When investors meet consumers: The roles and interactions of different backers in the crowdfunding market

Abstract

By harnessing the power of the crowd, crowdfunding has changed the way startup ventures, innovation-minded entrepreneurs, and private individuals raise capital. Reward-based crowdfunding is an established and attractive fundraising option for entrepreneurs with creative projects, while investment-based crowdfunding has also gained popularity thanks to the progress of related regulations. Both types of crowdfunding are drawing a growing number of startups that seek funding opportunities, although backers on different types of crowdfunding platforms exhibit distinct motivations. Understanding the behavior and interaction of different types of backers is thus critical for a startup to launch a successful crowdfunding campaign across distinct platforms.

To address this issue, we conduct a field study on a popular crowdfunding platform, where each campaign offered both reward- and investment-based funding. Interestingly, we find a positive relationship between investor contributions in the early stage of the campaign and the likelihood of the campaign's success. Our empirical analysis reveals that investor–consumer interaction mediates the main effect of early investor contributions. Moreover, the positive main effect is stronger when a larger amount of project-relevant information is released and when a higher level of customization (using price discrimination or product differentiation) is offered in reward-based funding options. These results are consistent with several robustness checks. Our findings provide relevant managerial implications for entrepreneurs and valuable insights regarding platform design.