Reward-Based Crowdfunding Research and Practice

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WHAT IS THE RECIPE FOR SUCCESS? AN EMPIRICAL ANALYSIS OF CROWDFUNDING PROJECT PERFORMANCE

Master'sMASTER OF SCIENC

Crowdfunding: Platform Dynamics under Asymmetric Information

Platform ecosystems are a growing trend in various industries and many companies that rely on this organizational structure have seen unprecedented growth rates in recent years. Compared to traditional service providers, platforms do not offer products or services directly to their customers, but almost exclusively through complementors who develop and deliver complementary content. Platforms therefore create value by enabling and coordinating interactions between the demand and the supply side. As these platforms are two-sided markets, they are characterized by distinct cross-side network effects, meaning that each side of the market derives externalities from the participation of the respective other group. Crowdfunding platforms rely on this concept and facilitate transactions between individuals who seek funding for a specific project or venture and prospective investors. Crowdfunding platforms are, however, special as the transactions made via the platforms are particularly risky for end-users because of a high level of information asymmetry existing between the market sides. Though a certain level of information asymmetry exists between the distinct market sides in every two-sided market, a number of factors amplify this problem in the crowdfunding context. For instance, there is usually little to no publicly available information such as customer reviews to evaluate the investments ex-ante. The creators of crowdfunding campaigns are therefore able to overstate quality or withhold information as they control the flow of information towards potential investors. Furthermore, many of the projects that are published on crowdfunding platforms are still in their infancy, making it difficult to accurately predict project outcomes. Compared to other types of two-sided markets, the issue of information asymmetry is also more difficult to resolve in crowdfunding because mechanisms such as reputation systems that are frequently applied in other contexts to mitigate this issue are less relevant on crowdfunding platforms. The actual utility of crowdfunding projects is therefore difficult to ascertain at the time the investment decision has to be made and dynamics of crowdfunding are thus different from those in other platform settings. Many open questions still remain with respect to the optimal market design of crowdfunding platforms in order to mitigate information asymmetries. Against this backdrop, four research studies have been conducted to investigate how the behaviors and actions of the distinct groups of market participants (i.e., platform provider, project creators, backers) influence the decision-making of potential backers on crowdfunding platforms. The first study is concerned with the effects actions taken by platform providers can have for the decision-making of backers. More specifically, it is examined how relaxing the input control for crowdfunding projects on Kickstarter affected the decision-making of backers. The second and third study are concerned with the role of social buzz and contribution behavior by previous backers. While the second study is focused on the dynamic interplay of social buzz, prior-contribution behavior, and the respective effects on backer decision-making, the third study describes the repercussions of non-genuine social media likes for project creators. The final study is focused on the influence project creators can have on backers by signaling certain personality traits through their project description and video. Overall, this thesis highlights that, as a result of the high level of information asymmetry on crowdfunding platforms, prospective backers seek alternative information and signals to use for decision support in the face of uncertainty. Platform providers and project creators may use the results to better understand how and why certain actions or behaviors of market participants on crowdfunding platforms affect the decision-making of prospective backers. The findings may therefore help platform providers to optimize the market design of crowdfunding platforms in order to avoid information-related market failure in the long term

What makes your movies more engaging for backers? A text analysis of Kickstarter projects

Crowdfunding has become an increasingly popular channel for entrepreneurs to raise funds from the crowd to support their startup projects. However, the percentage of crowdfunding projects that can reach their funding goals is relatively small among all crowdfunding websites. Although previous studies have examined various factors such as individual project attributes, social ties that might influence the fund-raising outcomes, the project pitches, as a key part of any crowdfunding proposal, have rarely been studied for their role in driving the crowdfunding success. In this research, we study a corpus of 1559 movie projects from Kickstarter up to the end of 2017. We use two natural language processing tools to mine the textual descriptions of projects and extract topical features and writing styles that might affect the outcomes of the fundraising campaigns. We find that the language used in the project description has surprising predictive power on the successful funding. A closer look at the words and writing styles shows that some general patterns are at work, depending on the fit between the pitch presentation and the genre of movies. For example, using some words related to “relativity” like “motion”, “space”, “time” could increase the chance of success for the action movies. While descriptive words are among the top predictors for the successful comedy movies, rational writing style might have an adverse effect. For thriller movies, social words (e.g., family, friend) are associated with higher likelihood of failure. Except for writing styles, topical features also matter. In our study, we identify both popular and outdated topics in each movie genres. These findings can help movie creators to use the most influential topical and writing features to promote their movie ideas and thus to improve the chance of funding success

Investigations into the structure of crowdfunding research and the role of the content and linguistic cues in risk disclosure in crowdfunding campaigns

Crowdfunding is widely touted as a way to bring significant changes to the entrepreneurial finance landscape, enabling any entrepreneur to get easy access to financing by tapping into the online crowd. Because of its importance, crowdfunding research in various research areas continues to evolve. Despite its multidisciplinary nature, the centric of crowdfunding research is claimed to be on the determinants of success. This is particularly important given the high failure rate of crowdfunding campaigns and the lack of academic understanding in regard to the factors that contribute to funding success. These issues justify the need to: (1) reveal the overall objective of crowdfunding literature without a specific focus on success factors; and (2) to explore other factors that may contribute to crowdfunding success. In brief, this thesis seeks to investigate the structure and trend in crowdfunding research and to explore the role of risk disclosure in funding success. To achieve this, three empirical studies have been conducted. The first study adopts the bibliometric analysis in examining the structure and trends of crowdfunding-related publications using the citations, co-citations, and co-word analysis on a sample data of 2,956 articles published from the year 2008 to 2018. The data was collected from the premium Web of Science research database. Findings revealed that crowdfunding publications were predominantly in the business and management areas. Although crowdfunding is considered to have originated from the crowdsourcing concept, results from the co-word analysis unveiled that crowdfunding research has little connections to the broader concept of crowdsourcing. The results were expected as crowdfunding concept is specific to financing technology. The results also support previous claims by scholars that most of the publications in crowdfunding focus on funding success. These publications also receive higher citations which imply the importance of the topic in crowdfunding. These findings further support the need to investigate other factors that influence success. The next two studies investigate the role of risk disclosure in crowdfunding campaigns. Study 2 explores the role of risk disclosure in two phases of analysis. The first phase identifies the risk information categories communicated by the two groups of projects, the successful and the failed group. By utilising co-word analysis on a dataset that was comprised of 28,312 projects, the findings reveal that there are three categories of risk information:  risk related to the key operations and process (OPR), risk related to the ability of the team to complete the project (TR), and risk related to funding dependency and business process (FBR). In the second phase, the study utilises the computer-aided textual analysis approach to develop a specific dictionary to measure and identify the presence of the risk information categories in the risk disclosure messages. The study then applies the Ordinary Least Squares (OLS) and logistic regression to explore their relationship with success. The findings show that the OPR and TR are positively associated with success while the FBR has a negative relationship. The positive effects of OPR and TR imply that these risk information categories contain signals that are relatively costly to produce, in which only high-quality projects or experienced entrepreneurs could afford them. Findings on the FBR indicate that projects that communicate this risk information category are relatively low-quality when they solely depend on the outcome of the crowdfunding campaign. The results also show that when the 15 categories of projects were grouped into two major categories (i.e., technology and creative-based), these major categories of projects moderate the relationship between risk information categories and success. Furthermore, findings reveal that the technology-based projects have a stronger overall effect on success. This indicates that, except for the FBR, risk information disclosed by the entrepreneurs helps their projects to be successful, especially for entrepreneurs who are involved in technology-based projects. The investigation demonstrates that OPR and TR signal the preparedness and competency of the entrepreneurs. Further, the findings of FBR suggest that by fully relying on the campaign outcome and accentuating the risks of crowdfunding projects as similar to the risks involved in the business process signal, then, the projects disregard the intrinsic motivation of backers when funding a project on a reward-based crowdfunding platform. The third study complements the second study by investigating the effects of language usage in risk disclosure on success. This study examines the linguistic cues utilising the concept of language expectancy and impression management. By using the same sample as in the previous study (Study 2), the findings reveal that backers expect the entrepreneurs to discuss risk information using more concrete language. This indicates that language concreteness enhances the persuasion message even when discussing the uncertainty of crowdfunding projects. The analysis of the moderation effects on the relationship between language concreteness and success demonstrate that the temporal and social distance influences such relationships. The results indicate that entrepreneurs who set their funding duration shorter, and made themselves socially proximate, were expected to use more concrete language. Similar results were produced for the behaviour of entrepreneurs who attempted to reduce the social distance between themselves and the potential backers. These findings indicate that the effects of language concreteness were further enhanced when there was a fit between the expected language and the two psychological distance dimensions. Study 3 also reveals the importance of managing impressions when disclosing risk information in the disclosure. Findings indicate that impression management strategies such as tone management, excuses, exemplification and supplication lead to crowdfunding success. Interestingly, the supplication strategy that is considered as the most negative form of impression technique affects success positively. This suggests that making an impression of neediness coerced backers to support the project, thus further suggesting the backers' intrinsic motivation to fund a project on a reward-based crowdfunding platform. To summarise, this thesis provides valuable insights into crowdfunding research and the role of risk disclosure in crowdfunding success. Findings from Study 2 and 3, in particular, have significant theory, practical and policy implications. Key recommendations are provided for entrepreneurs, backers, and crowdfunding platforms on the importance of risk disclosure in influencing backers' funding decisions

Dynamics in Platform Ecosystems

Platform business models are gaining rapid traction in today’s world. As of 2016, the four most valuable companies—Apple, Google, Amazon and Microsoft—have been using this business model. So do some of the most promising start-ups, including Uber and AirBnB. These providers of multi-sided platforms have a common goal, which is to match producers and consumers in order to create value through their interactions. The evolving ecosystems around a platform business are characterized by network effects among the groups of stakeholders, as each market side is influenced by the other side of the platform. A goal of the platform owner is to create and exploit as many monetization opportunities as possible. As the main revenue source, usually, is based on the interactions on or access to the platform, managing the demand and the supply side is at the core of platform management. One example of an uprising area of business that leverages a platform business model is crowdfunding platforms. These multi-sided markets try to facilitate the interaction of individuals who seek funding for a specific project, with a crowd of people that is willing to invest in the idea. The idea behind the model has been around for a long time, but due to reduced transaction cost is now available on a global scale. As of November 2016, Kickstarter, one of the most famous players in the business of reward-based crowdfunding, has already raised 2.7 billion USD in total pledges and has funded over 114,000 projects. This dissertation tries to shed light on the dynamics that are at work in a platform ecosystem by investigating distinct behaviors of platform participants and observing the impact on other stakeholders and the platform ecosystem as a whole. Each of the papers included in this dissertation focuses on a certain participant or dynamic of the platform ecosystem. With the first article, the theoretical basis of asymmetric information between consumers and producers in a crowdfunding environment is established. Furthermore, it shows that the opinion expressed in the form of electronic Word-of-Mouth (eWOM) and the observable popularity information (e.g. decision-making of other participants) serve as credible quality signals, subsequently influencing consumers’ decision-making. Also, popularity information and eWOM differ significantly in terms of effectiveness over time. Both factors, eWOM and popularity information, can therefore be seen as means to reduce information asymmetries in platform ecosystems. Since the importance of popularity information and eWOM is known to producers, an incentive to manipulate these performance indicators can be deducted. We therefore suspected that producers might establish non-genuine indicators of eWOM or popularity information. Article 2 then identifies a manipulation strategy of project creators on Kickstarter, who illegally alter the number of Facebook Shares their campaign supposedly has. After identifying the fraudulent campaigns, we were able to observe the resulting effects of non-genuine social information on consumer decision-making over time, showing that a short-term gain can be achieved, whereas the total effect is indeed harmful to the campaign. Contrary to the deliberately fake social information sent by the producers, the third article then concerns non-explicit campaign characteristics in the form of personality traits of producers. Here we were able to extract the Big Five personality traits of a project creator from the campaign description and the included video and to analyze their effectiveness for influencing potential consumers. The influence was measured by means of project adoption by the crowd and diffusion on Facebook. Finally, article 4 investigates a governance decision made by the platform provider. Under the condition of a natural experiment, we were able to observe and analyze how a policy change by the platform owner with regard to their gatekeeping strategy can influence a platform ecosystem as a whole, as well as certain participants in particular. The policy change, made by Kickstarter in 2014, lowered the barrier for entering the platform for pro-ject creators, resulting in a shift in average quality, number of projects and platform revenue. Implications for future research and practice are discussed in depth for each article and summarized in the final chapter

Communicating values: essays on trust and legitimacy as dynamic drivers of decision-making in crowdfunding

There is great consensus among scholars and practitioners alike that entrepreneurs and young ventures play an important role in tackling societal issues. Despite this, such ventures with their overarching social or environmental mission face grave difficulties when it comes to accessing external finance. This may be due to their complex value-propositions that bring with a narrative outside the traditional lines of investor/investee communication, and of course their increased liability of newness (Stinchcombe, 1965) because of novel forms of organisations with strong stakeholder participation in their governance. Crowdfunding (CF) can be seen as a fairly young financing option that aims to bridge this financing gap. It does so by focusing investors on the value-propositions of the ventures such that it connects the fund-seeking venture to the community. Because of these peculiarities it is crucial to understand how decision-making and underlying communication processes work as they are more strongly underpinned by collective and individual values. And while research has shed light on the factors that influence decision-making processes, much less attention has been paid to the communication and negotiation of the underlying values of the various actors in these processes. This thesis, in the form of a PhD by Public Works, fills this gap and provides insights into how the communication and negotiation of values between the actors influences decision-making in CF throughout the various stages of a funding campaign. It summarises and outlines five scholarly papers which address CF as an institutional space with interlinked actors and looks at decision-making processes from sociological and socio-cognitive perspectives, applying legitimacy and trust lenses. Given the nascent status of CF theory the research positions itself in an interpretative paradigm and follows an abductive methodology with qualitative methods. Based on the combined insights from the five papers the thesis ultimately provides insights into the processes of embedding and re-embedding of values in CF and by that how these values drive decision-making

Advances in Crowdfunding: Research and Practice

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Sustainable Smart Cities and Smart Villages Research

ca. 200 words; this text will present the book in all promotional forms (e.g. flyers). Please describe the book in straightforward and consumer-friendly terms. [There is ever more research on smart cities and new interdisciplinary approaches proposed on the study of smart cities. At the same time, problems pertinent to communities inhabiting rural areas are being addressed, as part of discussions in contigious fields of research, be it environmental studies, sociology, or agriculture. Even if rural areas and countryside communities have previously been a subject of concern for robust policy frameworks, such as the European Union’s Cohesion Policy and Common Agricultural Policy Arguably, the concept of ‘the village’ has been largely absent in the debate. As a result, when advances in sophisticated information and communication technology (ICT) led to the emergence of a rich body of research on smart cities, the application and usability of ICT in the context of a village has remained underdiscussed in the literature. Against this backdrop, this volume delivers on four objectives. It delineates the conceptual boundaries of the concept of ‘smart village’. It highlights in which ways ‘smart village’ is distinct from ‘smart city’. It examines in which ways smart cities research can enrich smart villages research. It sheds light on the smart village research agenda as it unfolds in European and global contexts.