Learning from the Crowd: The Feedback Value of Crowdfunding

79 Pages Posted: 4 Aug 2015 Last revised: 13 Oct 2018

See all articles by Ting Xu

Ting Xu

University of Virginia - Darden School of Business

Date Written: September 30, 2018

Abstract

Can crowdfunding benefit entrepreneurs beyond providing finance? This paper shows that crowdfunding extends early feedback to entrepreneurs about the market demand for their projects, thereby mitigating uncertainty associated with entry. Using Kickstarter data and exploiting a weather-based instrument, I show that more positive feedback (i.e., more initial pledging) from the crowd increases entrepreneurs’ chances to continue and commercialize their projects. The effects are stronger when entrepreneurs face higher uncertainty or when the crowd is more experienced. Consistent with crowdfunding feedback containing real option value, entrepreneurs launch riskier projects when the opportunity cost of crowdfunding increases. A survey of Kickstarter entrepreneurs corroborates these results.

Keywords: entrepreneurship, crowdfunding, FinTech, learning, real option, experimentation, financial market feedback

JEL Classification: D83, G20, L26, M13

Suggested Citation

Xu, Ting, Learning from the Crowd: The Feedback Value of Crowdfunding (September 30, 2018). Available at SSRN: https://ssrn.com/abstract=2637699 or http://dx.doi.org/10.2139/ssrn.2637699

Ting Xu (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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