Rolf Hofsink - 11422831
SUPERVISOR: DHR. PROF. DR. P.J. VAN BAALEN
Master Thesis
RECIPROCITY MECHANISMS ON SOCIAL
CROWDFUNDING PLATFORMS
Msc Business Administration – Digital Business track
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Abstract
Social crowdfunding platforms are emerging in the crowdfunding market. However, little is known about platforms that offer socially and environmentally responsible projects as crowdfunding projects. This research focuses on the different reciprocity mechanisms within social crowdfunding, how they manifest themselves and whether the different mechanisms are successful within a social crowdfunding environment. In total 37 Dutch social crowdfunding platforms were analyzed, with 5215 projects online. The platforms and projects are analyzed to see if there are new reciprocity mechanisms occurring on social crowdfunding platforms, other than the existing loan, reward, equity and donation based platforms. Based on the results there are a few new hybrid platforms that offer multiple reciprocity mechanisms on the platform and also within projects, which is a new finding. Loan based reciprocity mechanism is the most successful reciprocity mechanism within social crowdfunding. One explanation could be that people want to invest in socially and environmentally responsible projects, while also receiving an interest rate.
Statement of originality
This document is written by Rolf Hofsink, 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 creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
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Table of contents
1. Introduction ... 4 2. Literature review ... 5 2.1 Crowdfunding motivations ... 7 2.2 Online philanthropy ... 9 2.3 Online donations ... 9 2.4 Reciprocity ... 10 2.5 Research question ... 12 3. Research methods ... 15 3.1 Database research ... 16 3.2 Measurements ... 17 3.3 Operationalization ... 18 3.3.1 Success ... 18 3.3.2 Reciprocity ... 19 4. Data collection ... 21 4.1 Reciprocity mechanisms ... 21 4.2 Success ... 23 4.2.1 Success projectwise ... 25 4.2.2 Success platformwise ... 26 5. Discussion. ... 28 5.1. Implications ... 285.2 Limitations and validity ... 29
6. Conclusion ... 31
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1. Introduction
The Netherlands is the number seven on the World Giving Index and is the third country in Europe, when it comes to donating to charity (Charities Aid Fund, 2016). According to Sanders and Smith (2014), there are three main factors that influence the decision process of donating to a charity. The first is that people are more responsive to a charitable narrative that features just one single beneficiary, instead of giving to one big charity foundation. The second factor is the social factor. People tend to give faster if they know the people who are asking for support, and people tend to give more if they have contact in person with the recipient before they make a large donation. Thirdly, giving is contagious. Knowing that others donate for a specific purpose can be an encouragement for people to donate themselves.
All of these factors which lead to donating to charities, come together in social crowdfunding. The concept of social crowdfunding is emerging in the crowdfunding world. Regular crowdfunding is described as funding a venture by drawing small investments from a large number of individuals using the internet, without using financial intermediaries (Mollick, 2014). With social crowdfunding, a venture, as described by Mollick (2014), is usually a new and innovative startup that seeks to solve social and environmental challenges (Keller & Motala,2017).
Social crowdfunding contains all the factors stated by Sanders & Smith (2014). First the social crowdfunding platform provides a narrative for people to which specific project they are donating to. Second, the platform provides the social part of donating by being involved in the project, knowing the people who are also backing the project and getting involved with the project starters. The third aspect the contagiousness, is also promoted by the social crowdfunding platform, by adding a progress bar which demonstrates how much funds have been raised for the project in reaching its targeted funding goal.
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With social crowdfunding platforms, the most important aspects of crowdfunding and charity, come together. The crowdfunding aspect by receiving small contributions from a large group of individuals, and the charity aspect, by doing good socially or environmetally. In the following literature review the scope will be on what crowdfunding is, what its origins are, why people invest in crowdfunding projects and most important how social crowdfunding platforms can change the way of donating to social projects.
2. Literature review
Crowdfunding is an emerging market. Only in the Netherlands the total collected amount of euros through crowdfunding grew from €2.5 million in 2011 to €63 million in 2014 (Van Staveren et al., 2015). Belleflamme et al. (2014) define crowdfunding as follows: “Crowdfunding involves an open call, mostly through the Internet, for the provision of financial resources either in the form of donation or in exchange for the future product or some form of reward to support initiatives for specific purposes”. This definition has three aspects: first, it is an open call through the internet. The second goal is the provision of financial resources and thirdly it is in exchange for a future product or some other reward. This concept is rather known and commonly used in this world. However, there is a new uprising in the world of crowdfunding, namely social crowdfunding. Social crowdfunding is more or less the same as normal crowdfunding, but the third aspect, receiving a financial reward for the contribution, is different, because usually there is no product that is being developed. To address this lack of literature about an upcoming platform, this literature review will first look at the concept of crowdfunding, look at the motivations behind crowdfunding, the reasons why companies want to start-up and use crowdfunding and why people want to invest in a project using crowdfunding. Lastly, this literature review will look at the workings and implications of crowdfunding in a social context. All of this will evolve into a central research question.
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The concept of crowdfunding finds its origins in crowdsourcing. The goal behind crowdsourcing is to obtain ideas, feedback and solutions from a larger group of people, the “crowd” (Belleflamme et al, 2014). Although the web is an important factor in crowdsourcing, it is different than an open source project. Open source projects are open, free to use and makes projects available where everyone can work on and contribute to, for example source codes for websites or programs. The key difference between crowdsourcing and crowdfunding is that with crowdsourcing, the resource ultimately belongs to the firm that offers the resource, in contrast with open source, where the idea or source code is a public good (Belleflamme et al, 2014). Crowdsourcing provides a clear format to compensate contributors and it provides a model that combines the transparent and democratizing elements of open source with into a profitable business model, all facilitated through the web (Brabham, 2008). Whereas with crowdsourcing the focus is on labour and outsourcing a task or project to the public, is crowdfunding about obtaining financial resources, usually in exchange for some kind of a reward (Howe, 2006; Schwienbacher & Larralde, 2010). Crowdfunding is largely used by start-ups, mainly because of the lack of financial capital in new start-ups. According to Schwienbacher and Larralde (2010) and Mollick (2013), there are three different types of crowdfunding. The first type is donation based. This means that there is no reward involved when backing a project, the backers only donate money. The second form of crowdfunding is passive investment based, also known as reward-based crowdfunding. This means that the backers of projects are not actively involved in the initiative, however they receive a reward when backing a project. Usually this reward is based on the amount of money that is invested, the more one invests the bigger the reward. The third and fourth form of crowdfunding is active investment by the crowd, and this can be divided into equity and loan based crowdfunding (Bretschneider et al., 2014; Schwienbacher & Larralde, 2010). With equity based crowdfunding, when a project is backed by people, the backers get an equity in the business.
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With loan based crowdfunding this means that backers invest in a project and get their investment back within a certain timespan, with an interest rate (Mollick, 2013). With both forms the backers get an active stance in the business they invest in (Bretschneider et al., 2014).
The initial motivation of companies or projects that choose for crowdfunding is clear, to obtain more money for their new projects (Gerber, Hui & Kuo, 2012). When a company decides to launch a crowdfunding campaign, it has to go through four stages in order to launch a campaign, according to Gerber & Hui (2013). The first stage is preparing the material, which consists of a project description, video and fund goals. The second stage is testing the campaign material that is created in stage one. The third stage is to publicize the project to the crowd and attract potential backers, usually done via social media, email or the crowdfunding platform. Once the campaign is over, the fourth stage occurs, which is follow through. Now that the campaign is over, the company has to start producing and start to deliver the promised rewards.
2.1 Crowdfunding motivations
When a company goes through the stages of crowdfunding on a platform, the most important part is to attract backers to invest in your company or project. But what is the motivation of backers, why do people want to invest in crowdfunding initiatives? The motivation of backers can be extrinsic as well as intrinsic. Extrinsic motivation means that the backer invests because of a reward, such as money, the product, career benefits, learning or recognition. Intrinsic motivation from the backer to support a project, consists of the pleasure or fun of doing the task (Schwienbacher & Larralde, 2010). According to the study of Gerber and Hui (2013), there are four motivations, within the extrinsic and intrinsic spectrum, to become a backer. The first is extrinsic: to collect rewards. Rewards can come in the form of a tangible product such as the product they backed, but it can also be an intangible reward such as a meeting with the creators. The second motivation is intrinsic, namely to help others. This usually occurs when the supporters personally know the creators, or feel some kind of affection to the creators. The third
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motivation for supporters is to be a part of a community, to be part of a group of people that are like minded and like the same products or ideas. The last motivation to back a project is to support a cause. This kind of supporters are motivated to support causes that align with their personal beliefs. There are also a few factors that are deterrents when backing a project that can withhold backers to do an investment. The greatest deterrent is distrust in the creators, that the money is not used effectively. Since receiving a reward is the most important motivation for supporters, not receiving the reward, can act as an important deterrent for future funding activity (Gerber & Hui, 2013).
The motivations and deterrents of crowdfunding in general are clear, as stated above. However, social crowdfunding is emerging and it is unclear how they differ from regular crowdfunding platforms. Social crowdfunding is a crowdfunding platform for social enterprises. Each social crowdfunding platform has its own requirements for projects to get on the platform. Social enterprises are enterprises that at least partially use market based practices to address social and sustainability issues, with a commercial source of revenue (Kerlin, 2010; Lehner, 2013). Social enterprises can use crowdfunding to obtain the funds necessary for their start-up. Social enterprises have a few advantages when using crowdfunding. First of all, crowdfunding for social enterprises can give additional legitimacy to the projects, because of the democratic process that it has, the crowd decides which social projects are worthy and needed (Belleflamme et al. 2014). Also, when one investor leaves, it is not a big problem for the company (Van Staveren et al., 2015). Belleflamme et al. (2014) also states that people tend to trust companies that have limited monetary motivations, as is the case with social enterprises, which gives a strong signal that the owners put more effort in the quality of the outcome and less on the monetary gains.
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2.2 Online philanthropy
When a social enterprise decides to enter the market through crowdfunding, it can be featured on a social crowdfunding platform. A reason why people want to invest in social crowdfunding platforms can be online philanthropy. Online philanthropy is an extension of intrinsic motivation to support causes that align with personal beliefs (Gerber & Hui, 2013). People want to invest in social projects, or pursue in online philanthropy, because of sympathy and empathy towards the project, feelings of guilt for not donating and strengthening their social identity (Rick et al. 2007; Cialdini et al. 1981). These aspects of online philanthropy are seen and correspond with the intrinsic motivations given by Gerber & Hui (2013).
When people want to invest in social crowdfunding projects it can differ from online philanthropy to external motivation, to make money. The most important aspect for crowdfunding projects is to get these people to invest in or contribute to your project. Schwienbacher & Larralde (2010) state four aspects that can influence the success of the crowdfunding projects. The first is to raise a reasonably low amount of capital, the second is to have an interesting project, the third is to be willing to extend the skillset and the last aspect is know how to work with Web 2.0. Van Staveren (2015) shows with a few examples how crowdfunding can be used and how it works in practice. Also, the national crowdfunding research states the different motivations of backers and the risks of crowdfunding (Nationaal Crowdfunding Onderzoek, 2016).
2.3 Online donations
This thesis focuses on online donating and investing in an online social crowdfunding context. Online donating is expanding rapidly worldwide. In 2015 the amount of money donated to charity through online means increased by almost 10% when compared to 2014 (Blackbaud, 2016). Donating online to social purposes, differs from donating offline. Weisbrod &
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Dominguez (1986) state that there are three aspects that give the social organisation legitimacy: price, quality and information. Price is the price the donators pay that to receive output from the organisation they donated to. For example, if a social organisation devotes 80% of its total expenditure for the good cause they stand for, and 20% for overhead costs, it means that the donators get $1 of output for every $1.25 they donate. The second aspect, quality, is associated by the number of donations. The third aspect, information, is about spreading information about the quality and price of the organizations programs (Weisbrod & Dominguez, 1986). These aspects describe giving in an offline context. However, with the introduction of the internet there is a shift in giving and the fundraising mechanisms. Instead of direct mail, door to door and telemarketing campaigns, there are social networks now (Saxton & Wang, 2014). With social networks, organizations can have a more personal relationship with its donators, which can lead to more donations. Also, through social media, the members can promote your organization, which can lead to more donations and ‘free’ advertising (Saxton & Wang, 2014). The internet is also a reason that information is far more available to prospective donators (Meer, 2014). So the three traditional aspects of traditional social organizations: price, quality and information, are changed and made available through the internet. First of all, the price is lower, because the fundraising costs are lower as all of this can be done through the internet. The organization does not have to spend a lot of money and resources on expensive campaigns. Also, both the quality and information is better through the improved transparency the internet provides (Saxton & Wang, 2014; Meer, 2014). People who donate online are usually better informed, the transparency is higher and make a better informed decision in what they want to donate (Saxton & Wang, 2014).
2.4 Reciprocity
With online donating and especially with crowdfunding, there is reciprocity involved. Reciprocity is defined as the practice of exchanging things with others for mutual benefits
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(Oxford Dictionary). Within social crowdfunding, reciprocity is an important factor. Reciprocity on its own is a powerful determent of human behaviour (Falk & Fischbacher, 2006). There are numerous experiments and studies that shows how reciprocity works, like the ultimatum game, the prison experiment and the gift exchange game (Güth et al., 1982; Fehr et al., 1993). The central point of reciprocity is devoted to the question how people evaluate an act of kindness (Falk & Fischbacher, 2006). There are two main aspects of reciprocity: the consequences of an action and the actors’ underlying intentions. Each action is reciprocated differently depending on the underlying intention. Reciprocity is not just intention driven, but also decision driven. This means that doing good is not just about intention but the actors also compare the different pay-offs (Falk & Fischbacher, 2006). This corresponds to the social exchange theory, where reciprocity is described in three different types: reciprocity as interdependent exchanges, reciprocity as a folk belief and reciprocity as a moral norm (Cropanzano & Mitchell, 2005).
Reciprocity as an interdependent exchange emphasizes that interpersonal transactions from one party leads to a response by another. If one party supplies a benefit, the receiving party should respond in kind (Gergen, 1969). Interdependent social exchange involves mutual and complementary arrangements and it encourages cooperation and reduces risk (Molm, 1994). Once the process of reciprocation is in action, it is a self-reinforcing cycle, with a continues sequence (Cropanzano & Mitchell, 2005).
Reciprocity as a folk belief is based on the cultural expectation that people get what they deserve (Gouldner, 1960). It is a combination of a sense that over time all exchanges reaches a fair equilibrium: those who are unhelpful will be punished and those who are helpful will receive help in the future (Malinowski, 1932).
Reciprocity as a norm and individual orientation differs from the view as a folk belief in the way that reciprocity is described as a standard, as how one should behave. There is a
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difference between individuals within the degree they endorse reciprocity. Individuals with a high exchange orientation track social obligations, and keep a fictional scorecard. These individuals are more likely to return a good deed. There are also individuals with a low exchange orientation, and care less if exchanges are not reciprocated. These individuals care less if exchanges are not reciprocated (Cropanzano & Mitchell, 2005).
As stated above, reciprocity is decision driven. There are two different forms of reciprocity, direct and indirect reciprocity (Zvilichovsky, 2014). Direct reciprocity means: I do something for you, and you do something for me (Nowak and Sigmund, 2005). Indirect reciprocity is represented by the principles of: I do something for you and you do something for someone else. Or: I will do something for you and somebody else will do something for me.
2.5 Research question
There is an increase in online donating, the environment social organizations have to operate in changed and there is a gap in the literature that defines and explains the different reciprocity mechanisms of crowdfunding and how this effects the success of a crowdfunding project (Charities Aid Fund, 2016). Therefore this thesis will focus on the four main aspects of crowdfunding: reciprocity in projects, donation, equity, loan, and reward. This thesis looks into what type of crowdfunding is used the most frequently for social crowdfunding projects. It is clear that there is a difference between conventional crowdfunding and social crowdfunding. Direct and indirect reciprocity is important in the conventional crowdfunding context because it motivates individual contribution (Flynn, 2005). Users increase their contributions when they see an increase in contribution of others (Gu et al, 2009).
The literature is clear about reciprocity in crowdfunding, but social crowdfunding is a different domain. It differs from regular crowdfunding because the backers supports the projects economically, while at the same time doing good. The projects have a social or environmental mission as their primary goal, instead of maximizing profit (Lehner, 2013). It also has a
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mismatch in the social exchange theory. Where it is normal that a social transaction exists within a social relationship and an economic transaction exists in an economic relationship, in social crowdfunding there is a mismatch between the transaction and the relationship (Figure 1) (Cropanzano & Mitchell, 2005).
In social crowdfunding there is an economic transaction in a social relationship, which results in a mismatch of the transaction and the relationship. Social crowdfunding tries to overcome this mismatch by adding reciprocity mechanisms in the projects that are offered, to make it an economic transaction within an economic relationship. However, it is unclear how these mechanism work within a social crowdfunding context, which types of reciprocity are present and if the current or new reciprocity mechanisms are successful. A successful project means that the project gets the aimed funding (Koch & Siering, 2015). This gap in the literature leads to the following research question: What are the different reciprocity mechanisms on
social crowdfunding platforms, and how do the different reciprocity mechanisms differ
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from each other and contribute to success of raising funds on social crowdfunding platforms?
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3. Research methods
This research is a qualitative explorative study on the reciprocity mechanisms within a social crowdfunding context. Because it is an explorative study, in the first stage, no hypotheses are tested. Through looking at the different Dutch social crowdfunding platforms, new theory is formed and new insights will be reported (Bryman, 2012).
The literature shows that there are four different reciprocity mechanisms within crowdfunding: Loan, equity, reward and donation (Mollick, 2013). Explorative research will first of all show whether there are differences occurring in the reciprocity mechanisms within social crowdfunding platforms and whether there are new reciprocity mechanisms identified on social crowdfunding platforms. Second, this research will look at the success of the different reciprocity mechanisms. This is measured by looking at these mechanisms and identify whether these mechanisms statistically differ significant from donation based platforms. There is chosen to select donation based platforms, because on donation based platforms and projects there is no actual reciprocity occurring. Reciprocity is defined as the exchange of benefits (Oxford Dictionary). However, when a donation is done, the donator does not receive an economic benefit. This is why donation based platforms will be the null hypothesis of how social crowdfunding projects perform without a reciprocity mechanism. This will answer the question whether it matters to have a reciprocity mechanism on social crowdfunding projects or if there is no significant difference in the different reciprocity mechanisms occurring on social crowdfunding platforms.
The collected data is extracted from all the available Dutch social crowdfunding platforms. This selection of this dataset has two components: it has to be based in the Netherlands and it has to be a social crowdfunding initiative. First of all the Dutch component will be explained, and secondly the social component will be defined.
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3.1 Database research
The data set that is used in this research is the population of Dutch based social crowdfunding platforms: the whole population of social crowdfunding platforms that are established in the Netherlands. First of all, the data set is limited to the Netherlands, so it is possible to analyse the whole population of social crowdfunding platforms of one country. When the whole population is analysed, it is possible to make conclusions without sampling errors (Bryman, 2012). However, the analysed data is just for one country. In order to generalize the data to other countries, more research is needed (Bryman, 2012). There are some platforms that offer projects in different countries, these platforms are still included in the dataset because they are Dutch based.
The second aspect of the data set is that this research is focusing on social crowdfunding. This is different than regular crowdfunding: where regular crowdfunding platforms focuses on the economic returns of a project, social crowdfunding focuses on the social and environmental returns of a project. Because of this difference, this research focuses solely on social crowdfunding platforms, so crowdfunding platforms with a socially or environmentally responsible goal (Lehner, 2013).
In total there are 37 Dutch based social crowdfunding platforms (Appendix A). The platforms that are on the list only have social or environmental responsible projects on their platform. For example, zonnepanelendelen.nl has projects to crowdfund solar panels across the Netherlands. Another example is Lendahand, where it is possible to invest in social projects in third world countries. There are a few platforms that could possibly be on the list of social crowdfunding, for example Collin Crowdfund, but was not included for a reason. Collin Crowdfund is one of the largest crowdfunding platforms in the Netherlands for Small and Medium Enterprises. However, Collin Crowdfund offers also projects that have no social or environmental goals, and that is why it is not included in this data set.
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3.2 Measurements
Because this is an explorative study, first of all the social crowdfunding platforms will be analysed with a frequency table. There will be looked at what forms of reciprocity are present on social crowdfunding platforms and how these mechanisms differ from each other.
This research will be done by analysing the 37 Dutch based social crowdfunding platforms and what form of reciprocity it uses. This can be seen as content analysis. Content analysis is defined as following by Berelson (1952): “content analysis is a research technique for the objective, systematic and quantitative description of the manifest content of communication.” The most important qualities of content analysis are objectivity and being systematic. Objectivity to ensure the transparency to minimize the personal biases from the researcher. Being systematic means that the application of the rules is done in a consistent manner so that again, biases are supressed (Bryman, 2012). In this research the objectivity and systematic approach is ensured through analysing the different social crowdfunding websites on the same way.
To get an answer on the research question this research also looks at the success of the different reciprocity mechanisms on the social crowdfunding platforms. In order to analyse the success factors of reciprocity mechanisms, the projects on the platforms are analysed whether the project raised sufficient funding or not. Almost all of the platforms have these data available, however, some platforms remove the completed projects from their platform. On these platforms it is not able to retrieve the relevant data for measuring the success of the projects. These will be called missing values in the success data set (Appendix A; Table 2).
Each social crowdfunding platform will be analysed in two different ways to ensure the answering of the hypotheses. First of all, this research looks at what forms of reciprocity is offered on the social crowdfunding platforms. Once it is clear what forms of reciprocity are offered on the social crowdfunding platforms, this research will look at how these ways of
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reciprocity differ from each other and if there are new ways and how this works in the social crowdfunding area.
3.3 Operationalization
In order to research the abovementioned question, there are a few aspects that are important to operationalize. First of all these are the different ways of reciprocity that are abundant on social crowdfunding platforms. In order to find the different mechanisms, it is important to define the existing reciprocity mechanisms and see how these mechanisms manifest itself on social crowdfunding platforms. To find the differences in the reciprocity mechanisms, this research will focus on the differences between the reciprocity mechanisms and the success of the different mechanisms.
3.3.1 Success
A successful crowdfunding project can be defined as a project that gets the funding they aimed for the pledging goal (Koch & Siering, 2015). Once this pledging goal is reached or the time expires, the projects stops and there is no possibility to back this project anymore. There are two different mechanisms the crowdfunding platforms work with, when a project is being funded. First of all, the no cure no pay method. This means that when a crowdfunding project is not successful, the backers do not have to pay for the project and their money is refunded. The second mechanism is that the people contribute what they want to, regardless of the projects success. Any funding raised is not repaid.
In order to determine if the reciprocity mechanisms influence the way people back the social crowdfunding projects, this research looks at the question if the reciprocity mechanisms influence the success of the crowdfunding projects. The data set used is a data set with a total of 5215 social crowdfunding projects. All the projects are sorted by the different ways of reciprocity, platform and whether or not the project is successful. When a project is successful,
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it receives a 1 in the dataset, when a project is unsuccessful, a project receives a 0 in the data set.
To analyse the data, first of all simple frequency analysis is used to show which ways of reciprocity are taking place and how these ways manifest themselves. To analyse the success of these reciprocity mechanisms, a t-test is used, with the reciprocity mechanism donation as the independent variable and the success of the different reciprocity mechanisms as dependent variables, in order to find if there is a significant difference between donation based platforms and the other platforms.
3.3.2 Reciprocity
The first form of reciprocity that has to be operationalized are loan based platforms. Loan based project are projects whereby the funds are offered as a loan, with some rate of return on the capital that is invested (Mollick, 2013).
The second form is donation based. This means that the backer of the project just donate money and does not get anything in return. It is purely a donation, the funders expect no return from their donations (Mollick, 2013).
The third form is reward based. This occurs when the backer gets a reward when they have invested in a project. This can be pre-selling the products, having a meeting with one of the creators or another tangible reward (Mollick, 2013).
The last form is equity based. When a backer backs a social crowdfunding project a stake is received in the firm backed. Equity crowdfunding is subject to high levels of regulation, but it is legal in the Netherlands. Equity crowdfunding can also be offered in other ways than obtaining a stake, like shares of future profit or returns for a future planned public offering (Mollick, 2013).
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A crowdfunding platform is just the provider of crowdfunding projects. On some platforms it is possible to have multiple forms of crowdfunding projects within one platform. These will be seen and defined as hybrid platforms. The hybrid platforms are unknown in their reciprocity mechanisms and through analysing the Dutch social crowdfunding platforms, these hybrid reciprocity mechanisms will be added to the existing reciprocity framework.
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4. Data collection
4.1 Reciprocity mechanisms
To answer the research question, it is important to look at the existing reciprocity mechanisms on crowdfunding platforms to determine if the existing mechanisms within the literature can be identified in social crowdfunding platforms, and if it differs from conventional crowdfunding. As seen in the literature review, conventional crowdfunding reciprocity mechanisms consist of four different mechanisms: loan, donation, equity and reward. Each of the 37 platforms were analysed to see if these mechanisms were present, or if there are different mechanisms occurring on these social crowdfunding platforms. This is all analysed and described in a frequencies table (Table 1).
Table 1: Which reciprocity mechanisms are used
Frequency Percent Cumulative Percent
Mechanisms loan 4 10,8 10,8 donation 19 51.4 62,2 reward 2 5,4 67,6 Donation/reward 9 24.3 91,9 donation/loan 1 2,7 94,6 Donation/Loan/Equty /reward 2 5,4 100,0 Total 37 100,0
There are a few interesting aspects when you look at the reciprocity mechanisms presented on the Dutch social crowdfunding platforms. First of all, there are no platforms that offer exclusively equity based reciprocity mechanisms. There are just two platforms that offer it in combination with other mechanisms. Next to that, it is noteworthy to look at the hybrid platforms: donation/reward, donation/loan and the platforms that offer all the four existing mechanisms, and how these mechanisms manifest themselves.
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The hybrid platforms are interesting to look in to, because they are not mentioned in the literature. The first and the most frequent present in the hybrid platform is the combination of donation and reward platforms. These usually consists of a stepwise donation structure that can evolve into a reward. The first few options are low in amount and it is just a donation. However, if one wants to invest more, one can get a reward, and it is not just a donation. An example is a project on talentboek.nl, a hybrid platform for up and coming professional athletes, for the Dutch under 14 baseball team. If one donates below €25, nothing happens. However, if one decides to donate more than €25, for example €50, one receives a hoodie from the team. This is a way to attract people to donate more. However, this effect is project based and every project can decide on their own if they want to offer such a donation or reward structure and how this structure is arranged.
The interesting aspect in this hybrid form is that the reciprocity mechanisms differ within the projects and not on the platform. This means that there are different reciprocity mechanisms within one project. The backer has the option to participate and trigger a reciprocity mechanism, but this is not necessary. The backer can also choose just to donate, without receiving a reward. This is new when compared with traditional crowdfunding.
The other two hybrid platforms are the donation/loan platforms and the platforms that offer all the existing reciprocity mechanisms. These platforms differ from the donation/reward based hybrid platforms. First of all, the difference is that with donation/reward based platforms the hybrid element exists within the projects, and with donation/loan based the hybrid elements exist not within the project itself, but differs per project. These kind of platforms offer multiple reciprocity mechanisms for projects within the platform. Backers can choose their preferable project and reciprocity mechanism. For example, on greencrowd.nl, a social crowdfunding platform in green and renewable energy, it is possible to choose to donate to a project, like solar
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panels on a primary school in Rhenen or to invest in a farm that wants to reduce their carbon emission by using the manure from the cows. These differences exist within one platform.
The final hybrid platform, which is found the least on social crowdfunding platforms, offers all four reciprocity mechanisms. Here we can identify some of the same reciprocity mechanisms as in the donation/reward hybrid mechanism. One example is Snappcar, a crowdfunding campaign on oneplanetcrowd.com, that allows users to rent out their car to other users. It is possible to get a reward, like coupons for their new platform, but from €150 and above it will be become a convertible loan, so a backer can get a loan which can eventually be converted into equity in the company. The same mechanism is visible in this hybrid project, as in the donation/reward hybrid projects, it is possible for backers to choose the amount they want to back the project with, and the project offers them different reciprocity mechanisms.
All in all it depends on the platform and the possibilities they offer. Most platforms allow just one reciprocity mechanism, and the projects have to adhere to these mechanisms. However, if the platforms allow more mechanisms, the projects try to take advantage of this. In order to get a better look at the different mechanisms described, this research will look at the success of the platforms and the different mechanisms the platforms offer. By looking at the success of the mechanisms, there may be new differences found.
4.2 Success
To get a better look at the reciprocity mechanisms on social crowdfunding platforms this research also looks at the success of the different reciprocity mechanisms. A successful project is defined as a project that receives the funding they aimed for (Koch & Siering, 2015). When a project is successfully funded, the funding for the project stops, and the backers cannot back these projects anymore.
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The degree of success is measured by the total number of projects on a platform divided by the number of successful projects. All the projects within the same reciprocity mechanism are analysed together to get a good overview of the success of this mechanism. All these results are visible in Table 3. In Table 3, the N describes the number of projects, and the mean is the percentage of success of the platform, the success rate. A successful project is given a 1 in the dataset and an unsuccessful project is given a 0, hence the mean of the different reciprocity mechanisms. In the next paragraph this research will discuss the differences in success in the mechanisms found in the previous paragraph.
Table 2: Distribution of projects
N Percentage Number successful Number unsuccessful Donation 2105 40,4 892 1213 Donation/Loan 41 ,8 35 6 Donation/Reward 918 17,6 228 690 Everything 219 4,2 160 59 Loan 1765 33,8 1756 9 Reward 167 3,2 112 55 Total 5215 100,0 3183 2032
Table 3: Which reciprocity mechanism of social crowdfunding is the most successful?
0 = unsuccessful 1= successful
Reciprocity Mechanism Mean N Std. Deviation
Donation ,4238 2105 ,49427 Donation/Loan ,8537 41 ,35784 Donation/Reward ,2473 918 ,43166 Donation/Loan/Reward/Equity ,7306 219 ,44467 Loan ,9949 1765 ,07125 Reward ,6826 167 ,46685 Total ,6105 5215 ,48767
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When looking at table 3 there are a few interesting factors to look into. First of all, the high percentage of success for loan based social crowdfunding platforms, and the relatively low percentage of success of the donation/reward based platforms. Furthermore, it is interesting to look at the differences between the reward platforms and donation/reward hybrid platforms. They are alike, but the reward platforms have a higher success rate.
First of all, it is interesting to see that the most occurring reciprocity mechanism, donation, has the second lowest success rate of all the mechanisms, behind donation/reward based platforms. This is most probable because donation is not really a reciprocity mechanism. People do not get anything in return for donating to a specific project, other than a good feeling of contributing towards a socially or environmentally responsible project. This is why donation based is taken as the benchmark of success of the reciprocity mechanisms on social crowdfunding projects. It shows how well social crowdfunding project perform without a reciprocity mechanism attached to it.
4.2.1 Success projectwise
As seen in Appendix A and Table 3, loan based platforms are the most successful platforms in the social crowdfunding environment. Only Lendahand, a large social crowdfunding platform that offers loan based projects, has some projects that were not fully funded, because these projects are still in progress and just started receiving funding (Appendix A). Backers get a dual return in loan based social crowdfunding, namely a reasonable interest rate, a reasonable payback time while the backers also invest in a responsible project with a social or environmental goal. Loan based reciprocity mechanisms are one of the most successful mechanisms in social crowdfunding, with a success rate of 99,49% of the projects. This is also a significantly better score than the donation mechanism (Table 4). With a significance of 0,0001 it means that the projects on loan based platform perform significantly better than projects with the donation reciprocity mechanism.
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As seen in table 4, all the different mechanisms differ significantly from donation based platforms. Only donation/reward mechanisms differ from donation based mechanisms in a negative way, because it performs significantly worse than donation based platforms. When looked at the significance platformwise and not projectwise there is less significance found (Table 4). Just loan based platforms differ statistically significant from donation based platforms.
Table 4: Significance projectwise
Reciprocity mechanism Frequency Mean
Significance relative to donation Donation 2105 ,4238 0,0000 Donation/Loan 41 ,8537 0,0001 Donation/Reward 918 ,2473 0,0001 Donation/Loan/Reward/Equity 219 ,7306 0,0001 Loan 1765 ,9949 0,0001 Reward 167 ,6826 0,0001 4.2.2 Success platformwise
Loan based platforms are the only platforms that are significantly more successful than donation based platforms. The other platforms are slightly more successful, but not significantly. Reward based platforms are second most successful, with a significance of 0,3 relative to donation based platforms (Table 5).
The second largest reciprocity mechanism on social crowdfunding platforms are donation/reward based platforms. However, this reciprocity mechanism on social crowdfunding platforms is not more successful than donation based platforms. Percentagewise donation/reward based platforms are performing worse than donation based platforms, with 17,75 percentage point less projects succeeding. However, this is not statistically significant (Table 5).
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The two smallest crowdfunding platforms, the donation/loan hybrid and the platform that offers every reciprocity mechanism, are too small to compare it statistically to the donation based platforms, because for both the mechanisms there is just one platform that has the data available. It is therefore impossible to do a significance test over these two platforms relative to donation based platforms. However, it is visible to see that they both have a higher success rate than donation based platforms.
Table 5 – Significance platformwise.
Reciprocity Mechanism Mean N Significance P Value
Donation ,4238 12 0,0000
Donation/Loan ,8537 1 Sample too small
Donation/Reward ,2473 8 0,5654
Donation/Loan/Reward/Equity ,7306 1 Sample too small
Loan ,9949 3 0,0054
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5. Discussion.
5.1. Implications
As online giving and online philanthropy is rising, so is crowdfunding. But not only conventional crowdfunding, also crowdfunding for socially and environmentally responsible projects are more and more present. Crowdfunding is defined as a call for financial aid in return for a reward of some kind (Belleflamme et al. 2015). This reward can be seen as reciprocity, the exchange of goods and services for mutual benefits (Falk & Fischbacher, 2015). There are several forms of reciprocity known in crowdfunding: loan, equity, reward and donation (Mollick, 2013). However, it is unknown how these reciprocity mechanisms manifest themselves on social crowdfunding projects.
In addition to Mollick (2013) and Schwienbacher & Larralde (2010), this research shows that there are more reciprocity mechanisms than the four that are known, there are also hybrid mechanisms. These hybrid mechanisms can occur within a project or within a platform. This is decided by the platform that offers the projects. This can be because of the social character of the projects on the platform. As this research shows, all the hybrid platforms offer a donation option. This is possible because people can just want to donate to a project, without receiving something in return.
This research also shows that people are more willing to participate in social crowdfunding projects when they get something in return, especially when they get more money in return. The loan based reciprocity mechanisms are platformwise and projectwise the most successful mechanism. People get a reasonable interest rate while doing good, this is the most successful on social crowdfunding projects and platforms.
The mismatch stated in Cropanzano & Mitchell (2005) between economic transaction in a social relationship does not necessarily have to be a mismatch. When people do an
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economic transaction in a social relationship, this research shows that this can be feasible for both parties, and it is not a mismatch.
5.2 Limitations and validity
This research has a few limitations. First of all, the platforms that offer the social crowdfunding projects differ in form and in popularity, that is why it is hard to draw definitive conclusions about the projects and the platforms. Some platforms are more popular than other platforms, and that is why some projects easily get the funding they aimed for, while other platforms are less popular and known by the public, so these platforms do not get the attention and the funding they need.
Also, the fact that the success of every mechanism projectwise is significantly different than donation based projects has a few reasons. First of all, the success on platforms of the projects are not normally distributed. This makes it harder to draw conclusions based on statistically significance. Platformwise, the population of the Dutch social crowdfunding platforms are too small to state anything definitive. Based on the outcomes this research makes assumptions, but cannot make statements based on the current population.
The success of the social crowdfunding projects is just researched by analysing the reciprocity mechanism. However, there are a lot more factors of why a project or a platform can be successful than just the reciprocity mechanisms. Popularity, engagement and social media coverage are just a few more aspects of why some projects are more successful than others. This is why the reciprocity mechanism is not the only factor for the success of social crowdfunding platforms. This is also interesting for further research: what are the other success factors that contribute to the success of social crowdfunding projects? It can also be interesting
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to look at why people want to use loan based reciprocity mechanisms over other mechanisms. Further research could qualitatively look into this question.
This research solely focuses on the Dutch based social crowdfunding platforms. All the findings and results are based on the Dutch market. It is impossible to generalize the findings towards different countries, because every country has their own market on social crowdfunding. Further research could be done towards the differences between countries in the social crowdfunding sector. Further research can also focus on the statistical difference in success between regular crowdfunding and social crowdfunding, and if there is a difference between the two.
This research is also just a snapshot of the social crowdfunding platforms. The projects keep on coming and going and some are successful and some are not. Due to the continuous generation of new projects on the platforms, different results may occur when this research is repeated.
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6. Conclusion
To answer the research question what the different reciprocity mechanisms are on social crowdfunding platforms and what the differences between the platforms are, this research analysed all the Dutch social crowdfunding platforms. The platforms were categorized on the reciprocity mechanisms present on the platforms displayed. To get a better understanding of the reciprocity mechanisms the projects on the social crowdfunding platforms were also evaluated if they were successful by receiving the aimed funding.
First, exploratively the Dutch social crowdfunding platforms were analysed. When looked at the Dutch crowdfunding platforms, there are 37 Dutch based social crowdfunding platforms. Of these 37 platforms, the most occurring were donation based platforms. 19 out of the 37 platforms were donation based, so the backers could just donate money to the project they wanted to, without receiving anything in return. It was also interesting to see that there are no social crowdfunding platforms that offer just equity reciprocity mechanisms.
There are also a few new hybrid platforms that offer more than one reciprocity mechanism. The most interesting is the donation/reward hybrid platforms, because these kind of platforms offer different reciprocity mechanisms within one project. It is within the project possible to either just donate money or to receive a reward. This differs from the platforms that offer every reciprocity mechanism. On these platforms it is possible to select the project with the corresponding reciprocity mechanism. This depends of the project and what the project offers, and the platform does not restrict the projects in the mechanisms.
The research question also analysed if it makes a difference in the success of projects whether there is a reciprocity mechanism present or if there is not. The projects that do not have reciprocity mechanisms present are the donation based projects, because there is no mutual benefit for both the parties. The other reciprocity mechanisms were analysed relative to
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donation based projects in order to find out how successful these projects, platforms and reciprocity mechanism are and if it makes a significant difference to have reciprocity mechanisms present on social crowdfunding projects. There is a difference made in analysing the mechanisms projectwise and platformswise.
When looked at the social crowdfunding projects, the success of every form of reciprocity differs significantly from donation based platforms. Only donation/reward projects differ negatively from donation based project. All the other reciprocity mechanisms are significantly more successful than donation based projects. All in all it is more successful to have a reciprocity present other than donation/reward mechanisms on a project than just to ask for donations for the projects.
When looked at the social crowdfunding platforms, it is seen that only loan based platforms significantly differ positively from donation based platforms. Platformwise it does not make a difference if the project is on a donation based platform or has another reciprocity mechanisms present on the platform, except when it is loan based. Loan based platforms are significantly more successful than donation based platforms. For the other platforms it does not make a significant difference.
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Appendix A.
Dutch social crowdfunding platforms
Name Reciprocity form Number
of projects Number of successful projects Percentage of succes 1%club Donation 1342 706 52,61 4 just 1 Donation 75 3 4,00 Acthope Donation 88 8 9,09 Apuranetworks Donation/reward 21 5 23,81 Clubkit Donation Commonsites donation 64 3 4,69 Crowdfunding voor clubs Donation/loan/equity/reward Crowdsport reward 40 19 47,50 Crowdsuing donation 0 0 Dreamordonate donation Duurzaam investeren Loan 30 30 100,00 Fairfriends donation 26 5 19,23 Famfundy donation 9 5 55,56 geeferom donation 24 15 62,50 GeefGezondheid Donation/reward 45 17 37,78 GeefOnderwijs Donation/reward 39 20 51,28
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Geefsamen (Geef.nl)
donation 5847
geloofinjeproject Donation/reward 90 49 54,44
Get it done donation 87 87 100,00
Greencrowd Donation/loan 41 35 85,37
Heroes and friends donation
Kickofftalent donation 62 31 50,00
Lendahand Loan 1697 1688 99,47
Nederland van start Donation/reward 24 8 33,33 Oneplanetcrowd Donation/loan/equity/reward 219 160 73,06
Pifworld donation 300
Projectgeld donation 55 1 1,82
Rechtspraak.nu donation 5 4 80,00
Steun de club Donation/reward
Talentboek Donation/reward 649 101 15,56
The crowd vs. donation 5 0 ,00
VoorNatuur Donation/reward 26 23 88,46
Wakibi Loan 2605
Wij zijn sport reward 73,00
worldofcrowdfundi ng
donation 287 39 13,59
Yeee-haaa Donation/reward 24 5 20,83
