Stretching the success in reward-based crowdfunding

By Aslihan Salih

Closing the knowledge gap of crowdfunding by examining the success factors of campaigns at Kickstarter.

Growing financing needs and “financial distancing” due to social distancing during the pandemic gave rise to new financing challenges for businesses. Crowdfunding has emerged as an unconventional fund transfer method from highly dispersed crowds to social, cultural, and for-profit projects. The global crowdfunding market size in 2021 is 12.27 billion dollars, and the transaction value is expected to grow at a compound annual rate of 11 %, reaching 25.8 billion dollars by 2027. However, research about the inner workings of crowdfunding is limited and this study aims to close the knowledge gap by examining the success factors of project funding using a sample of 3,985 campaigns from Kickstarter, one of the leading reward-based crowdfunding platforms.

Founded in 2009, Kickstarter is one of the oldest and most popular crowdfunding platforms. In reward-based crowdfunding projects, creators mostly promise a product or service as a reward, like pre-orders for the backers who are potential consumers. Project creators can gain critical information about the market attractiveness, establish new connections and increase product awareness. In this respect, reward-based crowdfunding is not only about raising money but also provides a tool for market research, product testing, and validation. In crowdfunding, the entrepreneur-consumer relationship differs from traditional channels as project creators can engage backers and use the “wisdom of the crowd” in product development.

Competition for dollars on reward-based crowdfunding platforms is fierce, and the success rate is 37 % for 2019 on Kickstarter. One of the strategies project creators use to compete with other projects is goal setting which is crucial for the project's success and the achievement of milestones. The initial goal decision is critical as most crowdfunding platforms employ the “all or nothing” principle. When the project creators do not reach the goal within the specified campaign duration, the campaign fails, and they don't receive the collected funds. So, all-or-nothing design incentivizes entrepreneurs to set meager goals, lower than the funding requirement of similar scope projects. A project creator can also set stretch goals which are financial targets set above the initial funding goals, and creators can use them as a managerial tool to organize crowds. Via stretch goals, creators can raise additional funds without taking the risk of campaign failure.

We investigate the impact of initially set stretch goals and communication openness on funding performance and contribute to several streams of literature, including crowdfunding, entrepreneurial financing, goal-setting, and communication openness. Empirical results based on our dataset from Kickstarter show that stretch goals and higher levels of communication openness increase the likelihood of project funding success. Communication openness positively moderates the relation between stretch goals and funding success. Moreover, projects with aggressive stretch goals are more likely to succeed if the goals are communicated well. The results provide practical implications for project creators to increase funding performance as well as critical empirical evidence on which signals determine project success. For example, sustainability orientation is a vital success factor for crowdfunding projects. This finding suggests that crowdfunding may become a critical mechanism to channel the most needed funds for sustainable development goals.