Lessons for Entrepreneurs from Crowdfunding


There is a lot of buzz out there these days about crowdfunding. As Kauffman Dissertation Fellow Ethan Mollick at the University of Pennsylvania’s Wharton School puts it, “Crowdfunding has been drawing substantial attention from policy makers, managers, and entrepreneurs, but relatively little notice from academics, even though it touches on many topics of importance to scholars of entrepreneurship.”

His paper from last July, “The Dynamics of Crowdfunding: Determinants of Success and Failure” (available here), examined almost 47,000 projects on Kickstarter that raised a combined revenue of $198 million. Mollick concluded that several factors influence whether a project will succeed or not:

  1. The greater the size of the founder’s social network, the greater the chance for success (particularly Facebook in this case; this is also known as the ‘be popular’ strategy).
  2. The underlying quality of the projects – those with high-quality, polished pitches are more likely to be funded (e.g., use a video; as Kickstarter’s website states, “Projects with videos succeed at a much higher rate than those without.”).
  3. A strong geographic component tie-in seems to increase success (pitching country music in Nashville, film in Los Angeles, etc.).
  4. A shorter Kickstarter duration is better (35 percent chance of success for 30-day pitches, 29 percent for 60-day pitches). Mollick noted that a longer duration implies a lack of confidence in the project’s success.
  5. Being highlighted on the Kickstarter website is hugely beneficial (89 percent chance of success vs. 30 percent for unfeatured projects).
  6. A large number of creative individuals in the city where the project is based is associated with greater success (target these kinds of people).

Geographic Distribution of Projects by Success

Success by Geographic Area
The circles on this map represent counts of Kickstarter projects by city; the larger the circle, the more projects based in that area. The shading within the circle reflects the portion that were successful—dark green represents successfully funded projects while light green indicates the project was not funded. Based on Mollick’s research, odds are that the successfully funded projects in given cities were a good fit culture-wise for that city.

 

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