Common mistakes in crowdfunding : an explorative case study

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Common mistakes in crowdfunding: an explorative case study.

Bachelor Thesis

by Jurre Kuin 10594418 supervised by Drs. W. Dorresteijn 29-‐06-‐2016 Abstract.

Little attention has focused on the mistakes a new project founder makes in the crowdfunding process. Current research tends to focus on crowdfunding success factors, while a large share of crowdfunding campaigns turns out to be unsuccessful at the end date. Project failure due to external factors is beyond a doubt, but the possibility of projects founders making common mistakes

prevails. Five common mistakes are retrieved from current academic literature and composed into a framework of common mistakes in crowdfunding. To test the framework a series of case studies were conducted, consisting of unsuccessful crowdfunding campaigns. In doing so the appearance of these mistakes in crowdfunding campaigns is demonstrated, but follow-‐up empirical research has to prove whether these mistakes could be considered common and how big their influence on

crowdfunding failure is.

Key words: crowdfunding, fundraising, mistakes, crowdsourcing, success measurement, start-‐up investment, crowdfunding failure

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Statement of Originality

This document is written by Student Jurre Kuin, 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.

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1. Introduction

“Anyone who has never made a mistake has never tried anything new.”

― Albert Einstein

Einstein’s quote still holds true today in a world where the internet opens up the possibility to start up new projects in a very accessible way. With thousands of new crowdfunding campaigns starting each day, and only 40 percent succeeding, many mistakes are possibly made.

In the past decade crowdfunding popularity increased fast, driven by the

exponentially increasing number of crowdfunding platforms on the internet. Crowdfunding is a way to pledge for a large initial investment and getting the funding by many backers who make small contributions. While there are many different crowdfunding platforms with various funding policies. Kickstarter is currently the best known crowdfunding platform and has an all-‐or-‐nothing funding model. An all-‐or-‐nothing policy means that a project only gets funded if the initial goal is reached at the end of the campaign.

The definition provided by Belleflamme, Lambert & Schwienbacher (2010, p.5) describes 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.” This definition also

covers the importance of rewards for pledging to a project, successful projects tend to have a reward structure for different contribution levels.

Although crowdfunding gained on popularity, scientific literature on this matter still is not as attractive. This means that many questions on this phenomenon still exist, and are ready to be answered. In existing crowdfunding research, the measurement of

crowdfunding success is an interesting field still being explored. Literature in existence on this matter mostly focusses on the factors that determine success and on factors that lead to projects reaching their funding goal.

The current rate of success on Kickstarter is around 45% (www.entrepreneur.com, 2016), naturally this results in a 55% rate of failure on Kickstarter projects. Although many of these failed projects simply aren’t interesting enough to get funded through

crowdfunding, a part of these failed projects did receive a percentage funding. A research gap exists in literature focusing on reasons of crowdfunding projects failing, since most existing literature focusses on thing a project founder should do instead of shouldn’t do.

This study addresses the question: What are common mistakes in the crowdfunding process? By doing so this study aims to give an insight in factors of failure a new project founder should account for. In this study a literature study will provide considerations for possible mistakes affecting the crowdfunding project. These considerations will be made adaptable by composing a framework of crowdfunding mistakes from literature studied. Subsequently the framework will be tested by applying the framework to a series of case studies existing of failed crowdfunding projects.

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The literature review in the next section defines the terminology used throughout this paper and establishes the common mistakes project founders could make in the crowdfunding process by making a distinction between internal and external factors being responsible for crowdfunding failure.

2. Literature review

The structure of this literature review starts with defining the terminology commonly used in crowdfunding literature and wielded throughout the paper, followed by an analysis of external factors possibly leading to crowdfunding failure. External factors will in general be harder for new crowdfunders to overcome, since they’re harder to account for during the crowdfunding campaign. During the crowdfunding campaign and process there are also factors potentially occurring that a new project founder could account for. These factors are considered crowdfunding mistakes.

2.1 Crowdfunding terminology

For clarity, the terminology used throughout the paper will be defined in this section.

Although the crowdfunding process isn’t particularly new, the terminology is very divergent. Qiu (2013) describes crowdfunding as part of broader concept called crowdsourcing where business functions are outsourced to a large network of people through an open call. In crowdfunding the financing function in the initial phase is outsourced to the public, which makes it possible to avoid traditional investment sources. Rossi (2014) describes the crowdfunding process as a simple process where an aspiring entrepreneur posts an investment request on a crowdfunding platform. The idea has to be elaborated, described to the community and the entrepreneur has to make clear where the money is being used for. Subsequently the business plan is exposed and it becomes clear what kind of rewards investors could expect for their contributions.

Schwienbacher & Larralde (2010) state that 80% of crowdfunding initiatives appear to offer rewards of some kind. The two dominant forms of crowdfunding rewards described by Belleflamme, Lambert & Schwienbacher (2013) are reward-‐based crowdfunding and equity crowdfunding. In reward-‐based crowdfunding gifts will be send to backers as reward for their pledge ranging from small rewards for small contributions to bigger rewards for larger contributions. Equity crowdfunding on the contrary, are the offering of private company securities to the crowd as a reward for their pledges. Equity crowdfunding is not very common in the world due to strict regulations. Equity crowdfunding is for instance generally not permitted in the United States (Mollick & Kuppuswamy, 2014). Other crowdfunding forms named by Mollick & Kuppuswamy (2014) are crowdfunding for philanthropies, which means that donations don’t have gifts in return. Finally, loan-‐based crowdfunding where funds are offered as a loan with an expected rate of return.

There are three primary actors in crowdfunding: founders, backers and the platform. For investors backing a crowdfunding project the word ‘backer’ comes in use. Backers are the people who contribute to a project and this contribution is called ‘pledging’ (Qiu, 2013. For the people who create a project the word ‘founder’ or ‘creator’ is being used (Mollick, 2014). The crowdfunding platform hosts the crowdfunding campaign and provides an online space where backers and founders meet. A distinction has to be made between the

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crowdfunding campaign and the crowdfunding process. The crowdfunding process involves the whole time spend on the project from concept until realization, while the crowdfunding campaign is delimited by a momentum of launch and an end date.

2.2 Crowdfunding failure and external drivers of crowdfunding process failure

Most research on crowdfunding success measurement tend to focus on factors resulting in crowdfunding success. Respected publications by Mollick (2014) or Belleflamme et al. (2013) are for instance papers that focus mostly on the drivers of crowdfunding success and the dynamics of the process.

The failure of a crowdfunding campaign simply defines as when a project doesn’t reach its initial goal by the end of the campaign. On the other side some argue that a crowdfunding campaign still could be considered successful, because a crowdfunding campaign could be simultaneously a marketing campaign as it brings attention to a new initiative.

People learn from mistakes. Greenberg & Gerber (2014) found that people who pass through crowdfunding failure learn from their mistakes and often succeed in new

crowdfunding projects. Greenberg & Gerber (2014) highlight the importance of

crowdfunding experience, but suggest that ones’ career background is not in particular related to crowdfunding success. Muller, Gayer, Soule, Daniels & Cheng (2013) found that crowdfunders with a managerial background don’t necessarily perform better than founders with a non-‐managerial background. Creativity and motivation turn out to be more

important.

Another possible external factor was stated by Zvilichovsky Inbar & Barzilay (2013), who studied the effects of project founders backing other projects. The results show that founders who have backed other projects are more likely to succeed themselves. This creates an online community of founders backing each other. People are also more likely to pledge to not-‐for-‐profit organizations (Belleflamme et al., 2010). An explanation for this is that non-‐profit organizations are more prone to delivering quality products, while profit organizations are generally looking for the right mix of quality-‐quantity to maximize profits.

The distance between project creators and project founders is large in general. Agrawal, Catalini & Goldfarb (2013) mention an average distance of 3000 miles between them. From their results however, they conclude that geographically constrains aren’t necessarily the case. 86% of the pledges to new projects came from people more than 60 miles away, suggesting that geographical factors are not generally causing accountable for crowdfunding failure.

Friends and family are considered important sources of initial crowdfunding capital by many researchers. Agrawal et al. (2011) argue that using this close social circle is most important in the initial phase, because the distinction between family, friends and other investors is blurry in this phase. The project appears more feasible when the initial

investment is large, so one should interact with the social circle in the first stage. However, it is possible that a project founder doesn’t have a large contributing social circle, resulting into an external factor possibly leading to crowdfunding failure.

Although it’s hard for new founders to reckon with external drivers of failure, there are common mistakes one could account for in order to make a project more likely to succeed.

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2.3 Common mistakes in the crowdfunding process.

In this section the common mistakes studied are extracted from the existing literature. Five possible mistakes are retrieved from current research on crowdfunding success and will be used to compose a framework of common mistakes influencing crowdfunding success. The framework could eventually be used by new project founders to increase their chances of succeeding where others would fail.

2.3.1 Wrong initial goal

Setting the right goal is one of the hardest parts of the crowdfunding process. The goal has to be clear before the crowdfunding campaign starts, and could be either too high or too low. In Kuppuswamy & Bayus (2013) and Mollick (2014) the authors show that on the Kickstarter platform, successful projects reach their funding goal with a relatively small margin of 10%. While unsuccessful projects don’t reach their goal often by a margin of more than 10%.

Buff & Alhadeff (2013) discuss that founders tend to set the wrong initial goal when budgeting for crowdfunding campaigns. There are various costs involved with the

crowdfunding process which are often not accounted for. Examples of these costs are reward costs, service fees or taxes. A common mistake would be to make the crowdfunding goal identical to the budget goal.

Marom & Sade (2013) mention that it is important for a project to present a strong team with experience and capabilities. When setting a high initial goal this will communicate trust in the project to backers. A higher goal also results in the founder’s project mentioned more in the media and social media, which adds to the recognition of the project.

The funding goal has to be realistic. Potential backers first look to the funding goal, the backers a project already has and the running time of the campaign before pledging. An overambitious goal could result in a disappointing funding level, because backers simply don’t consider the project feasible enough (Kuppuswamy & Bayus, 2013; Mollick, 2014). Besides, a goal too high in combination with a campaign of long duration possibly signals lack of confidence in the project and results in a crowdfunding campaign’s failure (Mollick, 2014; Marom & Sade, 2013).

An entrepreneur setting a wrong initial goal will find himself having a hard time reaching the posed funding goal when it is too high, while a too low initial goal could signal a lack of confidence or lead to problems in the implementation phase of the project after the crowdfunding campaign. The duration of the campaign should also be accounted for when setting the goal, whereas a high goal in combination with a long campaign could signal lack of confidence. A third option is for a project founder to set the funding goal ‘unnaturally’ low in the hope to exceed the funding goal (Kuppuswamy & Bayus, 2013).

A general conclusion would be that it would be best to start with a not too high initial goal Mollick (2014) supports this argument by stating that with a higher funding goal the project is less likely to succeed. Muller et al. (2012) agrees on this statement by

concluding that successful campaigns in general have smaller initial funding goals. But a project founder has to keep the disadvantages of a too low funding goal still in mind when it comes to making a crowdfunding campaign successful.

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2.3.2 fail to engage with social network

The findings of Kuppuswamy & Bayus (2013) and Agrawal et al. (2011) suggest that pledges from the smallest social circle of friends and family occur most likely in the first week of the start of the campaign and the end-‐ phase when a projects campaign finishes. Founders should account for this image by contacting their closest social circle as soon as possible and when a project enters its final week founders should trigger this circle again for final

support, especially when the project is in danger of being unsuccessful.

Social media could be seen as a way for founders to maximize their networks (Kleabe & Laycock, 2012). Hekman & Brussee (2013) argue that a large number of Facebook friends mostly benefits the crowdfunding stage in the initial stage where it consciously brings the project under attention of the people connected in the network. A too small network of friends won’t generate enough attention for the project. Larger and therefore more diverse networks are more likely to be beneficial for crowdfunding success. The concern of having a large network is suggested in Mollick (2014) too. With the use of crowdfunding, online communities could influence the creation of new ventures and projects. Greenberg & Gerber (2014) state that crowdfunders of failed projects engage in enlarging their social network before they launch a new project. From their past experience individuals learned that a large social network is essential to crowdfunding success. They find that project founders on average add 17.8 friends on Facebook between the first and second project launch.

The findings of both Mollick (2014) and Giudici, Guerini & Rossi-‐Lamastra (2013) suggest that in order to reach the targeted goal a combination of individual social capital and project quality is needed. Social capital can be described as the number of friends on social media like Facebook or Twitter. Mollick (2014) finds that a doubling amount of Facebook friends doubles the chance of success. Respectively, 10 friends account for a 9% success rate, 100 friends a 20% success rate and a 1000 friends result in a 40% likelihood of succeeding.

Gerber, Hui & Kuo (2012) also find evidence of backers being motivated to engage with social media in order to connect and support others in pledging to goals. Saxton & Wang (2013) call this the ‘’social network effect’’ where the fans of an organization reach expanding circles of friends online by their social network, ultimately leading to charitable contributions. The same goas for crowdfunding campaigns.

Engaging in a social network therefore could benefit the project very much, so founders should prepare for constantly enlarging the network, updating to the network and being available to the network (Hui, Gerber & Gergle, 2014).

H2: Failing in social network engagement leads to an unsuccessful campaign.

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2.3.3 Too active or not active enough

It is important to be active and engage with the public without overly doing so. There has to exist an authentic connection between the pledger and founder (Kleabe & Laycock, 2012). Qiu (2013) names project updates as the main means of creator-‐to-‐backer communication during the campaign, but also when the campaign has ended.

Kuppuswamy & Bayus (2013) state that updating on the project is positively related to backers’ support, which highlights the importance of updating on the project frequently. They find that updating occurs mostly in the first phase and turns out to occur more

aggressively when it nears the end date. The ‘Kickstarter Effect’ describes this strong accelerating increase of activity by project leaders best. This increase in motivation in order to reach a goal is typically found in human nature (Kuppuswamy & Bayus, 2013) and could be best described by the example in Tillery & Fishbach (2011) who state that this goal-‐ gradient behavior is fed by the fact that contributions in later stages outweigh contributions in earlier stages. The marginal impact of a €200 investment is bigger on a project with a 95% funding level.

Updating on a crowdfunding project also has an indirect advertising effect (Qiu, 2013). Updates remind existing backers about their pledges and motivates them to make other potential backers pledge to the project. Updates also trigger current backers into pledging more, especially when a project runs at risk of being unsuccessful.

The individual crowdfunding practice enables entrepreneurs to compensate the crowd by being more actively involved in terms of time and expertise (Belleflamme et al., 2013). A serious mistake stated in Rossi (2014) is to save time that must be dedicated to involvement with the initiative. It is important for a crowdfunding individual to be very dedicated to the project and settle for an active role in the process. Hui, Gerber & Greenberg (2012) prove that founders characteristically underestimate the fact that the crowdfunding process demands a large investment in time and commitment to the project. New project founders find themselves overwhelmed by this commitment during the

campaign and underestimate potential losses. The pressure enlarges when founders also have to distribute the rewards to their backers.

Although it has been made clear that an active role in the crowdfunding process is important, one should account for the downside of being too active in the crowdfunding process. The findings in Belleflamme et al. (2013) suggest that crowdfunders are likely to act very active in the venture when they are involved with the creative process, the decision-‐ making process or other operating tasks. This broad scale of responsibilities and the active commitment a crowdfunder has in the project, adds to the likelihood of mistakes being made in the crowdfunding process.

H3: A too active/ not active enough role in the crowdfunding campaign leads to an unsuccessful campaign.

2.3.4 Fail to signal quality

Quality signaling isn’t associated much with crowdfunding success or failure in current literature yet, therefore increasing the chance of it being a common mistake in the crowdfunding process. The necessity of quality signaling emerges from the information

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asymmetry between project creators and backers (Ahlers, Cumming, Gunther & Schweizer, 2015; Kuppuswamy & Bayus, 2013). Investors on crowdfunding platforms are normally not on the same level of knowledge as the project creators are.

Failure to signal quality could either mean that a projects quality or the campaigns purpose isn’t communicated clear enough to potential backers. Mollick (2014) links quality factors like: a large social network, video and being featured, to crowdfunding success and shows that project backers act like traditional venture capitalists when they evaluate the project. Therefore, Mollick (2014) states the importance of quality signaling. Entrepreneurs should gain insight from examining information on traditional entrepreneurial finance to learn about the new venture signaling process.

Quality is hard to observe online, which drives potential investors to the search for quality signals in projects characteristics (Connelly, Certo, Ireland & Reutzel, 2011). The observable attributes are the only information a small investor has, so an entrepreneur should account for giving the right signals. Updates for instance should be extensive enough to provide sufficient information to potential funders (Xu, Yang, Rao, Fu, Huang & Bailey, 2014). However, the project page should be more straight to the point instead of being elaborate. Other factors named by Xu et al. (2014) are the readability of the updates and project page. Funders are likely to appreciate sophisticated content and dislike naïve or simple content. Using a video on the crowdfunding page to show quality is proved to be effective in the crowdfunding campaign (Xu et al., 2014; Mollick, 2014).

A quality project will naturally attract more backers, but the backers also attract more backers in a phenomenon called ‘herding’. A project with many backers signals high quality to other potential backers which makes them more likely to pledge as well

(Kuppuswamy & Bayus, 2013; Qiu, 2013; Argrawal et al., 2013). Herding also increases the final funding when a project is funded for a large percentage close to its goal. The herding phenomenon adds to the argumentation in the next section, about the importance of the first phase of the crowdfunding campaign. One should attract many backers in the initial phase to make herding more likely. The amount of backers also enlarges the likelihood of a project obtaining a ‘trending’ status (Read, 2013). On most popular crowdfunding platforms, a trending status applies to projects that are getting a large amount of backers in a relatively short period of time. A trending status is great for attracting new backers and signaling project quality to potential backers.

Backers are motivated by both consumer and philanthropic behavior (Gerber, Hui & Kuo, 2012). The authors note from their research on backer motivations that while founders are looking for funds, the backers are searching for tangible products or services. Thence it’s necessary for project founders to create a strong backer reward system, since rewards could signal product quality and therefore contribute to campaign quality.

The choice of crowdfunding funding model is also linked to crowdfunding success. Veugler (2015) found the all-‐or-‐nothing funding model to be more effective than a keep-‐it-‐ all policy. This difference probably arises because an all-‐or-‐nothing funding model signals trust in the project, and therefore quality.

H4: Failure in quality signaling leads to an unsuccessful campaign.

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2.3.5 ‘Not launching hard enough’

New project founders should pay attention to the start of their campaign. The first phase turns out to be important for getting a high level of funding right away. Kuppuswamy & Bayus (2013) name the close social circle as first pledgers on a crowdfunding project and Mollick (2014) states that update speed indicates a prepared founder. Since a few projects achieve success directly after the launch, founders should start on updating immediately after launching the project. In the study of Xu et al. (2014) on updating in crowdfunding campaigns, the results show the distribution of updates in the initial phase the middle phase and the final phase. All different types of updates, respectively: Social Promotion, Progress Report, New Content, Answer Questions, New Rewards and Appreciations, showed the majority of updates occurring in the first phase of the crowdfunding campaign, except for Reminder updates. This is the case for both successful and unsuccessful crowdfunding campaigns.

Another argument for the importance of the initial phase is posed by Agrawal, Catalini & Goldfarb (2011). They cite from the entrepreneurial finance literature the

importance of family and friends as source of new venture capital in the early phases. They mention that since family and friends know the entrepreneur there will be no information asymmetry, which makes raising money from family and friends easier for starting

entrepreneurs especially when they don’t have a track record yet.

Etter, Grossglausser & Thiran (2013) conducted a success prediction for Kickstarter campaigns by which they show that success of a Kickstarter campaign could be predicted in the first hours after the launch. The importance of the very first stages is retrieved from their dataset, which shows that the strongest improvements happen in the early stages of the crowdfunding campaign. A founder should therefore consider to have the campaign planned entirely before launching, mainly the marketing and advertisement of the campaign should be prepared and the business plan should be clear.

H5: Not working hard enough on the project and being unprepared in the initial phase leads to project failure.

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2.4 Framework of common mistakes in crowdfunding.

Fig. 1 Framework of common mistakes in crowdfunding.

The hypotheses stated in the literature review could be composed into a framework of common mistakes leading to an unsuccessful crowdfunding campaign. Evidence leading to the possible mistakes was extracted from current literature focusing on crowdfunding and the crowdfunding process. Although the literature studied is in general up-‐to-‐date, one must allow for other factors or mistakes in existence leading to an unsuccessful campaign. It is still uncertain how often these mistakes occur and how big their influence is on the crowdfunding process.

The presence of the common mistakes as described in the framework will be tested in the next sections.

3. Methodology

The research will be qualitative in nature using data extracted from case studies and interviews. Case studies are common in explorative research. They give better understanding to the researcher of the context and insight into the activities.

To build the cases, information on the projects will be examined online in combination with interviews with the project founders. The interviews are designed in a way that stresses the common mistakes as retrieved from the literature. After the interview a

debriefing follows for clarity and to give insight in the purpose of the research. Interviewees are always free to look into the data used for their cases as a matter of privacy and

transparency.

The interviews are unstructured in nature, which makes it possible to discover factors of unsuccessfulness outside the framework of common mistakes. Interviewees are free to complement the information with their own thoughts of what went wrong in their campaigns. Unsuccessful CF campaign Too active/not active enough 'Not launching hard enough’

Fail to signal quality

Wrong fundraising

goal (too high/too low)

Fail to engage with social

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3.1 Research design

To test the composed framework to the real world a series of case studies are conducted from unsuccessful crowdfunding projects on different crowdfunding platforms. The projects are selected carefully by searching cases with a few characteristics. For simplicity only projects based in the Netherlands where used, preferably in the Amsterdam region. Only cases of ended campaigns are being used, to rule out the chance that a campaign could turn out successful at the end.

Another requirement is that cases have to be funded to some level. In order to apply the framework to a case, there has to be backer interest in the project to some extent. Possible cases are mostly screened on their number of unique backers this screening is necessary in order to rule out self-‐investment, family-‐only investment and involvement of business angels. Who could be best described as wealthy individuals that invest large amounts of money and experience in small venture to which they don’t have a direct family connection (Macht & Robinson, 2009). A number of n>30 backers was used preferably as rule of thumb to rule out these factors.

Another consideration is the minimum funding percentage of 15% which is estimated to represent an interest to some extent in the project. Higher funding

percentages are preferable, because it enlarges the chance of common mistakes being a factor leading to crowdfunding failure. Higher funding percentages represent more project popularity and therefore decreases the chance of external factors being the cause of crowdfunding failure.

Case data was obtained from different crowdfunding platforms to show the

applicability of the framework to different projects with different backgrounds on different platforms. Data on the cases is mostly collected online. On different crowdfunding platforms a search to Dutch crowdfunding projects is conducted and filtered on unsuccessfulness. Contact has been made with selected projects to schedule an interview. After the interview a web search was conducted to extract more information on the case, that was missed during the interview. For the interviews open-‐ended questions are being used, with a semi-‐ restrictive outline. Questions are prepared in advance and the same questions are being used for each case. The freedom to ask deviating questions was preserved during the interviews.

3.2 Case selection

The first case study conducted is about a Kickstarter campaign named: Battery Eater. The Battery Eater campaign was founded by an artist and product developer named Eibert Draisma. The Battery Eater is a crowdfunding campaign focusing on a new developed product and received a €4,660 funding from 74 backers. The initial goal was €25,000, which means a 18% funding percentage. From this information can be concluded that the Battery Eater project is an interesting case to test the framework on, since it is above 15% and has more than 30 backers

The second case study conducted is Tamminga, Puur Genieten which is a small chocolate store based in Veenendaal, The Netherlands. The owner Piet Tamminga started a crowdfunding campaign to enlarge the production capacity. Tamminga received a €60,500 funding of a €300,000 goal, which naturally results in a 20% funding percentage. The amount of backers is not exactly known, but the founder estimates a number of investors

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between 100 and 200. The amount of backers is in all probability above 30, high enough to be an interesting case to study for this research.

The third case study is implemented on a crowdfunding campaign on the platform ‘’Oneplanetcrowd’’ called De Kledingtuin. De Kledingtuin is an initiative to open a store for women where they can borrow clothes for a monthly fee. The purpose of this project is to create a walk in closet shared by women, which makes them capable of wearing and trying different clothes without having to buy them. The initial goal was set at €3,500 to purchase the stores cloth collection. The project received a funding of €2,070, therefore the funding percentage is about 60%. Backers totaled 42 individuals, which means that the project meets the requirements. The project is especially interesting because the funding goal is lower in this case in comparison with the other cases and still didn’t reach its funding goal. Presumably mistakes where made in this crowdfunding process.

The fourth case is a Kickstarter campaign called The Boardroom Café, The Boardroom has the purpose of starting a board game library, where it’s possible to play games with friends in the cafeteria. The funding goal’s money would mostly be used to open the Board Room Café and people would only be charged if the cafeteria actually opened. The project reached a funding of only €1,432 of a €10,000 initial funding goal, which results in a just over 14% funding percentage. The number of backers totaled 28. Although the project doesn’t meet the guidelines posed in the screening test, the project is still interesting to use as a case study. Why? Because the same Board Room initiative was covered by different campaigns that did reach their funding goals. Although there could possibly be geographical and other external factors involved, it would be interesting to test the framework to this particular case.

4. Case studies

In this section the case studies conducted will be compared with the common mistakes as they appear in the framework of common crowdfunding mistakes. To acquire the data needed for these case studies, interviews with project founders were conducted.

4.1 Case 1: Battery Eater

The Battery Eater campaign was launched on April 18th 2016 by Eibert Draisma and ended unsuccessfully on May 18th. Although it didn’t reach its goal of €25,000 it did manage to get the support of 74 backers, which means that the project was interesting to some extent. A Battery Eater is a small artwork which images a human or a dog and portraits the eyes by using led light. On the back of the figure is a battery holder attached, which makes the eyes ‘’blink’’ when a battery is placed in the holder.

People could use empty batteries to make the eyes work. The idea behind this is that empty batteries still hold a small amount of energy, and are easily thrown away. The Battery Eater gives the batteries a new purpose and makes one think about sustainability. The Battery Eater is mostly given away as a small present to relatives and friends.

The project founder suggests that his social network was too small at the start of the campaign and that he failed to engage with the network during the campaign. The social network of the founder did increase during the campaign and had grown to over 2000 connections after the campaign. The project founder indicates that when the amount of

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new backers during the campaign dropped, his focus shifted towards other projects. This made his engagement with the social network decrease even more which could be indicated as a common mistake.

The project founder stated that not enough thought was put into the initial

fundraising goal. The fundraising level was determined at €25,000 which would be needed to cover production process costs and shipping costs. The goal was to sell world wide and make the product in China to decrease production costs and increase production volume. When the campaign ended he figured that an initial goal of €10,000 would be enough to develop a more suitable delivering package and cover costs for quality materials. A goal of €25,000 turned out to be too high.

Although the project founder did follow the Kickstarter guidelines for a successful campaign, he failed to signal quality to potential backers. The packaging is an example of quality shortcomings, currently the founder ships his products in lunchboxes filled with bubble wrap. Another quality signaling failure is the lack of information on the funding goal’s purpose. Because of the information asymmetry between backers and founders, the purpose of the funding goal has to be communicated clearly. Potential backer would consider the project not feasible otherwise. The founder himself wasn’t fond about informative video on the Kickstarter page which wasn’t attractive enough to the larger crowd.

The project founder wasn’t active enough during the campaign. The lack of updates on the Kickstarter project failed to address quality to potential backers and it failed to keep the project alive for people involved with the project already. The project founder also admitted that he shifted his focus to other projects when the amount of new backers retrograded.

The project furthermore didn’t launch hard enough. Successful Crowdfunding campaigns tend to prepare the campaign forehand, which gives them an advantage in the important initial stage. The project founder suggests that he only focused on establishing the crowdfunding page and that would figure out the rest during the campaign. This means that the project wasn’t ready to be launched hard initially.

Merely all five common mistakes were present during the Battery Eater campaign, this consequently led to an unsuccessful campaign.

4.2 Case 2: Tamminga, Puur Genieten

The Tamminga case is very different from the Battery Eater case, because the crowdfunding campaign was suspended before it it reached the deadline. Another difference is that Tamminga needed funding for enlarging production capacity, instead of introducing a new concept.

Tamminga, Puur Genieten is a chocolate and pastries store based in Veenendaal in the Netherlands. In 2009 Tamminga opened a new store and demand started to rise. In coping with increasing demand, Tamminga found himself lacking production capacity. Tamminga still had to pay back a bank loan for the new store, which meant that he needed to get funded in a different way. The campaign started in July 2015 composed by an

external party and hosted by a loan-‐based crowdfunding platform called: ‘Kapitaal op Maat’. The initial crowdfunding goal was €300,000 and Tamminga received a €60,500 funding.

The project founder Piet Tamminga made it clear that the project launched hard. Before the crowdfunding campaign the marketing department made sure that a lot of

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marketing was conducted before the start of the campaign and the personal network was notified. The strong initial phase resulted in an approximately €50,000 funding level in the first hours.

The founder didn’t forget to engage with the social network. The personal network was informed before the campaign started and right from the start the social network was informed as well. The project founder engaged with social networks by addressing relatives and friends personally and updating the social network constantly in terms of enlarging the network and updating on the project.

To keep the backers informed updates on the project were mostly provided by the external party hired by Tamminga, which is a crowdfunding consultancy that was taking care of the technical issues and responsible for informing the crowd. Working with this

consultancy prevented Tamminga from the mistake of being to active or not active enough. Tamminga didn’t fail to signal quality to potential backers. Kapitaal op Maat is an loan-‐based crowdfunding platform which means that the funding exists of many smaller loans provided by backers who could be named investors as well. The investment should be repaid within a maximum of 120 months with interest. The Kapitaal op Maat platform filters projects by their potential, and only works with the ones that are interesting for them. By only focusing on projects with potential, projects on Kapitaal op Maat automatically signal quality to backers.

The only possible mistake Tamminga made was choosing a wrong initial goal. A higher funding level results in a higher interest rate on a loan-‐based crowdfunding platform, because the risk for investors increases. Piet Tamminga didn’t account for such interest rates and dissonance with the intermediary developed, who was held accountable for providing wrong information.

The dispute resulted in Tamminga suspending the crowdfunding campaign, because the trust in the intermediary faded and the mistake in this crowdfunding process was setting the wrong initial funding goal. Tamminga should have accounted for the risk and start with a lower funding goal, or he should have used another loan-‐based crowdfunding platform that utilizes lower interest rates.

4.3 Case 3 De Kledingtuin

‘’De Kledingtuin’’ is a crowdfunding campaign founded by Jill Groot in co-‐operation with her friend Monique. The campaign aired on the 19th of August 2015 and ended on October 30th of 2015 with a funding percentage of 60%. The initial funding goal of the project was €3,500 with a target amount of €4,000 and the end of the campaign the project received a funding level of €2,070. This case differs from the other cases by addressing a smaller funding goal. It is interesting to examine what underlying reasons there could be for not reaching the funding goal.

The concept of ‘’De Kledingtuin’’ is fairly easy. Jill and Monique wanted to open a store where people could take clothes from if they subscribed to a monthly membership. They would refer to this store as being a walk-‐in closet in the city of Alkmaar, The

Netherlands. The idea is especially designed for women and works like a ‘fashion library’ where people borrow clothes and return them after an agreed upon period. Reparations to damaged clothes would be cost free the first 3 times for customers and the money

Common mistakes in crowdfunding : an explorative case study