Entrepreneurial Crowdfunding without Private Claims

43 Pages Posted: 6 Oct 2015 Last revised: 30 May 2018

Kevin Boudreau

Northeastern University - Innovation & Entrepreneurship; Dept. of Economics; College of Computer & Information Sciences; National Bureau of Economic Research (NBER)

Lars Bo Jeppesen

Copenhagen Business School - Department of Innovation and Organizational Economics

Toke Reichstein

Copenhagen Business School - Department of Innovation and Organizational Economics

Francesco Rullani

LUISS Guido Carli - Department of Business and Management; Copenhagen Business School - Department of Innovation and Organizational Economics

Date Written: May 30, 2018

Abstract

The bulk of today’s (“preorder-,” “reward-,” “gift-,” and “donation-based”) crowdfunding raises funds for tiny, private entrepreneurial ventures without granting funders private claims to a project’s future value. Rather than “investments,” these are “contributions.”

We theorize and show empirically that crowdfunding has a payoff structure akin to public goods and associated free-riding. This implies that the tangible value of main project outputs per se should have little bearing on funds raised.

We build on the vast public goods literature to explore the role of non-pecuniary motivations in funding— and how these motivations may differ where the project is by a small profit-seeking entrepreneur (as opposed to a charitable organization).

Drawing together theory, detailed analysis of fine-grained survey evidence, along with observational data on contributions, announcements, product usage, new version releases, and campaign changes from a representative project we pinpoint three specific sources of non-pecuniary motivations in cases of entrepreneurial crowdfunding: (i) empathy, in the sense of experiencing a “common cause” with the project, (ii) reciprocity, in the sense of paying back for one’s own consumption, (iii) and signaling motivations, in the sense of encouraging others to contribute.

The findings hold important implications for crowdfunding strategies, platform design, the kinds of ventures that choose this funding approach, and our understanding of how this funding institution works.

Keywords: crowdfunding, entrepreneurship, public goods, motivations, online community

JEL Classification: G2, G02, H41

Suggested Citation

Boudreau, Kevin and Jeppesen, Lars Bo and Reichstein, Toke and Rullani, Francesco, Entrepreneurial Crowdfunding without Private Claims (May 30, 2018). 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

Kevin Boudreau (Contact Author)

Northeastern University - Innovation & Entrepreneurship; Dept. of Economics; College of Computer & Information Sciences ( email )

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Lars Bo Jeppesen

Copenhagen Business School - Department of Innovation and Organizational Economics ( email )

Kilevej 14A
Frederiksberg, 2000
Denmark

Toke Reichstein

Copenhagen Business School - Department of Innovation and Organizational Economics ( email )

Kilevej 14A
Frederiksberg, 2000
Denmark

Francesco Rullani

LUISS Guido Carli - Department of Business and Management ( email )

Viale Pola 12
Rome, 00198
Italy

Copenhagen Business School - Department of Innovation and Organizational Economics

Kilevej 14A
Frederiksberg, 2000
Denmark

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