, Dance, etc.) are close together.
Analyzing the curves of the categories reveals that, interestingly, the same categories group together as
in the analysis of the share of donation-based funding Sdon in Figure 2. This lets us conclude that a low
level of donation-based funding comes with a lower extent of overfunding. Thus, the extent of dona-
tion-based funding Sdon helps to explain the extent of overfunding Rfund of successfully funded pro-
jects. We will verify this finding in the subsequent analyses.
(a) Low Proportion of Donations
(b) Medium Proportion of Donations
(c) Higher Proportion of Donations
share of donation-based funding [Sdon]
share of donation-based funding [Sdon]
( 0.3 30% )
(rel. many
projects with
a low proportion
of donation-
based funding)
(rel. many projects
with a higher
proportion of
donation-based
funding)
rel. amount of projects
rel. amount of projects
rel. amount of projects
share of donation-based funding [Sdon]
low
low
low
high
high
high
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Twenty-Fourth European Conference on Information Systems (ECIS), İstanbul,Turkey, 2016 8
3.3 Hypotheses
Our research aims at analyzing the drivers of project overfunding. Therefore, we hypothesize on the
variables in our model as well as discuss their expected influence on projects' levels of overfunding.
For clarity and a better overview, we have decided to form five groups of hypotheses (Figure 4).
Campaign Conditions: Research has shown that the funding goal is an important factor in explaining
funding success (Koch and Siering, 2015; Mollick, 2014): the higher the funding goal, the less likely
the campaign reaches its goal. We assume a similar effect on overfunding:
H1.1: The funding goal has a negative influence on project overfunding.
Concerning the duration of the campaigns, research has shown different results regarding its influence
on funding success (Zheng et al., 2014). However, the vast majority of research finds that projects that
successfully reach the funding goal have a shorter funding period (Mollick, 2014; Kuppuswamy and
Bayus, 2013). Mollick (2014) explains that longer funding periods are interpreted as an indication of a
lack of confidence among project founders. This leads to funders being more reluctant in funding.
Hence, we assume a similar negative connection between funding duration and overfunding.
H1.2: The longer the funding duration, the less strong is the overfunding.
We also include aspects on campaigns' offered rewards, which function as funding compensations. We
assume that a higher number of reward levels, i.e., a broader range of choice, will increase overfund-
ing because more funders will find an appropriate compensation for their funding. Similar findings
have been made in the context of funding success. Here, a broader range of choice has a positive influ-
ence on funding success (Crosetto and Regner, 2014; Barbi and Bigelli, 2015). However, the project
founders have the possibility to limit each reward level to a certain maximum number of funders. In
this case, only a pre-defined number of funders can select a certain reward. Therefore, we conclude
that reward level limitations have a negative influence on overfunding.
H1.3: The more reward level are offered, the stronger is the overfunding.
H1.4: The use of reward level limitations inhibits project overfunding.
Project Information Disclosure: It has been shown that the length of project descriptions (Xiao et al.,
2014; Koch and Siering, 2015), the number of pictures (Koch and Siering, 2015), and the provision of
video material (Mollick, 2014; Koch and Siering, 2015; Xiao et al., 2014) have a positive influence on
funding success. These factors lower information asymmetry between project founders and potential
funders, which leads to more trust and a higher willingness to fund. Hence, we assume these factors to
have a positive influence on overfunding because more funders will choose to fund. Moreover, it has
been found that communication, e.g., by updates and comments on the crowdfunding project website,
are positively related to funding success (Xiao et al., 2014). We are aware of the fact that comments
do not only contain further information supplied by the project founder but a big part of these com-
ments is also submitted by other platform users. However, we hold such communication to be a proxy
for communication activities among potential funders in the community. Such communication could
possibly recruit further funders. Therefore, we assume communication to increase overfunding.
H2.1: Textual information has a positive influence on overfunding.
H2.2: Media-based information has a positive influence on overfunding.
H2.3: The more communication, the stronger is the overfunding.
Founder-Related Aspects: Research has also analyzed the influence of founder-related aspects on
funding success. Here, it has been found that the length of platform membership (Zvilichovsky et al.,
2014), the number of friends (Mollick, 2014; Koch and Siering, 2015), the number of backed projects
(Zvilichovsky et al., 2014), and the experience in form of previously founded projects (Koch and
Siering, 2015; Zvilichovsky et al., 2014) positively influence funding success. We expect these varia-
bles to have similar effects of on project overfunding. Therefore, we hypothesize:
H3.1: The longer the founder is active on the platform, the stronger is the overfunding.
H3.2: The number of friends has a positive influence on overfunding.
H3.3: The more active the founder is on the platform, the stronger is the overfunding.
H3.4: The more project campaigns a founder has conducted, the stronger is the overfunding.
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Twenty-Fourth European Conference on Information Systems (ECIS), İstanbul,Turkey, 2016 9
Platform-Related Aspects: Platform operators especially benefit from projects that are characterized
by a relatively fast growing sum of pledged money (Agrawal et al., 2013). Thus, operators principally
have an incentive to support fast-growing projects, e.g., by placing them in a prominent position on the
website. Such a prominent placement promotes further funding (Do et al., 2012) and increases plat-
form's revenue. Especially in the all-or-nothing model, platform operators are incentivized to place
promising projects prominently on websites. Here, projects that to do not reach the goal do not receive
the funding, which means no revenue for the platform. This is no general suspicion of platforms to
influence funding results but should emphasize that platforms are theoretically able to use their impact
to influence funding results. Not only by positioning projects on the website in a certain manner but
also by marking the projects, for example, by labels implying that projects are "especially worth fund-
ing". Research has shown that recommendations on online platforms positively influence users' deci-
sion behavior (Senecal and Nantel, 2004). To show that such labels can further support overfunding,
we include the so-called "staff pick" label on Kickstarter. Projects with such a label are funded by staff
members of the Kickstarter team. We assume that such labels increase the awareness of potential fun-
ders towards the projects. Thus, we hypothesize that such labels drive overfunding.
H4.1: The platform is able to drive overfunding by indication of project quality.
Funding Behavior: On crowdfunding platforms, e.g., on Kickstarter, projects offer various rewards to
the crowd as a compensation for funding. We expect that reward-focused funders tend to continue
funding after the goal has been reached for the purpose of gaining personal benefits from the rewards.
Here, funders predominantly focus on receiving the rewards instead of giving priority to helping pro-
jects reach their funding goal (Gerber et al., 2012). Such funders, who thereby show traces of egoistic
behavior, tend to continue funding although the funding goal of a campaign has already been reached.
On the contrary, there exist funders that fund projects for more altruistic reasons (Haas et al., 2014).
These funders prioritize helping projects to reach their funding goal. Consequently, they do not greatly
continue funding when the funding goal is reached. Therefore, we expect projects that attract relatively
more donation-based funding to reveal less overfunding, while projects that attract relatively more
reward-based funding will reveal stronger overfunding. Moreover, we assume differences in funding
behavior between project categories. Specifically, we argue that different topics appeal different kinds
of people. People that are interested in consumption (of, e.g., technological products and fashion) are
more likely to purchase rewards than people that are interested in arts or culture who might focus more
on a project to reach its aim. As a result, projects of certain categories tend to higher overfunding.
H5.1: Funders cause a lower overfunding, if a project is more attractive for donations.
H5.2: There are typical project categories, the projects of which tend to more overfunding.
3.4 Research Model
Figure 4. Overview of the research model explaining crowdfunding project overfunding
Project Information
Disclosure
Founder-Related Aspects
Funding Behavior
Platform-Related Aspects
Campaign Conditions
Overfunding
[ Rfund ]
H2.1: textual information (+)
H2.2: media-based information (+)
H2.3: communication (+)
H1.1: funding goal ()
H1.2: funding duration ()
H1.3: reward levels (+)
H1.4: reward level limitations ()
H3.1: time on platform (+)
H3.2: number of friends (+)
H3.3: active backing (+)
H3.4: campaign experience (+)
H4.1: indication of quality (+)
H5.1: donation attraction (+)
H5.2: project categories (+/)
Koch /Crowdfunding Project Overfunding
Twenty-Fourth European Conference on Information Systems (ECIS), İstanbul,Turkey, 2016 10
In the resulting research model (Figure 4), multiple variables are included to explain the level of over-
funding of online crowdfunding projects. As we have discussed in section 2.2, research in the area of
crowdfunding has revealed several variables to have an influence on the success of funding. Thus, we
regard an inclusion of these variables into the research model of explaining overfunding to be vital.
These variables form the first three groups of hypotheses, i.e., regarding campaign conditions, project
information disclosure, and founder-related aspects. Moreover, by our research model, we extend the
set of already well-established variables by including aspects concerning the platform operators' influ-
ence on overfunding, i.e., platform-related aspects, as well as funding behavior. The latter is included
as a result of our graphical pre-analysis, which gives indication of a relation between the extent of do-
nation-based funding and overfunding. In conformity with subsection 3.2, we measure overfunding as
the fraction of the collected funding of a campaign in relation to a campaign's funding goal ( Rfund ).
3.5 Operationalization
The variables used in our regression are as follows: Goal is the funding goal in USD, Duration is the
funding duration of the campaign in days (funding period), RewardLevels is the number of offered
reward levels, RewardLimits is the relative amount of limited reward levels among a project's reward
levels, FullLimits is the relative amount of reward levels that reach their limit, WordsDescription is the
number of words of the project description, Pictures is the number of all pictures and graphical ele-
ments, TitleVideo (Boolean) indicates the existence of a title video, Updates is the number of update
messages, Comments is the number of comments, TimeOnPlatform is the length of founder's platform
membership in days, BackedProjects is the number of projects that the founder has backed by funding,
CreatedProjects is the number of the founder's previously created campaigns on the platform,
FriendsDisplyed (Boolean) indicates whether Facebook friends are displayed or not, Friends is the
number of founder's Facebook friends (zero if not displayed), StaffPickLabel (Boolean) indicates the
existence of a visible label revealing a staff-picked project, DonationAttraction is the relative amount
of donation-based funding, and Cati (Boolean) the project category assignment.
Taking a look at the data reveals that the value levels differ substantially between the variables. There-
fore, we decide to calculate the z-scores of all variables by normalization (except for Booleans). This
has no influence on the quality of results (e.g., coefficient signs) or the coefficient of determination but
surely on the regression coefficients. Thus, the calculated regression coefficients are brought on the
same level and made more comparable. The z-score of a variable is calculated by subtracting its mean
and, then, dividing by its standard deviation. Next, we present the results of our regressions.
3.6 Empirical Analysis
In an initial setup, we regressed the dependent variable Rfund on the set of independent variables by
means of a linear regression in order to evaluate the research model. This regression resulted in a poor
coefficient of determination ( R2 ) and surprisingly few significances. However, from our pre-analysis,
we know that the distribution of the dependent variable Rfund is not normal but highly skewed. The
data set involves many values close to the value of one but also values that are substantially higher.
Such wide range of values and high skewness can lead to regressions being sensitive to outliers
(Wooldridge, 2013). This problem is already well known in different contexts, e.g., in the analysis of
return rates or housing prices. Wooldridge (2013) addresses this issue and suggests that "using a trans-
formation, especially taking the log, yields a distribution that is closer to normal". We followed this
advise and regressed ln( Rfund ) on the independent variables and found both significances and a satis-
fying coefficient of determination. In detail, we apply the following set up (Model 7):
(1)
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The evaluation of our research model reveals several significant influences of the included variables
on project overfunding. The regressions clearly show which factors drive or inhibit overfunding.
Moreover, we run in total seven different regression set ups (Model 1 to 8) in order to examine how
good the variables can explain overfunding (coefficient of determination). In the course of our evalua-
tion, we have checked the correlations between the variables and find that all correlations are below
0.56. We also checked the variance inflation factors (VIFs) and found that all factors are below 2.9
which indicates no problematic multicollinearity effects between the variables (Wooldridge, 2013).
Table 1. Regression results (coefficient, p-value, significance: * p<0.1, ** p<0.05, *** p<0.01)
Remark: Every project is assigned to a project category (e.g., Art, Comics, etc.). Each of these categorical variables can be
composed by linear combination of all other categorical variables. Therefore, variable Cat_1 is omitted to avoid collinearity.
Campaign Conditions: The funding goal of a campaign is negatively related to overfunding (H1.1:
p-val. < 0.01). This supports the more or less obvious hypothesis that a higher funding goal leads
to a lower overfunding. This finding is in line with the research literature on crowdfunding success.
However, previous research has shown that the duration of the campaign is negatively correlated to
funding success (Mollick, 2014; Kuppuswamy and Bayus, 2013). Interestingly, the duration of a
crowdfunding campaign has no negative influence on overfunding (H1.2: not supported). In our analy-
sis, we find that a longer funding period of successfully funded campaigns leads to stronger overfund-
ing (p-val. < 0.05). We conclude that in case of successful campaigns longer funding periods are
not interpreted as a signal of bad quality or as lack of confidence among project founders. Instead, the
longer a campaign is open to be backed by funding, the more funders can use their opportunity to fund
the project. Overfunding is also higher, the broader rewards' range of choice (H1.3: p-val. < 0.01).
This is in line with the literature on funding success (Crosetto and Regner, 2014; Barbi and Bigelli,
2015). On the contrary, it is shown that limiting reward levels inhibits overfunding of projects (H1.4:
p-val. < 0.01) because reward limitations prevent rewards from being massively selected by funders.
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Twenty-Fourth European Conference on Information Systems (ECIS), İstanbul,Turkey, 2016 12
Project Information Disclosure: Research has shown that a good description of projects by informa-
tive texts, pictures, and videos reduce funders' uncertainty and foster trust towards project founders
(Koch and Siering, 2015). Our analysis reveals these hypotheses to be also valid for overfunding. The
longer the project descriptions (H2.1: p-val. < 0.01) and the more pictures (H2.2: p-val. < 0.01), the
higher is project overfunding. Also the existence of a title video has a positive influence on overfund-
ing (H2.2: p-val. < 0.01). These results indicate that the more information is provided, the more fun-
ders decide to fund the project. Also communication (i.e., updates and comments) has a positive influ-
ence on overfunding (H2.3: p-val. < 0.01). In our opinion, such communication can drive overfunding
in multiple ways. First, information on project progress can be provided by the founders, which gener-
ates trust and lowers funding hesitation. Second, communication is pivotal in online communities. Po-
tential funders feel involved when there is an active community around the project. Furthermore, the
number of comments represents the activeness of projects' community. Such activity drives the elec-
tronic word of mouth that can activate new potential funders via social media. And, third, the messag-
es can be posted in a style that requests the crowd to continue funding, e.g., in case of stretched goals.
Founder-Related Aspects: It has already been shown that founder-related aspects have an influence
on funding success (Mollick, 2014; Koch and Siering, 2015; Zvilichovsky et al., 2014). Our analysis
reveals that such aspects also have an influence on the level of overfunding. Here, we find that the
length of founders' platform membership has a positive influence on overfunding (H3.1:
p-val. < 0.01). We explain this result by a positive relation between the length of membership and a
higher degree of connectedness to other platform members. Moreover, the longer a founder is active
on the platform, the easier people develop trust towards him/her. Concerning the number of Facebook
friends, research has found that a higher number of friends has a positive influence on funding success.
In our analysis, we also find that the number of friends positively influence overfunding (H3.2:
p-val. < 0.01). However, the coefficient of displaying the number of friends is negative (p-val. < 0.01).
This means that displaying a low number of friends inhibits overfunding while hiding this low number
of friends leads to higher overfunding. Comparable results have been found in the context of funding
success (Mollick, 2014).
Platform-Related Aspects: The influence of crowdfunding platforms on funding processes has not
yet been addressed substantially in research. We hold it to be vital to regard the possible influence that
the platform can have on the funding results. Here, our analysis reveals a positive influence of indica-
tion of quality on overfunding (H4.1: p-val. < 0.01). This finding suggests the possibility that platform
operators can selectively push projects' funding forward.
Funding Behavior: Concerning funding behavior, we find that projects that are funded more altruisti-
cally, i.e., projects that attract relatively more donation-based funding instead of reward-based fund-
ing, have a lower overfunding. The higher the extent of donation-based funding of a project, the lower
is the overfunding (H5.1: p-val. < 0.01). In other words, the more a project attracts reward-based fund-
ing, the more it is overfunded. Moreover, we find certain categories of projects (e.g., Technology, De-
sign, Games) that are significantly more overfunded (H5.2: p-val. < 0.01). We assume that especially
here funders are keen on the project items or follow pre-selling campaigns.
3.7 Discussion and Limitations
The results presented give evidence that several factors contribute to overfunding. These findings are,
for example, interesting for project founders who favor a higher overfunding because they intend to
gain publicity and sell products or have planned stretched goals. These founders can increase over-
funding by regarding the findings of this study. Projects tend to be more overfunded if founders offer
more levels of rewards, provide more information (in form of texts, pictures, and videos), communi-
cate actively, and reveal a high number of friends, of other backed campaigns, and of created projects.
Secondly, the platform can influence funding results by their actions. If a project campaign promise to
contribute substantially to platform's revenue by its powerful funding growth, the platform could place
this project more prominently on the websites or indicate quality by labels to further support it's over-
Koch /Crowdfunding Project Overfunding
Twenty-Fourth European Conference on Information Systems (ECIS), İstanbul,Turkey, 2016 13
funding. In contrast, operators can also decide to support especially those projects that have not yet
reached their funding goal but are worth funding. Such a concept could help more projects to reach the
funding goal but would inhibit publicity generation and product selling. Third, while funders that fo-
cus on rewards tend to increase overfunding, altruistic motives lead to less overfunding. This result
can be explained by funders reacting to very inviting rewards. The more attractive the rewards are, the
more the funders try to profit from the rewards and continue funding in order to get the rewards alt-
hough the campaign might already has reached its funding goal. Reward-focusing funders do not sole-
ly intend to help funding the project but also wish to profit and benefit from offered rewards. This can
be interpreted as a more egoistic behavior in contrast to altruistic behavior of funders donating to cam-
paigns. For projects that invite relatively more altruistic funders, the opposite is found: the more a pro-
ject is funded altruistically, the less it tends to overfundedness. This let us conclude that altruistic fun-
ders especially feel good in helping projects to reach their funding goal. The moment projects have
reached their goal, altruistic founders feel less emotionally satisfied when funding. If a project is al-
ready funded, altruistic funders do not longer strongly contribute to further (over-)funding. In this
case, the altruistic founder might search for another project that needs support to reach its goal.
Our empirical findings are, of course, limited to the available data and the platform analyzed. Howev-
er, we argue that stakeholders contribute to overfunding similarly on other crowdfunding platforms in
a comparable cultural context. As we only regard project that are denoted in USD, further research is
needed to investigate potential cultural differences. Second, in our analysis, the influence of platforms
is only represented by labels that indicate project quality. Here, other possible influences could be
considered, e.g., the position of projects in the listings and overview pages on the platform.
4 Conclusion
Although project overfunding is known as a phenomenon, there has not yet been profound scientific
discussion focusing on the question of which factors drive overfunding of projects on online crowd-
funding platforms. By our analysis, we close this research gap and show that campaign conditions,
project information disclosure, founder-related, and platform-related aspects as well as funding behav-
ior contribute to an explanation of project overfunding. We find indication that stakeholders' egoistic
behavior is a natural driver of project overfunding. For example, some project founders try to reach a
higher overfunding intentionally. Some funders focus on rewards and drive overfunding by continuing
to fund in order to receive these rewards. Platform operators might favor a higher revenue generated
through overfunding. In contrast, altruistically motivated funders seem to be satisfied most if their
funding contribution helps a project to reach its goal instead of contributing to further overfunding.
Our findings extend the knowledge on funding behavior in the area of online crowdfunding and are of
high importance for practitioners as well. The results are, for example, of high interest for project
founders who aim at the generation of publicity or a successful pre-selling campaign and, thus, wel-
come overfunding. Moreover, our findings help to better understand the funding processes and fund-
ing outcomes on crowdfunding platforms. However, so far, it is not clear when crowdfunding reaches
optimal outcomes for all stakeholders concerned because crowdfunding platforms are used for com-
pletely different purposes by its stakeholders. For example, platform operators either focus on revenue
or help campaigns altruistically without aiming at maximizing own benefits; funders either focus on
rewards that are offered or prioritize backing campaigns to help them reaching their funding goal; and
project founders either aim at completing (e.g., social or cultural) projects or at using crowdfunding as
a distribution channel for their products or as an advertizing initiative. As a result, it is difficult to an-
swer the question of how the best overall utility of crowdfunding can be achieved. We encourage dis-
cussion on how crowdfunding platforms optimally serve all its participants and how overall utility can
be optimized. Particularly interesting would be an answer to the question of whether pre-selling and
advertizing campaigns adversely affect, for example, cultural, social, and hobby projects, by a massive
absorption of funding. We invite research to examine the quality of funding outcomes on
crowdfunding platforms taking into account all stakeholders' interests and purposes.
Koch /Crowdfunding Project Overfunding
Twenty-Fourth European Conference on Information Systems (ECIS), İstanbul,Turkey, 2016 14
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... Moreover, the authors point out that a higher funding goal lowers the overfunding rate and is the most important driver for overfunding (Cordova et al., 2015). A subsequent study by Koch (2016) picks up the results of Cordova et al. (2015) and provides an analysis on overfunding. Firstly, Koch (2016) criticizes the study of Cordova et al. (2015) for methodological weaknesses and therefore suggests adjusting the research concerning overfunding. ...
... A subsequent study by Koch (2016) picks up the results of Cordova et al. (2015) and provides an analysis on overfunding. Firstly, Koch (2016) criticizes the study of Cordova et al. (2015) for methodological weaknesses and therefore suggests adjusting the research concerning overfunding. Koch (2016) reveals that most factors mentioned in the previous section are also highly significant for overfunding, that is the funding goal, pictures, videos, updates, comments, friends, number of supported projects, number of previously created projects, duration of the funding period, and also the number of words used to describe the project. ...
... Firstly, Koch (2016) criticizes the study of Cordova et al. (2015) for methodological weaknesses and therefore suggests adjusting the research concerning overfunding. Koch (2016) reveals that most factors mentioned in the previous section are also highly significant for overfunding, that is the funding goal, pictures, videos, updates, comments, friends, number of supported projects, number of previously created projects, duration of the funding period, and also the number of words used to describe the project. Koch (2016) only considers successful projects and uses the degree of success as the dependent variable. ...
Article
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PURPOSE: While there is abundant literature on the key determinants of reward-based crowdfunding success, little research is dedicated to crowdfunding projects that are not only successful but receive significantly more funds than initially targeted through the defined funding goal. This study seeks to shed light on this vastly neglected topic in crowdfunding research. METHODOLOGY: Drawing on a rich dataset of 338 reward-based crowdfunding projects, this study applied a two-step statistical analysis. First, regression analyses to determine relevant crowdfunding success factors were conducted in order to corroborate extant literature and to highlight that the data properly reflects the already identified key findings on crowdfunding success. In a second step, the very same factors were investigated for the case of overfunded projects, utilizing logistic regression analyses and a Blinder-Oaxaca Decomposition. FINDINGS: Although this study confirmed the findings of previous research considering the factors that increase the success probability of crowdfunding projects, the very same factors turned out to not explain the emergence of project overfunding. For instance, while project founders can provide updates, a higher number of different rewards, or utilize social media pages to increase the likelihood for success, these factors do not contribute to explain the phenomenon of project overfunding. IMPLICATIONS: The results of this study emphasize that in order to understand overfunding of crowdfunding projects, future research must go beyond the basic crowdfunding success factors. Building on the notion of the Two-Factor Theory, the findings suggest that the factors contributing to success can be considered hygiene factors that are required to succeed in the first place. However, these factors do not motivate the crowd to provide further funding to an already successful project. Hence the motivating factors remain yet unobserved in extant literature. In practice, this means that project teams achieving their funding goal cannot rely on the same factors that were helpful to succeed to encourage further funding from the crowd. The differentiation of hygiene and motivating factors for overfunding in reward-based crowdfunding offers rich opportunities for future research. More subjective factors, such as the individual perception of crowd members towards crowdfunding projects, are suggested to play an important role for the occurrence of project overfunding. ORIGINALITY/VALUE: By investigating project overfunding, this study addresses the research gap concerning the factors contributing to the emergence of project overfunding. There is little evidence on the characteristics of overfunded crowdfunding projects, and thus this study provides essential theoretical and empirical groundwork for future research to build upon this study's results.
... While a high percentage of new ventures seeking crowdfunding fail to reach their funding goal, 1 a considerable number (around 50%) of successful ventures receive more funding than they initially requested (i.e., overfunding) (Koch, 2016;Li et al., 2020;Xiaoyu et al., 2017). A smaller portion of these overfunded ventures receives massive overfunding, which we define as collecting multiple times the amount initially set as a funding goal (Koch, 2016;Koch et al., 2021;Li et al., 2020). ...
... While a high percentage of new ventures seeking crowdfunding fail to reach their funding goal, 1 a considerable number (around 50%) of successful ventures receive more funding than they initially requested (i.e., overfunding) (Koch, 2016;Li et al., 2020;Xiaoyu et al., 2017). A smaller portion of these overfunded ventures receives massive overfunding, which we define as collecting multiple times the amount initially set as a funding goal (Koch, 2016;Koch et al., 2021;Li et al., 2020). The phenomenon of overfunding was largely unknown prior to the advent of crowdfunding because traditional investors, such as business angels and VCs, steer their investments in smaller steps and with increasing complexity. ...
... For example, research has examined the negative effects of the eventual venture failure of massively overfunded campaigns on crowdfunding platforms and the perceived legitimacy of crowdfunding in general. This is particularly important because massively overfunded campaigns usually bring very high visibility and media coverage for the project as well as the platform (Koch, 2016;Koch et al., 2021;Li et al., 2020). Most of this research is based on scraped, large-scale secondary data, which allows the analysis of important and overarching general trends, but offers little to reveal the contextualised details of these venture failures. ...
Article
Crowdfunding has become a viable alternative to traditional venture capital and business angel funding. However, new ventures are prone to failure despite exceeding their funding goals. Extant literature presents broad knowledge of the antecedents of crowdfunding success but lacks insights into the causes and consequences of entrepreneurial failure, especially failure after massive overfunding via crowdfunding. We use a qualitative narrative approach to investigate how massive overfunding in crowdfunding threatens entrepreneurial activities. We present our findings as a taxonomy of the causes of failure, at the environmental, firm, and individual levels, based on actual cases that failed after receiving massive overfunding. Our framework challenges established thinking on resources and financing as measures of entrepreneurial success by providing insights into the processes leading to failure despite availability of resources. This serves as a reference for backers aiming to safely invest via crowdfunding and for startups to avoid the common pitfalls of overfunding.
... The creator of the campaign can describe, promote, and explain to potential supporters what to expect from the campaign. For time-limited crowdfunding, previous research could already show that the length of the campaign description has a positive effect on individuals decision to invest in that campaign [35] and thus leads to successful campaigns [36,37] and even to overfunding [38]. However, in their analysis of a German crowdfunding platform, Kunz et al. (2016) could not find a significant effect for description length on campaign success [39]. ...
... Since potential supporters are heterogeneous and possess different product evaluations and willingness to pay, offering a span of products, each with a different price, will increase the overall support a crowdfunding campaign receives, as Hu et al. (2015) could show in their theoretical analysis [23]. In the context of time-limited crowdfunding, Koch (2016) could show that the number of offered reward levels positively affects a campaign's overfunding [38]. [39]. ...
... Since potential supporters are heterogeneous and possess different product evaluations and willingness to pay, offering a span of products, each with a different price, will increase the overall support a crowdfunding campaign receives, as Hu et al. (2015) could show in their theoretical analysis [23]. In the context of time-limited crowdfunding, Koch (2016) could show that the number of offered reward levels positively affects a campaign's overfunding [38]. [39]. ...
... While some research refers to overfunding as a phenomenon of crowdfunding (Mollick, 2014;Cordova et al., 2015;Koch, 2016;Li et al., 2020), there is a paucity of studies examining the underlying drivers, especially in the equity crowdfunding context. Therefore, in this IJOEM paper, we made a pioneering attempt to unravel the linkage between the gender composition of the entrepreneurial team (ET) and the likelihood of a project being overfunded. ...
... The authors find that the overfunding is influenced by the investment requested, the duration of the project and its contribution frequency. Using data from Kickstarter, Koch (2016) find that project overfunding depends on the actions and behaviours of the main stakeholders involved in crowdfunding (i.e. platform operators, project founders and funders). ...
... Few studies have analysed the key drivers of overfunding in reward-based crowdfunding (Cordova et al., 2015;Koch, 2016). Yet, the factors affecting overfunding in the equity crowdfunding context are still unexplored. ...
Article
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Purpose – This paper aims to understand whether gender disparity has an impact on the likelihood of obtaining equity crowdfunding financing in Latin America. Design/methodology/approach – The paper uses a unique database of 492 projects from different equity crowdfunding platforms in Latin America over a period of 2013-2017. Findings - Results indicate that the involvement of at least one woman in the board of firms seeking equity financing increases campaigns’ success significantly. Team gender has no impact on the project’s likelihood to experience overfunding. Originality/value – The paper sheds light on women’s access to crowdfunding financing in Latin America, not yet considered so far.
... Despite the growing literature on crowdfunding in the last years (Mollick [8], Vulkan et al. [9], Vismara [10,11], Agrawal et al. [12], Cumming et al. [13], among others), there is a paucity of studies which have examined overfunding. Some examples are Koch [14], Cordova et al. [15], Adamska-Mieruszewska et al. [16] in reward-based fundraising, and Xiaoyu et al. [17], Li et al. [18] in equity crowdfunding. The study of overfunding is particularly important in equity crowdfunding due to the high risk level assumed by (non-professional) investors and the lack of liquidity for shares in secondary markets. ...
... As a result, additional investors are likely to face less risk and information asymmetries to undertake their investments. In reward-based crowdfunding projects, empirical evidence shows that some factors promote overfunding, like project description, availability of videos and images, the number of reward pledges, duration of campaign, and social communication or the proponents' previous experience, while other factors, like the funding goal, are negatively correlated with overfunding (Koch [14], Cordova et al. [15], Adamska-Mieruszewska et al. [16]). Recently, some theoretical models have been proposed to explain overfunding behaviour in reward crowdfunding (Du et al. [25]). ...
Article
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Crowdfunding constitutes one of the financial solutions to achieve the sustainable development goals, by fostering innovation and economic growth. This paper conducts an empirical two-country analysis (the UK and Spain) of characteristics of successful offerings to assess the distribution of overfunding in equity crowdfunding. Unlike previous research, which has usually comprised campaigns posted on single-country portals, our study is based on an international leading platform operating with country-differentiated websites, Crowdcube. Such an approach allows us to identify influential factors which are dependent on country and, simultaneously, to control for those platform-related factors. To focus on the overfunding distribution, a quantile regression methodology is adopted for a total sample of 299 overfunded campaigns from 2015 to 2018. Overall, empirical results show that the effects of key campaign features (equity, voting rights and social capital) are stronger and more significant at the 75th and 90th quantiles for the overfunding level and the number of investors. Furthermore, we find significant differences across countries, which persist along the distributions of overfunding. Yet, interestingly, between-country differences in overfunding level vanish for the technological sector. Our research provides further insights into the relation between equity crowdfunding and sustainable finance.
... Empirical studies found that offering a number of reward levels broad enough to cater to a wide crowdfunder group increases the likelihood of reaching the fundraising target (Thürridl and Kamleitner [22], and Hu et al. [23]). Additionally, projects that offer a greater reward structure motivate backer participation (Crosetto and Regner [24], Koch [25], and Dikaputra et al. [18]). Therefore, we measure the discrimination degree as the number of rewards offered by entrepreneur. ...
Article
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In this paper, we investigate rewards-based crowdfunding as an innovative financing form for startups and firms. Based on game-theory models under asymmetric information, we test research hypotheses about the positive effects of two main campaign features: funding target and number of rewards. Furthermore, we examine how and when these characteristics are effective in attracting crowdfunders, by signaling high-quality projects (target) and by pricing according to backers’ preferences (rewards). Conditional process analysis is applied to a dataset of 1613 projects launched on the Spanish platform Verkami from 2015 to 2018. As expected, our study shows that market size is positively influenced by the target and the number of rewards, separately. Further analysis gives some interesting findings. Firstly, we find significant and positive mediating roles of social networks (in the relationship between target and market size) and of backers’ preferences (between rewards and market size). Secondly, the main orientation of a campaign, commercial or social, is relevant to explain previous relationships. While high funding targets are more effective in commercial projects, a high number of rewards is more effective in the social projects. This research provides new insights into the design of optimal crowdfunding, with theoretical and empirical implications.
... Consequently, investors are better informed, and founders are able to publish detailed information through which they increase transparency and trust (Usman et al. 2019). Research from Koch (2016) as well as Koch and Siering (2015) provided evidence that a good description of projects reduces funders' uncertainty and fosters trust towards project founders. In fact, Ahlers et al. (2015) already investigated ambiguous information reducing the funding probability. ...
Article
Scarcity is an instrument that is often used in crowdfunding. Crowdfunding is an alternative form of financing, especially for entrepreneurs in the early-stage development phase. This paper deals with the characteristics of profitable crowdfunding projects. Hereby, we examine the impact factors of crowdfunding’s profitability, with a special focus on limited availability (scarcity), depth of project description and the size of pledging goals as follows. Therefore, we analyze data from kickstarter.com, one of the world’s largest crowdfunding platforms, and used 494 projects and 4,224 pledge levels from the broad category technology as our database. Technology projects lend themselves particularly well to the study, as they usually contain the project result as a tangible return, thus facilitating or even enabling the monetary evaluation of the success in contrast to, for example, cultural projects. Hence, our sample includes 32% of pledge levels with limited availability. We provide empirical evidence that the limited availability in the crowdfunding projects in terms of scarcity management is positively related to the profitability of the included pledge levels. We conclude that crowdfunding projects with limited availability on pledge levels are more profitable for investors.
... Namun penelitian-penelitian tersebut belum menganalisis atribut yang mendasari terjadinya overfunding. Adapun penelitian terkait atribut-atribut yang mempengaruhi overfunding baru benar-benar dilakukan oleh Cordova dkk (2015) dan Koch (2016), akan tetapi konteks penelitian tersebut tidak berfokus pada proyek 3D printer. ...
Conference Paper
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Abstrak Salah satu alternatif mendapatkan modal bisa diperoleh dari penggalangan dana (crowdfunding). Dari keseluruhan proyek 3D Printer yang sukses pada platform Kickstarter, tidak semua proyek berada pada level pendanaan yang sama, oleh karena itu perlu untuk mengetahui hal-hal yang menyebabkan terjadinya perbedaan level pendanaan tersebut. Penentuan atribut yang berpotensi memiliki pengaruh terhadap level pendanaan dalam penelitian ini adalah dengan menggunakan pendekatan klasifikasi algoritma Random Forest dan AttributeWeight. Penelitian ini menghasilkan 3 atribut yang paling berpotensi terhadap level pendanaan, serta beberapa rule keputusan yang dapat menjadi acuan bagi creator untuk meningkatkan potensi dan peluang mendapatkan perolehan donasi pada platform crowdfunding. Kata kunci: 3D Printer, Crowdfunding, Data Mining, Funding level, Kickstarter, Random Forest. 1. PENDAHULUAN Crowdfunding menjadi alternatif untuk mendapatkan modal dengan skema mengumpulkan dana secara online dalam skala yang kecil tetapi berasal dari jumlah masyarakat yang besar sehingga terkumpul dana yang signifikan, Crowdfunding diperkenalkan sebagai mediator inovatif, mudah dan fleksibel yang mempertemukan antara kalangan pengusaha, investor, dan pasar yang telah ditargetkan (Forbes dan Schaefer, 2017). Gera dan Kaur (2018) menambahkan platform Crowdfunding merupakan platform berbasis internet yang mengumpulkan dana dari para investor untuk berbagai kampanye yang digalang oleh para pembuat proyek yang bertujuan untuk memaksimalkan jumlah kesuksesan proyek dan dana yang digalang. Jumlah platform Crowdfunding pada tahun 2014 di dunia telah mencapai sebanyak 1.250 unit yang berhasil mengumpulkan dana mencapai $16,2 Milliar. Pada tahun 2015 jumlah dana meningkat dua kali lipat sebesar $34,3 Milliar dan diperkirakan kedepannya akan terus meningkat (Drake, 2017) Penelitian ini akan berfokus pada platform crowdfunding Kickstarter, yang berdasarkan temuan Daciuk (2017) dua platform crowdfunding terbesar berdasarkan jumlah pengunjung setiap bulannya yaitu Kickstarter dan Indiegogo, jumlah pengunjung Kickstarter mencapai 63 Juta pengunjung sedangkan Indiegogo mencapai 28 Juta pengunjung. Kedua platform ini memiliki tipe crowdfunding yang sama yaitu reward-base, meskipun sama namun model bisnis yang diterapkan pada kedua platform tersebut berbeda. Kickstarter menerapkan model bisnis All-or-nothing (AoN) sedangkan Indiegogo adalah Keep-it-All (KiA). Model bisnis AoN berarti apabila pemilik proyek belum berhasil menerima sumbangan dana yang telah ditargetkan maka platform akan mengembalikan semua sumbangan kepada donatur, dan pemilik proyek tidak akan menerima apapun. Sedangkan model bisnis KiA berarti apabila proyek berhasil ataupun tidak dalam menerima sumbangan yang telah ditargetkan, Platform tetap memberikan semua donasi yang diterima kepada pemilik proyek. Cumming dkk (2015) menyatakan AoN memiliki peluang kesuksesan lebih besar dibandingkan model bisnis KiA namun memiliki resiko tinggi terhadap kehilangan semua donasi apabila tidak tercapai tujuannya, sementara KiA memiliki peluang keberhasilan dan resiko yang rendah, yang berarti creator tetap memperoleh donasi yang terkumpul walaupun di bawah tujuan yang telah ditargetkan. Cumming dkk (2015) menguji sebanyak 22.850 proyek pada model bisnis AoN serta KiA, dan menemukan bahwa rasio kesuksesan model bisnis AoN sebesar 64% jika dibandingkan dengan model bisnis KiA hanya sebesar 42%.
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