THE INFLUENCE OF CROWDFUNDING TYPE ON THE
FUNDRAISING PROCESS SUCCESS
MASTER THESIS
Program: MSc Business Administration Track: Entrepreneurship and Innovation Student name: Evgeny Evsyukhin Student number: 11085428
Supervisor: Dr. Roel van der Voort Date: August, 19 2016
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STATEMENT OF ORIGINALITY
This document is written by Evgeny Evsyukhin who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
TABLE OF CONTENT
ABSTRACT...……….……….……...…4
1. INTRODUCTION……….….….……….……….……5
2. LITERATURE REVIEW……….…….……….……...8
2.1 Sources of financing a new venture...8
2.2 Crowdfunding as a source of fundraising...11
2.3 Types of crowdfunding...15
2.4 The influence of crowdfunding type on campaign’s success...20
3. CONCEPTUAL FRAMEWORK...24 4. RESEARCH METHODOLOGY...29 4.1 Data collection...30 4.2 Variables...32 5. RESULTS... ...33 5.1 Descriptive statistics...33 5.2 Correlation matrix...34 5.3 Hypotheses testing...35 6. DISCUSSION...43
6.1 Effect of crowdfunding type on campaign’s success...43
6.2 Effect of type of return on campaign’s success...44
6.3 Effect of crowdfunding type on campaign’s duration...45
6.4 Answer to the main research question...47
6.5 Limitations and directions for further research...48
6.6 Implications...49
7. CONCLUSION...51
8. REFERENCES...52
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ABSTRACT
During last years crowdfunding has gained the popularity among entrepreneurs and now it has become a sustainable alternative to traditional ways of fundraising for the startups. However, the lack of research leaves this topic unexplored. Specifically, the connection between crowdfunding types and campaign’s success rate is a scarce subject in the academic literature. The identified gap required designing this research in order to identify whether crowdfunding type is a factor that predetermines crowdfunding campaign’s success. Quantitative (database method, n=1500) research was conducted. Findings revealed that type of crowdfunding has a significant effect on campaign’s success and funding level. Furthermore, this study discovered that equity-based and lending-based crowdfunding campaigns have higher success rates compared to reward-based and donation-based projects and accumulate more funds. Additionally, it was identified that crowdfunding campaigns with shorter duration are more likely to succeed and reach higher funding levels. The research identifies a number of limitations; therefore further research has to examine these findings.
1. INTRODUCTION
One of the most important factors of success of any organization still remains its financial prosperity. Monetary resources play a huge role during the stage of the company’s development and growth. Moreover, finances are crucial for the startups and new ventures. The reason for this importance is rather simple and obvious. According to Aston W. (1992) entrepreneurs develop new ideas quickly but they often face problems in obtaining the required funds to develop their ideas into successful viable business. Aston W. (1992) proposes that “the problem for the entrepreneur is not just to raise the money for the venture, but to obtain it from the right source, at the right price and at the appropriate time”. Nowadays entrepreneurs have a wide variety of fundraising sources from conventional bank loans to various donation projects. Liberalization of the modern economic systems and rapid technology development have removed the boundaries in the process of fundraising and have given new opportunities for the startups. During last years crowdfunding is gaining the popularity among entrepreneurs and now it has become a sustainable alternative to traditional ways of fundraising for the startups (Agrawal et. al., 2014). Schwienbacher and Larralde (2010) provide the most complete academic notion of crowdfunding as “an open call, essentially through the Internet, for the provision of financial resources either in form of donation or in exchange for some form of reward and/or voting rights in order to support initiatives for specific purposes”.
Theoretical aspects of crowdfunding were observed and analyzed by many scholars (e.g. Schwienbacher A., Larralde B., Mollick E. etc.) in their academic papers. Since crowdfunding has appeared as a new phenomenon in the business world a lot of research has been done, but still crowdfunding is a complex process and can be analyzed from different dimensions and angles. In other words, there are a lot of
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and significance of the chosen field for the Master Thesis research. Linking theoretical concepts with real-world facts and figures, this research will contribute the further development and implementation of crowdfunding among entrepreneurs.
Crowdfunding itself can be represented in various forms and types. The most popular classification divides crowdfunding projects into four types: reward-based, equity-based, lending-based, and donation-based (Mollick, 2014; Kshetri, 2015). Each type has its own features, advantages and disadvantages. Although many papers analyze crowdfunding forms, there is no definite answer to the question whether the crowdfunding campaign type influence the probability the fundraising process success. This research has its main research goal to identify this correlation and to analyze each crowdfunding type in terms of financial success.
The existing theoretical concepts related to different crowdfunding types show that various authors raise the problem of the identification the connection between crowdfunding types and project’s success. However, none of the researches give the definite answer to this question mainly because of two reasons:
1. Lack of evidence in order to provide results. (Most of the existing research is based on theoretical propositions while lacking empirical studies and analysis).
2. Absence of complex analysis to get relevant results. (Most of existing studies analyses the question from one side, e.g. only one type of crowdfunding or only one crowdfunding platform).
The identified gap in the academic literature requires designing this Master Thesis in order to answer the following research question:
Does the crowdfunding type selection influence the startup’s success in crowdfunding campaign?
More specifically, the research will analyze and reveal the correlation between crowdfunding type and success rate of fundraising campaign by applying quantitative methods and using secondary data obtained from crowdfunding databases.
This Master Thesis consists of six sections. The second section is aimed to provide the theoretical overview of existing studies and current research on crowdfunding and the other possible opportunities to raise the funds for a new venture. The third section introduces the conceptual framework of this research and proposes hypotheses for the analysis. The next section elaborates on the research methodology and focuses on data collection method with description of variables for the analysis. Section 5 gives the results of the analysis and discusses the main findings. The last section draws the relevant conclusions, provides limitations of this Master Thesis and finally proposes ideas for further research.
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2. LITERATURE REVIEW
The section is aimed to review and analyze the main theoretical aspects and concepts of the crowdfunding and other fundraising sources, present different points of view on the chosen topic and provide deep insight on the nature of the crowdfunding process. The literature review consists of four paragraphs that help to achieve aforementioned goals.
2.1 SOURCES OF FINANCING A NEW VENTURE
This paragraph discusses the importance of the fundraising process in new ventures, reviews the main and mostly implemented sources of fundraising for the new ventures and analyzes the features of the each source in order to understand and clarify entrepreneurs’ possibilities and opportunities for obtaining required funds for a venture.
New ventures and startups require a huge variety of different resources in order to grow, develop and be able to be successful in the market (Mollick, 2014). A number of academic researchers state that access to financial resources still remain one of the most crucial and critical measure of success for any enterprise especially during the stage of the early growth (Gorman and Sahlman, 1989; Aston, 1992; Kortum and Lerner, 2000; Gompers and Lerner, 2004; Nofsinger and Wang, 2011; Mollick, 2014). When a startup faces scarcity of monetary resources and unavailability of getting new funds, bright and innovative ideas and initiatives of the venture stop playing the most important role because an enterprise is not able to develop, grow and operate without certain level of available funds (Nofsinger and Wang, 2011). According to Aston W. (1992) entrepreneurs develop new ideas quickly but they often face problems in obtaining the required funds to develop their ideas into successful viable business.
Aston W. (1992) proposes that “the problem for the entrepreneur is not just to raise the money for the venture, but to obtain it from the right source, at the right price and at the appropriate time”. The choice of the most appropriate fundraising source depends on several different factors including the venture’s stage of development, the projected time to reach the market, the amount of required funds, the estimated market size, investor’s risk, etc. (Schwienbacher and Larrade, 2010; Nofsinger and Wang, 2011; Lehner, 2013).
Nowadays entrepreneurs have a wide variety of fundraising sources from conventional bank loans to various donation projects. Liberalization of the modern economic systems and rapid technology development have removed the boundaries in the process of fundraising and have given new opportunities for the startups (Hemer, 2011). Schwienbacher and Larrade (2010) describe existing sources of fundraising the new venture and divide them into two categories: equity financing and debt financing.
The main sources of equity fundraising are entrepreneur’s capital, friends and family financing, business angels, venture capitalists, strategic investors and stock markets. Debt financing includes bank loans, leasing companies, government agencies, customer or supplier financing and bootstrapping. Table 1 shows the summary of all traditional fundraising sources for a new venture and introduces their main features.
This paragraph is aimed to provide general picture of existing fundraising sources for a new venture and highlight the critical importance of financing issues for any organization. Even though entrepreneurs have a number of different possibilities to obtain required capital for launching their startups, new sources are emerging due to the development of technologies and economic systems (Belleflamme, Lambert and Schwienbacher, 2010). One of these new emerging sources is crowdfunding discussed
Evgeny Evsyukhin (11085428) 10 for entrepreneur Risk Eq u ity
Entrepreneur and team members Investing entrepreneur’s own funds or/and personal loans in the development of the company.
+++ Seed, start-up High
Friends and family Financing of entrepreneur’s friends and family. +++ Seed, start-up High Business angels Investments made by non-professional people
in small projects and ventures.
++ Start-up, early
growth
Medium-high Venture capitalists Professional investors obtaining money from
non specialists and investing it into ventures for a long period (usually 5-7 years).
+ Early growth,
established
Medium
Other companies/ strategic investors
Investments made by large companies in projects and ventures that have strategic importance to them.
- Established
Low-Medium Stock markets Investing in the company by launching public
offering, thus making it possible for a large number of people to become investors.
- Established Low
D
e
b
t
Banks Obtaining funds through bank loans. ++ Early growth,
established
Low Leasing companies Investments are made by providing equipment
to entrepreneurs against lease payments.
+ Start-up, early
growth
Low-Medium Government agencies Government subsidizing of socially important
projects.
++ Start-up, early
growth
Low
Customers/ suppliers Obtaining funds through trade credits. +++ Early growth,
established
Medium
Bootstrapping Optimal use of working capital management
together with trade credit and credit cards.
+++ Start-up, early
growth
High
2.2 CROWDFUNDING AS A SOURCE OF FUNDRAISING
This paragraph provides detailed review of existing academic and managerial literature on crowdfunding as an alternative source of fundraising a new venture by discussing the various definitions of crowdfunding, observing its development, and analyzing positive and negative aspects of this emerging fundraising method both for entrepreneurs and investors.
Defining crowdfunding.
Crowdfunding has become an alternative source of fundraising for new ventures when a large group of people invest small amount of money for social, cultural, or commercial ventures and projects (Ordanini et al., 2011). Venture founders and funders communicate through the crowdfunding platform, a specialized online intermediary. (Lehner et al., 2015; Adams and Ramos, 2010). Depending on the type of crowdfunding, the funders or backers receive financial or non-financial rewards for their contributions, and entrepreneurs obtain relatively small monetary contributions from online backers, donors and investors to finance for-profit or non-profit projects and ventures (Kshetri, 2015). Crowdfunding is a new form of fundraising for new startups, ventures and projects by gathering money from a large number of investors.
Although the term “crowdfunding” is relatively simple and clear, there is no standard and accepted definition for yet; mostly because crowdfunding itself is constantly developing, and there is the lack of academic research and theoretical knowledge in this field (Mollick, 2014; Belleflamme et al., 2010; Schwienbacher and Larralde, 2010). In earlier academic literature, the term crowdfunding is often classified as a type of crowdsourcing (Kleemann et al., 2008; Kaltenbeck, 2011).
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The first theoretical aspects of crowdsourcing were developed by Jeff Howe in 2006. However, only two years later Kleeman et al. (2008) introduced a widely accepted notion of this term: “Crowdsourcing takes place when a profit oriented firm outsources specific tasks essential for the making or sale of its product to the general public (the crowd) in the form of an open call over the Internet, with the intention of animating individuals to make a contribution to the firm's production process for free or for significantly less than that contribution is worth to the firm.”
According to aforementioned definition, the main idea of crowdsourcing is outsourcing of certain tasks to the community (“crowd”) which helps to generate added value for the venture due to the great diversity of knowledge and expertise involved in the value creation process (Kaltenbeck, 2011). Figure 1 shows the classification of different types of crowdsourcing. Originally, Howe (2006) introduced this classification consisted only of three types: crowdcreation, crowdvoting and crowdwisdom. Later, this framework was refined, and crowdfunding was included, which focuses mostly on the fundraising rather than on collaboration with community and value co-creation.
Figure 1 – Crowdsourcing classification (source: Kaltenbeck, 2011)
In order to understand and clarify all the aspects of crowdfunding and to distinguish it from crowdsourcing, it is important to review all four forms of crowdsourcing suggested and developed by Howe (2006) and Kaltenbeck (2011).
Crowdwisdom refers to the use of the diversified knowledge of a community. Entrepreneurs ask the crowd to activate and reflect on their knowledge, expertise and experience.
Crowdcreation refers to the use of the creative potential of a community. The obtained ideas and initiatives of the crowd are used in further value creation.
Crowdvoting refers to assessing ideas, products/services or business models. People provide their opinions about the venture, and this serves as the basis for making decisions and forecasting venture’s development.
Crowdfunding, in contrast to aforementioned forms of crowdsourcing, focuses mostly on the fundraising projects and new ventures rather than on knowledge collaboration with community and value co-creation. However, the two central parts, common for crowdsourcing in general, remain unchanged: online communication and crowd.
During last years crowdfunding has gained the popularity among entrepreneurs and now it has become a sustainable alternative to traditional ways of fundraising for the startups (Agrawal et. al., 2014). Schwienbacher and Larralde (2010) provide academic notion of crowdfunding as “an open call, essentially through the Internet, for the provision of financial resources either in form of donation or in exchange for some form of reward and/or voting rights in order to support initiatives for specific purposes”. Mollick (2014) argues that this definition is too broad and not specific, and introduces a narrower definition in an entrepreneurial context: “Crowdfunding refers to the efforts by entrepreneurial individuals and groups – cultural, social, and for-profit – to fund their ventures by drawing on relatively small contributions from a relatively large number of individuals using the internet, without standard financial intermediaries”.
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Advantages and disadvantages of crowdfunding
This paragraph summarizes the main pros and cons of crowdfunding for both the entrepreneur and the funder. The results are presented in the Table 2 below.
Table 2 - Advantages and disadvantages of crowdfunding (source: KPMG ADVISORY Report)
2.3 TYPES OF CROWDFUNDING
This paragraph provides detailed review of existing academic and managerial literature on different views on crowdfunding classification by discussing all the types of crowdfunding investments, describing various returns of crowdfunding campaigns and also analyzing level of uncertainty involved in each crowdfunding type.
Crowdfunding as an alternative source of raising capital is divided into different categories. All classifications presented in existing literature split crowdfunding according to the return that entrepreneur offers to investors and backers for their contribution. Even though, all approaches are based on the same concept, it is important to discuss all basic classifications in order to get a better understanding and to clarify crowdfunding phenomenon.
The simplest typology of crowdfunding projects offered by Hemer (2011) provides only two basic crowdfunding types. The first type called “not-for-profit” does not offer investors any type of material or financial return since such crowdfunding campaigns have societally goals or refer to charity. Crowdfunding campaigns of the second type “for profit” follow purely commercial goals (e.g. launching a venture, investing in commercial projects) and most often offer rewards to the investors for their contribution.
Lambert and Schwienbacher (2010) and Metzler (2011) introduce three basic crowdfunding business models. According to this research, the first type of crowdfunding is called “donations”. It refers to entrepreneurs who seek sponsors and donors for their projects without offering financial of any other kind of return on investment. This type is more suitable for social and not-for-profit organizations and shares 22% of all crowdfunding campaigns. The next business model presented by Lambert and Schwienbacher (2010) is called “passive investments by the crowd”.
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However, they do not offer any possibility to funders to participate in operating the venture or to be involved somehow else. And the last type called “active investments by the crowd”, on the contrary to the aforementioned business model, offers investors to be involved in operating the company (e.g. equity, voting rights).
According to the Massolution Crowdfunding Industry Report (2015), entrepreneurs and investors follow three main strategies of crowdfunding. The first strategy called “Donations, Philanthropy and Sponsorship” does not offer any kinds of rewards to investors. The next strategy “”Lending” offers financial return on investment and the crowd plays the role of the creditor. And the last form of crowdfunding given in Massolution Report (2015) is called “Investment in exchange for equity, profit or revenue sharing”.
In academic literature (Mollick, 2014; Belleflamme et. al., 2012; Cholakova and Clarysse, 2015; Kshetri, 2015; Agrawal et. al., 2015) and managerial reports (The World Bank, 2013; Massolution Crowdfunding Industry Report, 2012) crowdfunding is categorized into 4 main types: donation-based, reward-based, lending-based and equity-based crowdfunding. Further, all these four types are discussed in order to get a better understanding of crowdfunding phenomenon.
While using donation-based type, the entrepreneur does not offer any material or financial return to the funders for their contribution. However it is becoming common to “to give something to the funder as a token of appreciation, for example a thank you note” (Bradford, 2012).
In reward-based crowdfunding the project founder promises to give the funders a pre-determined reward for their investment. The most popular reward in this type of campaigns is better known as “pre-selling” (Molick, 2014). The entrepreneur “seeks financing to produce a certain product or service, like a music album, a movie, a painting, a new technical product, clothing etc., and the funder in return gets an early
version of this product’’ (Hemer, 2011). Sometimes there is no obvious boundary between donation-based and reward-based campaigns, since popular crowdfunding reward-based platforms like Kickstarter or Indiegogo, give an option to the project’s founder to set customized reward model, e.g. investors receives ‘’a token of appreciation’’ for small contribution like in donation-based projects or get the real product for larger pledge like in reward-based campaigns (Lehner, 2013).
The main feature of lending-based crowdfunding is borrowing money from a large group of people with ‘’the expectation of some rate of return’’ (Mollick, 2014). The interests are usually fixed or pre-determined “as a percentage of potential revenues” (The World Bank, 2013). This allows minimizing risks both for investors and entrepreneurs.
Equity-based crowdfunding campaigns suggest that entrepreneurs offer their investors ‘’equity stakes or similar consideration in return for their funding’’ (Mollick, 2014). The major difference between equity crowdfunding and venture capital financing is number of investors meaning that funders in equity-based crowdfunding model do not own large shares of the company. However, equity crowdfunding is the most complex type and it is ‘’a subject to high levels of regulation’’ due to the high level of risk and uncertainty involved (Heminway and Hoffman, 2010).
To summarize different approaches on crowdfunding classification, the short overview of each crowdfunding type is presented in Table 2. Equity-based and lending-based crowdfunding are grouped in investment crowdfunding model, as they both offer monetary returns to the backers. Reward-based and donation-based types, on the other hand, are aggregated in donation crowdfunding business model. In Table 2 below, adopted from a World Bank report “Crowdfunding’s Potential for the Developing World” (2013), this division is shown and major advantages and disadvantages of
donation-Evgeny Evsyukhin (11085428) 18
Business model
Crowdfunding
Type Features Advantages Disadvantages
Donation
Donation-based
Investing in social projects: backers donate money without expectations of any reward or financial pay-back
No risk for investors.
Entrepreneurs face difficulties of obtaining large funds due to the non-for-profit projects.
Reward-based
Backers get a particular material reward for their contribution (often this reward is the product/service itself). Thus, entrepreneurs obtain required capital through pre-sales of their product.
Low risk for investors (all the risks mostly concern fulfillment of entrepreneur’s liabilities and fraud risk)
Potential return is relatively small. The majority of entrepreneurs might face difficulty of obtaining required capital without a sustainable and viable product/service for selling.
Investing
Lending-based
Investors obtain a debt instrument that allows them to receive a fixed interest rate and returns principal on a specified schedule.
Pre-determined and fixed rate of return agreed between founder and funder reduces uncertainty for both sides. Limited liability of funders makes this type attractive for investors in case of bankruptcy.
High risks of losing investment and potential interests due to high-failure rate of funded ventures. This crowdfunding type is not suitable for early-staged ventures as it requires a company to generate sustainable cash flows.
Equity-based
Investors obtain equity instruments or profit/revenue sharing agreements.
Possibility to share the profit or the revenue of the company and high potential for raising capital comparing to the other types might be attractive for large numbers of funders.
Relatively high chances to lose the investment in case of bankruptcy and security legislation on equity-based crowdfunding make this type of investing very complex and complicated.
As it was mentioned before, investors in different types of crowdfunding face different level of risk and uncertainty. The level of uncertainty increases with increasing of raised capital, information asymmetries and complexity of a crowdfunding campaign (Heminway and Hoffman, 2010; Agrawal et. al., 2014) As shown in Figure 2, investors in lending-based and equity-based crowdfunding face higher levels of risk and uncertainty than in donation-based and reward-based crowdfunding due to the differences of accumulated funds per project on average (Massolution, 2012). The history of crowdfunding shows the connection between project’s risk and success. According to GoFundMe (2015), donation-based and reward-based crowdfunding projects have the highest chances to be successful because of the lower level of risk and uncertainty.
Figure 2 – Complexity and Uncertainty of Crowdfunding Types (Source: Massolution, 2012). In addition to the aforementioned classifications of crowdfunding, Kleverlaan (2015) introduces the term of “Return on Involvement”. All existing crowdfunding initiatives can be divided into financial, material and social types depending on the kind of return they offer to investors. Figure 3 below, clarifies the connection between basic type of crowdfunding and types of returns.
Evgeny Evsyukhin (11085428) 20 Figure 3 – Return on Involvement To conclude the review of existing academic and managerial literature on crowdfunding classification, this research primarily focuses on crowdfunding campaigns divided according to traditional and most common division into donation-based, reward-based, lending-based and equity-based categories, since this classification fully covers all aspects of different crowdfunding campaigns and allows answering main research question.
2.4 THE INFLUENCE OF CROWDFUNDING TYPE ON CAMPAIGN’S SUCCESS
This paragraph reviews the main concepts of the success of crowdfunding campaigns and provides a theoretical gap found in discussed studies that leads to formulating the main research question and conducting further analysis.
Since crowdfunding is gaining popularity among entrepreneurs, a lot of researches address their papers to this field. However, this phenomenon is very young and there are few solid academic studies. In order to clarify the current state of research on crowdfunding, the basic academic articles on crowdfunding campaign success are reviewed below.
Mollick (2014) discusses different forms and varieties of current crowdfunding models. This study primarily focuses on analysis a large set of data on success and failure of crowdfunding projects from Kickstarter. The paper analyzes whether different factors (e.g. number of investors, number of updates and comments, project duration, personal network, geography, project quality) influence the success of crowdfunding campaign. However, the main limitation of the paper is addressing only to reward-based and donation-based crowdfunding.
Agrawal et. al. (2014) also analyze the factors of success of crowdfunding campaigns. The article mainly focuses on one type of crowdfunding: equity-based crowdfunding. The question that is raised in this research is about potential prospects of equity-based crowdfunding and its popularity among young entrepreneurs. However, there is no definite answer to the question about the chances of equity-based crowdfunding campaign to be successful. The direction for further research is conducting the complex analysis for identifying the probability of success of an equity-based crowdfunding campaign.
Kshetri (2015) like the other authors discusses the growing popularity of crowdfunding. The main focus of the article is identifying the effects of regulative, cognitive and normative institutions on the success of a crowdfunding project. It also analyzes how the effects of different types of institutions are likely to vary across the four different types of crowdfunding campaigns. This research raises the proposition that different crowdfunding campaigns do not have equal chances to succeed in fundraising. This research is limited due to absence of empirical analysis since almost all proposed hypotheses are based on theoretical aspects and provides no practical evidence. However, this is one of the first academic studies discussing the influence of crowdfunding type on campaign’s success.
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Ordanini et. al. (2011) also discuss and analyze the growing popularity of crowdfunding as a source of fundraising for new businesses. The authors mainly focus on analyzing the activity of crowdfunding platforms because they play a crucial role in crowdfunding process linking the entrepreneur with investors. The main finding of this research is connected with the success of the crowdfunding campaign from the investor’s point of view (why do people become crowdfunding participants?). The paper also discusses the impact of crowdfunding platform on a project success. This research includes the factor of “crowd” incentive and desire to participate in crowdfunding campaign, and also stresses the importance of the factor “crowdfunding platform” comparing the percentage of successful crowdfunding projects on different online platforms. However, the research does not focus on distinguishing crowdfunding types and identifying whether they influence project’s success.
Cholakova and Clarysse (2015) compare equity-based and reward-based crowdfunding projects. The authors make comparison in terms of investors’ motivation to fund the project. The analysis section introduces a set of variables and factors for comparison of these two crowdfunding types and identifies that financial and non-financial returns influence the success of a campaign differently since they attract different groups of investors. But the paper does not analyze all types of campaigns in terms of success or failure chances.
In addition to academic research, there are several managerial reports that are attempting to identify the connection between crowdfunding types and campaigns’ success. (Massolution, 2012; Massolution, 2015; The World Bank Report, 2013). According to Massolution reports, crowdfunding campaigns of different types draw different levels of funding and have different success rates. Indiegogo crowdfunding platform states that crowdfunding campaigns of different types require different duration period and the duration itself influence the success or failure of the project. However,
the conclusions on success of crowdfunding projects do not cover all the aspects of crowdfunding phenomenon.
The existing theoretical concepts related to different crowdfunding types show that various authors raise the problem of the identification the connection between crowdfunding types and project’s success. However, none of the researches give the definite answer to this question mainly because of two reasons:
1. Lack of evidence in order to provide results. (Most of the existing research is based on theoretical propositions while lacking empirical studies and analysis).
2. Absence of complex analysis to get relevant results. (Most of existing studies analyses the question from one side, e.g. only one type of crowdfunding or only one crowdfunding platform).
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3. CONCEPTUAL FRAMEWORK
This section of the Master Thesis is dedicated to formulate the main research question and propose hypotheses based on detailed analysis of the existing academic and managerial literature. The identified gap in the field of crowdfunding requires designing this Master Thesis in order to answer the following research question.
Does the crowdfunding type selection influence the startup’s success in crowdfunding campaign?
More specifically, the research will analyze and reveal if there is the correlation between crowdfunding type/type of crowdfunding return and the success rate of fundraising campaign/funding level. In order to answer the stated question, this research will examine different drivers for success of crowdfunding campaign on a project level. The research proposes several hypotheses that will be analyzed and discussed in the next sections of the thesis.
H1: The type of a crowdfunding campaign has a significant impact on its success and funding level.
Based on academic and managerial literature reviewed in the previous section (Massolution, 2012; Cholakova and Clarysse, 2015; Agrawal et. al. 2014), it was identified that a number of authors and researchers suggest that equity-based and lending-based crowdfunding campaigns are not that successful on average than reward-based and donation-based crowdfunding projects (Massolution, 2012; Cholakova and Clarysse, 2015; Agrawal et. al. 2014). Therefore, the next hypothesis suggests the following:
H1a: Equity-based and lending-based crowdfunding campaigns have lower success rate than reward-based crowdfunding due the different level of uncertainty and risk.
Figure 4 – Model hypothesis H1a As it was revealed before during literature analysis, all the crowdfunding types possess different levels of risks, uncertainty and complexity (Massolution, 2012; Heminway and Hoffman, 2010). Therefore, there is an assumption that different crowdfunding campaigns attract particular types of investors who invest different amount of funds. This leads to proposing the following hypotheses:
H1b: Donation-based and reward based crowdfunding draw lower funds per project than lending-based and equity-based campaigns.
Figure 5 – Model hypothesis H1b H1c: Donation-based and reward based campaigns obtain smaller individual pledges than lending-based and equity-based campaigns.
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Since there was found a close connection between the terms “type of crowdfunding” and “type of return”, the next hypothesis is proposed as following:
H2: The type of returns that a crowdfunding campaign offers to convince backers to invest has a significant impact on its success.
The second hypothesis is aimed to test whether different returns that crowdfunding campaigns give to potential investors influence the project’s success and provide statistical evidence for this relation. Different returns attract different types of backers and investors but proposed hypothesis is dedicated to reveal the return type which is more likely to raise required funds for the campaign.
In order to analyze the aforementioned relation, this research proposes the following model as shown in the Figure 7 meaning that different types of returns are correlated to particular crowdfunding types. Based on this assumption, the hypothesis 2a is the following:
Figure 7 - Conceptual framework Hypothesis 2.
H2a: Crowdfunding campaigns that offer pure financial returns have lower success rates and funding levels than crowdfunding campaigns that offer non-financial and social returns.
Figure 8 - Model Hypothesis 2a As it was identified in the literature review, duration of the crowdfunding campaign might influence its success or failure (Massolution, 2015; World Bank, 2013). Therefore, the third hypothesis proposes the following:
H3: The duration of a crowdfunding campaign has a significant impact on its success and funding level.
Since lending-based and equity-based crowdfunding campaigns are referred to a higher level of risk and uncertainty, there is an assumption that it might take longer time to obtain required funds. Therefore, the last hypothesis proposes the following:
H3a: The average duration of equity-based and lending-based campaigns is longer than the duration of reward-based and donation-based campaigns.
Figure 9 - Model Hypothesis 3a To summarize all proposed hypothesis it is worth mentioning that Hypothesis 1 analyses connection between crowdfunding type and campaign’s success and funding level, Hypothesis 2 is aimed to reveal the correlation between type of return and campaign’s chances to succeed. Finally, Hypothesis 3 analyses whether campaign’s
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duration is linked to its success rate and funding level. Figure 10 illustrates the conceptual framework for all proposed hypotheses.
Figure 10 – Conceptual framework
Crowdfunding Type Type of Return Duration Success Rate
Funding Level
H3 H2
4. RESEARCH METHODOLOGY
This section is dedicated to explaining the methods and data that are used for conducting the further analysis and answering the main research question. First, this section provides a short description of research approach and research type. After that, there is an explanation of methods chosen for analysis with elaboration on data collection and sampling process. Finally, this section provides the discussion of all variables used in the analysis.
The research question assumes application of the deductive reasoning. This means that analysis is conducted based on a detailed literature review and proposed hypotheses. After data collection and detailed analysis on chosen topic, proposed hypotheses will be accepted or declined. The research approach selection is caused by the lack of evidence in theoretical studies on thesis’s topic. There is no definite answer to the research question that can be found in recent academic papers. Thus the research will give an answer to the main question and provide relevant conclusions after detailed analysis of the crowdfunding campaigns.
The research uses a combination of descriptive and explanatory studies trying to identify the most successful types of crowdfunding campaigns and explaining this phenomenon. Descriptive study answers the question “why did the situation occur?” and explanatory study is “looking for an explanation behind a particular occurrence through the discovery of causal relationships between key variables” (Saunders, 2012).
Since the main research question and goals of this research are designed on testing and the verification of several proposed hypotheses, “quantitative research is the most appropriate method to use” (Saunders, 2012).
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4.1 DATA COLLECTION
Database method was used for data collection required for the further analysis since it is the most appropriate method to deal with large amount of numerical data. Moreover, this method is the most efficient for data collection based on statistics. The majority of the data was obtained through CrowdBerkely Database containing datasets from six different crowdfunding platforms (Kickstarter, Indiegogo, Rockethub, FundRazr, Lending Club and Kiva). Each dataset contains more than 100000 records of different finished crowdfunding projects with indication of basic information for each project (name of the project, crowdfunding type, required funds, raised capital, the number of investors, start/end date of the project, URL-link to find the project). As each platform primarily focuses on some particular business model and crowdfunding types, FundRazr was chosen for analyzing donation-based projects, Kickstarter and Indiegogo were selected for analyzing reward-based campaigns, Lending Club was used for analysis of lending-based campaigns. However, CrowdBerkeley database does not provide any statistics for equity-based crowdfunding projects; therefore this data was obtained from database of The Crowdfunding Center (thecrowdfundingcenter.com). This dataset contains the similar information for equity-based projects launched on CrowdCube platform. In order to perform initial validity check, some of the projects were checked manually using links provided in datasets. All the data was correct and no mistakes were found. So these datasets were used in analysis in order to answer the main research question. It is worth mentioning that using secondary data might be a disadvantage for research conducting as it can be inaccurate for current study (Saunders, 2012). However, collected data matches all the goals of this research. Moreover, all the datasets have the same unit of observation as it requires the proposed research question (crowdfunding project level).
The obtained dataset included more than 1.5 million crowdfunding campaigns and contained information about projects since 2008. In order to get more relevant results, the first step of data sampling was selecting only the latest projects since crowdfunding is a fast developing phenomenon and old campaigns might not show the current picture of crowdfunding development. As a result, the dataset was reduced to 300000 crowdfunding campaigns and contained projects launched between 2014 and 2015. Nevertheless, the data should have been sampled in order to move to the analysis. To reach this goal, a simple random sampling was implemented as this method allows to avoid any bias in the data (De Mast et. al., 2012). Since the dataset has binary data (e.g. success/failure) the sample should contain no less than 300 observations in order to achieve statistically significant results (De Mast et. al., 2012). After sampling the data, the final dataset contains records of 1500 crowdfunding campaigns (300 campaigns from each of the five platforms selected for analysis). The next step of the data collection was validation check in order to minimize measurements errors and to get correct results. Every project was checked manually for mistakes and inaccuracies by using the link provided in the initial dataset. The final step of data collection and sampling was preparing data to import in SPSS software. To provide a better understanding of data collection and sampling methods, Table 3 presents a short sample of the final dataset used in the analysis.
Platform CF type State Goal Raised % Funded Duration Backers Average Pledge
Fundrazr Donation successful 2000 2290 115% 211 47 48,72
Fundrazr Donation failed 2000 1190 60% 188 22 54,09
Fundrazr Donation successful 2000 2562 128% 188 30 85,40
Kickstarter Reward successful 4000,00 4120,00 103,00% 45 59 69,83
Kickstarter Reward successful 3000,00 5065,00 168,83% 28 94 53,88
Kickstarter Reward failed 1350,00 0,00 0,00% 60 0 0,00
Crowdcube Equity Failed 130000 100 0,08% 59 5 20,00
Crowdcube Equity Failed 60000 31520 52,53% 59 31 1016,77
Crowdcube Equity Failed 100000 6190 6,19% 59 16 386,88
Lending Club Lending Failed 5600,00 5450,00 97% 14 31 175,81
Lending Club Lending Successful 10000,00 10000,00 100% 14 29 344,83
Lending Club Lending Successful 10000,00 10000,00 100% 14 32 312,50
Indiegogo Reward Successful 6000 6700 111,67% 38 78 85,90
Indiegogo Reward Failed 20000 0 0,00% 59 0 0,00
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4.2 VARIABLES
This paragraph is aimed to introduce and explain the variables that are used in this research. First, independent variables are discussed followed by the elaboration on dependant variables. Since the unit of analysis is a single crowdfunding project, all the variables that are used further describe crowdfunding phenomenon on a project’s level. All the variables that are used in the analysis are summarized in the table 4.
Variable Description Type Measurement
Independent variables
Type of crowdfunding This variable codes different
types of crowdfunding Categorical
1=Donation 2=Reward 3=Lending 4=Equity
Type of return
This variable codes different returns of crowdfunding campaigns Categorical 1=Social 2=Material 3=Financial
Duration Measures the duration of a
project Numerical Measured in days
Number of investors Number of investors funded the
campaign Numerical Number of people
Size of investment Indicates the average pledge of
the crowdfunding campaign Numerical
Measured in USD
Goal Indicates required funds to
achieve the goal of campaign Numerical
Dependent variables
State This variable indicates whether
the project is successful or not Categorical
0=Failure 1=Success
Funding level
This variable is calculated as relation of raised funds to
required funds
Numerical Measured in %
Accumulated funds It indicates the amount of
raised funds in the campaign Numerical Measured in USD Table 5 – Table with variables
5. RESULTS
This section provides the main results and findings of the conducted analysis by testing all stated hypotheses in the section 3. First, the section presents descriptive statistics of the sample. In the following step the correlations between variables are discussed. Finally, all hypotheses are tested and the results are presented.
5.1 DESCRIPTIVE STATISTICS
Before testing proposed hypotheses the data should be prepared. This was done by computing the descriptive statistics and frequencies for all the variables.
Table 5 presents the mean, standard deviation, skewness and kurtosis of each variable. Descriptive statistics of the sample show a wide range of skewness values (from-0.344 to 22.032) and kurtosis values (from -1.752 to 653.824) But according to Tabacknick and Fidell (2001) “with reasonably large samples, skewness will not make a substantive difference in analysis”. This sample consists of 1500 cases, and therefore, “the risk of an underestimation of the variance is reduced and skewness would not make a substantive difference in the analysis” (Tabacknick & Fidell, 2001).
N Mean Std. Deviation Skewness Kurtosis Statistic Statistic Statistic Statistic Std. Error Statistic Std. Error Platform 1500 3,0000 1,41469 ,000 ,063 -1,300 ,126 TypeCF 1500 2,4000 1,02014 ,272 ,063 -1,044 ,126 TypeRet 1500 2,2000 ,74858 -,344 ,063 -1,153 ,126 Duration 1500 39,48 31,245 2,645 ,063 10,393 ,126 NbInv 1500 44,89 128,084 11,812 ,063 197,741 ,126 SizeInv 1500 593,0547 2085,87271 7,916 ,063 69,503 ,126 Goal 1500 90415,38 392300,886 14,203 ,063 299,195 ,126 State 1500 ,3787 ,48522 ,501 ,063 -1,752 ,126 FundLevel 1500 ,638830 1,4763103 22,032 ,063 653,824 ,126 AccumFunds 1500 56818,64 256765,903 6,165 ,063 39,930 ,126 Valid N (listwise) 1500
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5.2 CORRELATION MATRIX
An overview of the correlations is presented in table 6. It illustrates how the variables are connected to each other and whether these correlations are statistical significant. The correlation matrix shows that the type of crowdfunding has statistically significant correlations with campaign’s state (r=0.245, p<0.01), goal (r=0.207, p<0.01), accumulated funds (r=0.322, p<0.01), size of investment (r=0.328, p<0.01) and campaign’s duration (r=-0.056, p<0.01). Type of return significantly correlates with campaign’s state (r=0.350, p<0.01), goal (r=0.145, p<0.01), accumulated funds (r=0.226, p<0.01), size of investment (r=0.240, p<0.01), campaign’s duration (r=-0.203, p<0.01) and funding level (r=0.062, p<0.05)
Variables Mean Std. Deviation 1 2 3 4 5 6 7 8 9
1. Platform 3.00 1.41 2. Type of crowdfunfing 2.40 1.02 0.971** 3. Type of return 2.20 0.75 0.945** 0.943** 4. Duration 39.48 31.24 -0.068** -0.056* -0.203** 5. Number of investors 44.89 128.08 0.046 0.084** 0.063* 0.018 6. Size of investment 593.05 2085.87 0.299** 0.328** 0.240** -0.002 0.113** 7. Goal 90415.38 392300.89 0.202** 0.207** 0.145** 0.104** 0.108** 0.493** 8. State 0.38 0.49 0.245** 0.246** 0.350** -0.274** 0.288** 0.247** 0.061* 9. Funding level 0.64 1.48 0.026 0.032 0.062* -0.081** 0.255** 0.073** -0.002 0.384** 10. Accumulated funds 56818.64 256765.90 0.291** 0.322** 0.226** 0.071** 0.277** 0.851** 0.551** 0.267** 0.091**
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).
5.3 HYPOTHESES TESTING
Effect of crowdfunding type on campaign’s success and funding level. H1: The type of a crowdfunding campaign has a significant impact on its success and funding level.
In order to test Hypothesis 1, two different analyses need to be conducted. During One-Way ANOVA tests the results showed that there was statistically significant effect of crowdfunding type on success rate, F (3, 1496) =175.79, p<0.05. Additionally, analysis of variances revealed statistically significant effect of crowdfunding type on funding level of the project, F (3, 1496) =7.103, p<0.05. Tukey post-hoc tests revealed that the chances of a crowdfunding campaign to be successful were significantly higher in lending-based crowdfunding compared to all other types (p<0.05). Equity-based campaigns were more likely to succeed compared to donation-based and reward-based campaigns (p<0.05). However, there was no statistically significant difference between donation-based and reward-based crowdfunding campaigns (p=0.672). Moreover, Tukey post-hoc tests showed that lending-based campaigns reached higher funding level compared to the other types (p<0.05). However, there was no statistically significant difference of donation-based with reward-based campaigns (p=0.998) and with equity-based campaigns (p=1.000). There was also no statistically significant difference between reward-based and equity-based campaigns (p=0.995).
To get more accurate results, the second step was conducting linear regression analysis to test the first hypothesis. The obtained results showed that crowdfunding type had statistically significant effect on campaign’s success, F (1, 1498) = 96.79, p<0.001 and explained 6.1% of variance in campaign’s success. Crowdfunding type as a predictor variable was statistically significant (β=0.246, p<0.001). However, the effect of
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Therefore, based on the results of two different analyses Hypothesis 1 is partially supported since there is no statistical evidence of crowdfunding type effect on campaign’s funding level.
H1a: Equity-based and lending-based crowdfunding campaigns have lower success rate than reward-based crowdfunding due the different level of uncertainty and risk.
The most appropriate analysis to test Hypothesis 1a is Crosstabs test because it allows it allows to compare frequencies of each category and to measure the strength of association with Chi-square. The results of analysis revealed that there was statistically significant association between crowdfunding type and campaign’s success, χ2 = 390.96, p<0.001. Moreover, based on the ϕ statistic the association seems to be of medium size (ϕ=0.51). Based on frequency distribution, the most successful types of crowdfunding were lending-based (success rate of 86.3%) and equity-based campaigns (success rate of 35.3%). Donation campaigns showed the lowest success rate of 20.3% and reward-based campaigns showed the rate of 23.7%.
Therefore, Hypothesis 1a cannot be supported since equity-based and lending-based crowdfunding campaigns have the highest success rate.
H1b: Donation-based and reward based crowdfunding draw lower funds per project than lending-based and equity-based campaigns.
In order to test Hypothesis 1b, two different analyses were conducted. The first step was running One-Way ANOVA test. The results revealed that there was statistically significant effect of crowdfunding type on accumulated funds, F (3, 1496) = 93.93, p<0.001. Tukey post-hoc tests showed that accumulated funds were significantly higher in equity-based campaigns compared to all other crowdfunding
types (p < 0.001). However, there was no statistically significant difference of donation-based with reward-donation-based campaigns (p=0.999) and with lending-donation-based campaigns (p=0.912). There was also no statistically significant difference between reward-based and lending-based campaigns (p=0.919). ANOVA tests showed that equity-based campaigns obtained the highest funds with the mean of $261,007. Lending-based campaigns received $14,287 on average. Donation-based and reward-based campaigns collected the lowest funds out of all four types of crowdfunding, with the means of $1,596 and $3,602.
The second step of testing Hypothesis 1b was conducting linear regression analysis. The obtained results revealed that crowdfunding type had statistically significant effect on accumulated funds in the crowdfunding campaign, F (1, 1498) = 172.94, p<0.001 and explained 10.3% of variance in campaign’s accumulated funds. Crowdfunding type as a predictor variable was statistically significant (β=0.322, p<0.001). The results of linear regression analysis showed that accumulated funds were consistently increasing from donation-based to equity-based campaigns. This means that on average donation-based and reward-based campaigns draw lower funds than lending-based and equity-based campaigns.
Therefore, based on the results of two different analyses Hypothesis 1b is supported.
H1c: Donation-based and reward based campaigns obtain smaller individual pledges than lending-based and equity-based campaigns.
In order to test Hypothesis 1c, two different analyses were conducted. The first step was running One-Way ANOVA test. The results revealed that there was statistically significant effect of crowdfunding type on the size of investment,
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was significantly higher in equity-based campaigns compared to all other crowdfunding types (p < 0.001). The size of investment was also significantly higher in lending-based campaigns compared to reward-based projects (p=0.018). However, there was no statistically significant difference of donation-based with reward-based campaigns (p=0.689) and with lending-based campaigns (p=0.390). ANOVA tests showed that equity-based campaigns received the largest average investments with the mean of $2,214. The size of investment in lending-based campaigns was $448 on average. Donation-based and reward-based campaigns received the smallest investments out of all four types of crowdfunding, with the means of $201 and $51.
The second step of testing Hypothesis 1b was conducting linear regression analysis. The obtained results revealed that crowdfunding type had statistically significant effect on the size of investment in the crowdfunding campaign, F (1, 1498) = 208.71, p<0.001 and explained 10.8% of variance in the size of investment in crowdfunding campaign. Crowdfunding type as a predictor variable was statistically significant (β=0.328, p<0.001). The results of linear regression analysis showed that the size of investment was consistently increasing from donation-based to equity-based campaigns. This means that on average donation-based and reward-based campaigns obtain smaller individual pledges than lending-reward-based and equity-based campaigns.
Therefore, based on the results of two different analyses Hypothesis 1c is supported.
Effect of type of return on campaign’s success and funding level.
H2: The type of returns that a crowdfunding campaign offers to convince backers to invest has a significant impact on its success.
In order to test Hypothesis 2, two different analyses need to be conducted. During One-Way ANOVA tests the results showed that there was statistically significant effect of type of return on success rate, F (2, 1497) =132.18, p<0.001. Tukey post-hoc tests revealed that the chances of a crowdfunding campaign to be successful were significantly higher when a campaign offered financial returns compared to all other types (p<0.001). However, there was no statistically significant difference between social and material returns (p=0.543).
To get more accurate results, the second step was conducting linear regression analysis to test the second hypothesis. The obtained results showed that type of return had statistically significant effect on campaign’s success, F (1, 1498) = 208.71, p<0.001 and explained 12.2% of variance in campaign’s success. Crowdfunding type as a predictor variable was statistically significant (β=0.35, p<0.001).
Therefore, based on the results of two different analyses Hypothesis 2 is supported.
H2a: Crowdfunding campaigns that offer pure financial returns have lower success rates and funding levels than crowdfunding campaigns that offer non-financial and social returns.
In order to test Hypothesis 2a, One-Way ANOVA analysis was conducted. The results revealed that there was statistically significant effect of type of return on campaigns’ success rate, F (2, 1497) = 132.18, p<0.001. Additionally, analysis of variances revealed statistically significant effect of type of return on funding level of the project, F (2, 1497) =3.55, p<0.05. Tukey post-hoc tests revealed that the chances of a crowdfunding campaign to be successful were significantly higher when a campaign offered financial returns compared to all other types (p<0.001). However, there was no
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Moreover, Tukey post-hoc tests showed that campaigns offering financial returns to investors reached higher funding level compared to material returns (p<0.05). However, there was no statistically significant difference between social and material returns (p=0.985). There was also no statistically significant difference between campaigns offering social and financial returns (p=0.092). ANOVA tests showed that campaigns with financial returns obtained the highest success rate with the mean of 60.83%. Social and material returns received the lowest success rates with the means of 20.33% and 23.67%. Finally, analysis of variances showed that campaigns with financial returns on average reached funding level of 76.28% while social and material returns could lead only to 54.57% and 56.19% of required funds.
Therefore, Hypothesis 2a cannot be supported since crowdfunding campaigns that offer pure financial returns have higher success rates and funding levels than crowdfunding campaigns that offer non-financial and social returns.
Effect of crowdfunding type on campaign’s duration.
H3: The duration of a crowdfunding campaign has a significant impact on its success and funding level.
In order to test Hypothesis 3, linear regression analysis was conducted. The obtained results showed that duration of crowdfunding campaign had statistically significant effect on campaign’s success, F (1, 1498) = 121.402, p<0.001 and explained 7.5% of variance in campaign’s success. Campaign duration as a predictor variable was statistically significant (β=-0.274, p<0.001). Moreover, regression analysis showed that duration of crowdfunding campaign had statistically significant effect on campaign’s funding level, F (1, 1498) = 9.776, p<0.01 and explained 6.0% of variance in campaign’s funding level. Campaign duration as a predictor variable was statistically significant (β= -0.081, p<0.01). The results revealed that campaign duration was negatively
correlated with success rate (β=-0.274) and funding level (β= -0.081). This means that crowdfunding campaigns with shorter duration are more likely to succeed and reach higher funding levels.
Therefore, based on the results of linear regression analysis Hypothesis 3 is supported since the duration of a crowdfunding campaign has a statistically significant impact on its success and funding level.
H3a: The average duration of equity-based and lending-based campaigns is longer than the duration of reward-based and donation-based campaigns.
In order to test Hypothesis 3a, One-Way ANOVA was conduted. The results revealed that there was statistically significant effect of crowdfunding type on campaign duration, F (3, 1496) = 135.51, p<0.001. Tukey post-hoc tests showed that the duration was significantly longer in equity-based campaigns compared to reward-based (p<0.001) and lending-based campaigns (p < 0.001). The campaign duration was also significantly longer in donation-based campaigns compared to reward-based projects (p<0.001) and lending-based campaigns (p<0.001) However, there was no statistically significant difference of donation-based with equity-based campaigns (p=0.861). ANOVA tests showed that equity-based campaigns lasted the longest period of time with the mean of 54.32 days. The duration in reward-based campaigns was 52.54 days on average. Reward-based and lending-based campaigns were the shortest campaigns out of all four types of crowdfunding, with the means of 38.27 and 14.01 days.
Therefore, based on the results of One-Way ANOVA, Hypothesis 3a is partially supported since the duration of equity-based campaigns was the longest out of four crowdfunding types. However, lending-based campaigns were the shortest.
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Hypotheses Results
H1: The type of a crowdfunding campaign has a significant
impact on its success and funding level. Partially supported H1a: Equity-based and lending-based crowdfunding
campaigns have lower success rate than reward-based crowdfunding due the different level of uncertainty and risk.
Not supported
H1b: Donation-based and reward based crowdfunding draw lower funds per project than lending-based and equity-based campaigns.
Supported
H1c: Donation-based and reward based campaigns obtain smaller individual pledges than lending-based and equity-based campaigns.
Supported
H2: The type of returns that a crowdfunding campaign offers to convince backers to invest has a significant impact on its success.
Supported
H2a: Crowdfunding campaigns that offer pure financial returns have lower success rates and funding levels than crowdfunding campaigns that offer non-financial and social returns.
Not supported
H3: The duration of a crowdfunding campaign has a
significant impact on its success and funding level. Supported H3a: The average duration of equity-based and
lending-based campaigns is longer than the duration of reward Partially supported Table 8 – Summary of hypotheses testing
6. DISCUSSION
This section of the Master Thesis discusses results and findings revealed during analysis. The structure of this section is the following. First, all the hypotheses are discussed. Second, based on the literature review and conducted analysis the answer to the main research is provided. Finally, this section presents limitations of this research together with the main implications.
6.1 EFFECT OF CROWDFUNDING TYPE ON CAMPAIGN’S SUCCESS
Crowdfunding as an alternative to traditional sources of venture financing includes two main participating sides: the first participant is an entrepreneur (or project founder) trying to obtain required funds; and the second participant is an investor (in case with crowdfunding it is usually relatively large group of investors) willing to get some reward for contribution to the project (Mollick, 2014). In other words, every crowdfunding campaign can be analyzed from entrepreneur’s and investor’s perspectives. However, entrepreneur has more chances to achieve the goal (obtain required funds) when backers have strong incentives to invest in the project (Cholakova and Clarysse, 2015). According to Mollick (2014) type of crowdfunding represents the funder’s goal since it shows what reward the investor will get. Therefore, the entrepreneur’s and investor’s goals are linked to each other. Hypothesis 1 was proposed to prove this correlation. The results of the analysis revealed that crowdfunding type has statistically significant effect on campaign’s success and funding level. However, the difference between donation-based and reward-based was not significant. The main reason for that might be similarity between these types (The World
