37 Pages Posted: 6 Oct 2015 Last revised: 27 Oct 2015
Date Written: September 30, 2015
For a wide class of crowdfunding approaches, we argue that the reward structure (for funders) is closer to that of charitable donations to public goods than it is to traditional entrepreneurial finance. Many features of the design of crowdfunding platforms can therefore be understood as attempts to deal with attendant “free-rider” problems in motivating contributions. Reviewing institutional features of today’s crowdfunding, we clarify that there are often limits in the extent to which tangible rewards can be used to motivate contributions. Drawing on analogies with charitable donations, we theorize that intangible sources of motivation — (i) direct psychological rewards, (ii) reciprocity and (iii) social interactions — can play a role in entrepreneurial crowdfunding. In our detailed empirical analysis of a representative project we find abundant evidence consistent with this characterization and we proceed to discuss implications for platform design and entrepreneurial funding and unique and defining characteristics of crowdfunding.
Keywords: Crowdfunding platforms, entrepreneurial finance, free-riding, voluntary contributions to public goods
Suggested Citation: Suggested Citation
Boudreau, Kevin and Jeppesen, Lars Bo and Reichstein, Toke and Rullani, Francesco, Crowdfunding as 'Donations': Theory & Evidence (September 30, 2015). Harvard Business School Strategy Unit Working Paper No. 16-038. Available at SSRN: https://ssrn.com/abstract=2669545 or http://dx.doi.org/10.2139/ssrn.2669545