Crowdfunding Models: Keep-It-All vs. All-Or-Nothing

Abstract

Reward-based crowdfunding campaigns are commonly offered in one of two models in reference to fundraising goals set by the entrepreneur: “Keep-It-All” (KIA), where the entrepreneur keeps the entire amount raised regardless of achieving the goal, and “All-Or-Nothing” (AON), where the entrepreneur keeps nothing unless the goal is achieved. We hypothesize that AON forces the entrepreneur to bear more risk and thereby encourages crowdfunders to pledge more capital, enabling entrepreneurs to set larger goals. We further hypothesize that AON is a costly signal of commitment for the entrepreneur, yielding a separate equilibrium with higher quality and more innovative projects with higher success rates. Empirical tests support both hypotheses.

Keywords: Crowdfunding, Internet, Signaling

JEL Classification: G21, G24, G32, L26