Marketing researchers identify the three most powerful drivers of effective crowdfunding

April 07, 2020

Key Takeaways:

CATONSVILLE, MD, April 6, 2020 - While the concept of crowdfunding is still in its early phases of development, a group of marketing researchers have conducted a study that reveals the most powerful drivers behind effective crowdfunding campaigns. According to the researchers, there are three primary mechanisms that serve as the major drivers of crowdfunding campaigns that yield results.

Crowdfunding is the process of raising capital from a crowd of investors through an online platform in order to produce new products or offer new services. Once a crowdfunding fundraising project reaches its goal, investors begin to receive returns on their investments.

In recent years, crowdfunding has been heralded as an untapped and vast new opportunity for entrepreneurs and start-ups who may have had challenges in obtaining funding from more traditional sources.

It's commonly understood in business fundraising that there are three phases: a "friend-funding" phase, where most funds are contributed by friends and family of the founders; a second phase known as the "getting crowded phase," where the process starts to build momentum beyond friends and family; and the "race to the goal phase," where the process gains momentum until the goal is achieved.

This study looked at this process and identified challenges and opportunities at each crowdfunding phase.

The research study, to be published in the INFORMS journal Marketing Science, is titled "Modeling Dynamics in Crowdfunding." It is authored by Chul Kim of the City University of New York; P.K. Kannan and Michael Trusov of the University of Maryland; and Andrea Ordanini of Bocconi University in Milan, Italy.

"In our research, we suggest three major drivers that lead to the dynamics in crowdfunding process: investors' forward-looking strategic behavior, social interactions among individual investors, and their expectations on the crowd's behavior" said Kim. "We found strong evidence for all three mechanisms and confirmed how they contribute to the dynamic patterns of crowdfunding".

"In the early stage (like the "friend-funding" phase), an individual crowdfunder expects that her investment will encourage other crowdfunders' participation. It can be a strong incentive for her to participate even at the early stage," said Kannan.

"In the middle stage where most of crowdfunding projects are likely to stagnate, it is very important to ignite the crowding process through social interactions among crowdfunders for successful goal completion," said Ordanini. "In the end, once the crowdfunding project gains momentum, investors sitting on the sides waiting for the opportunistic moment will jump in and follow."

"Based on these understandings on the crowdfunding dynamics, we identified for fundraisers the optimal goals that ensure intended results while raising the maximum capital," said Trusov. "For the crowdfunding platforms, we arrived at ways to optimize targeting of the right investors, identifying those crowdfunders who have the potential to contribute the most to the program's success. And, we have found ways to more accurately predict whether a crowdfunding campaign will succeed, and when it will succeed by observing early investment patterns."
About INFORMS and Marketing Science

Marketing Science is a premier peer-reviewed scholarly marketing journal focused on research using quantitative approaches to study all aspects of the interface between consumers and firms. It is published by INFORMS, the leading international association for operations research and analytics professionals. More information is available at or @informs.

Institute for Operations Research and the Management Sciences

Related Social Interactions Articles from Brightsurf:

Interactions within larger social groups can cause tipping points in contagion flow
Contagion processes, such as opinion formation or disease spread, can reach a tipping point, where the contagion either rapidly spreads or dies out.

'Social cells' related to social behavior identified in the brain
A research team led by Professor TAKUMI Toru of Kobe University's Graduate School of Medicine (also a Senior Visiting Scientist at RIKEN Center for Biosystems Dynamics Research) have identified 'social cells' in the brain that are related to social behavior.

Understanding ghost particle interactions
Argonne scientists were part of a team that constructed a nuclear physics model capturing the interactions between neutrinos and atomic nuclei.

Beam me up: Researchers use 'behavioral teleporting' to study social interactions
The team, led by Maurizio Porfiri, Institute Professor at NYU Tandon, devised a novel approach to getting physically separated fish to interact with each other, leading to insights about what kinds of cues influence social behavior.

A new view of microscopic interactions
When two cars collide at an intersection -- from opposite directions -- the impact is much different than when two cars -- traveling in the same direction -- 'bump' into each other.

Social media influencers could encourage adolescents to follow social distancing guidelines
Public health bodies should consider incentivizing social media influencers to encourage adolescents to follow social distancing guidelines, say researchers.

Social grooming factors influencing social media civility on COVID-19
A new study analyzing tweets about COVID-19 found that users with larger social networks tend to use fewer uncivil remarks when they have more positive responses from others.

A broad look at plant-environment interactions
Three plant science journals---the American Journal of Botany (AJB), Applications in Plant Sciences (APPS), and the International Journal of Plant Sciences (IJPS)---have joined efforts to provide a broad look at how plants interact with their environment.

Drug interactions with cannabinoids: 5 things to know
A practice article provides 5 things to know on how drugs can interact with cannabinoids in CMAJ (Canadian Medical Association Journal).

Helpful interactions can keep societies stable
University of Pennsylvania biologists have challenged old notions that communities with mutualistic interactions--where the presence of one species benefits another--are unstable.

Read More: Social Interactions News and Social Interactions Current Events is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to