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

45 Pages Posted: 1 Aug 2013 Last revised: 11 Oct 2015

David Zvilichovsky

Tel Aviv University - Recanati Business School

Yael Inbar

Tel Aviv University - Coller School of Management

Ohad Barzilay

Tel Aviv University - Coller School of Management

Date Written: September 17, 2015

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

Suggested Citation

Zvilichovsky, David and Inbar, Yael and Barzilay, Ohad, Playing Both Sides of the Market: Success and Reciprocity on Crowdfunding Platforms (September 17, 2015). Available at SSRN: https://ssrn.com/abstract=2304101 or http://dx.doi.org/10.2139/ssrn.2304101

David Zvilichovsky (Contact Author)

Tel Aviv University - Recanati Business School ( email )

Tel Aviv University
Ramat Aviv, Tel Aviv, 69978
Israel

Yael Inbar

Tel Aviv University - Coller School of Management ( email )

Tel Aviv
Israel

Ohad Barzilay

Tel Aviv University - Coller School of Management ( email )

Tel Aviv
Israel

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