Playing Both Sides of the Market: Success and Reciprocity on Crowdfunding Platforms

Abstract

Crowdfunding platforms constitute two-sided markets, bringing together entrepreneurs and potential backers; this peer-based fundraising schema introduces new dynamics into the fundraising process. We focus on platform agents who play on both sides of the market, supporting the ventures of their fellow entrepreneurs and subsequently raising money for their own venture. Acting on both sides of the market is a peer-economy phenomenon that has not yet received much attention. We find that an entrepreneur’s backing-history has a significant effect on financing outcomes; campaigns initiated by entrepreneurs who have previously supported others have higher success rates, attract more backers and collect more funds. We find evidence that supports the existence of a causal channel from playing both sides of the market to increased crowdfunding success. We also provide evidence as to the existence of reciprocity. Project owners back their backers, when possible, at a rate that is significantly higher than other comparable projects. We estimate the effect of such actions on the performance of crowdfunding campaigns and show that playing both sides of the market is a rewarding strategy.

Keywords: Crowdfunding, Reciprocity, Social Networks, IS-Economics, E-Finance, Peer-Economy