June 2013

BIG DATA ANALYTICS FOR DEVELOPING UNDERSTANDING OF CROWDFUNDER CONTRIBUTION BEHAVIOUR

A recent industry report indicates that crowdfunding, as a whole, helped raise more than $2.7B last year, a number expected to exceed $5.1B in 2013 (Massolution 2013). With hundreds of platforms now operating globally, local legislators and policymakers have focused their attention on crowdfunding, which culminated in President Obama’s signing of the Jumpstart Our Business Startups (JOBS) Act, in April of last year. However, while policy and practice are clearly progressing at a rapid pace, academia’s (and, in turn, practitioner’s) understanding of crowdfunder behavior lags behind. This is surprising, given that crowdfunding presents a novel twist on many long-standing phenomena of interest to academics, in numerous fields of study. The dearth of research in this space is likely attributable to a number of factors, a prime candidate being the complexity and messiness of the crowdfunding phenomenon. Consider that a number of prominent crowdfunding platforms are now global in nature, entertain myriad types of campaigns, each with its own particular incentives for contribution, and draw contributions from an extremely heterogeneous user-base. Theorization and empirical evaluation are thus extremely difficult to conduct in anything approaching a generalizable manner, unless one takes a holistic perspective. There is, however, a light at the end of the tunnel.

A number of empirical studies we have undertaken to date provide evidence of the value and opportunities of big data, econometrics and analyticsfor the study of crowdfunding, and crowdfunder contribution behavior in particular. Leveraging large-scale data, our work has explored a number of factors that influence crowdfunder contribution decisions, including social information (i.e., details of prior others’ contributions) in the crowdfunding process (Burtch et al. 2013a), cultural differences (Burtch et al. 2013b) and privacy features (Burtch et al. 2013c). We propose to present on the results of these various studies(summarized below), to obtain feedback from the academic community with an interest in crowdfunding, and to offer our own suggestions for new research directions.
Study A—Social Information: A key factor that can influence the behaviour of crowdfunders is information on prior contribution behaviour, including the amount and timing of others’ contributions, which is published for general consumption. We empirically examine social influence in a crowdfunded market for online journalism projects, employing a unique data set that incorporates contribution events and Web traffic statistics for approximately 100 story pitches, a data set that allows us to examine both the antecedents and consequences of the contribution process. We evaluate the applicability of two competing classes of economic models that explain private contribution toward public goods in the presence of social information: substitution models and reinforcement models. We also propose a new measure that captures both the amount and timing of prior others’ contribution behavior: contribution frequency (dollars per unit time). We find evidence in support of a substitution model—a partial crowding-out effect, where contributors experience a decrease in their marginal utility from making a contribution as it becomes less important to the recipient. We further find that the degree of exposure a pitch receives over the course of the funding process is positively associated with readership upon the story’s publication. This finding validates the widely held belief that a key component of crowdfunding is the potential it offers for awareness and attention building around causes and ventures.

Study B—Cultural Differences: We analyze crowdfunder contributions using data drawn from Kiva.org, a global platform that facilitates pro-social (peer-to-peer) lending. Our analysis considers a gravity model of international transaction (lending) volumes, based on more than three million individual lending actions. We consider the dual roles of geographic and cultural distance on lenders’ decisions about which borrowers to support. Although cultural differences have seen extensive study in the IS literature as sources of friction in extended interactions, here we argue and demonstrate their role in individuals’ selection of an online transaction partner. We demonstrate that crowdfunders prefer culturally similar, local fundraisers and, further, that contributors view these two dimensions of distance as substitutes. We also demonstrate the potential of IT-based trust mechanisms to overcome culture’s effects, focusing on Kiva’s built-in reputation system. We discuss the implications of our work for crowdfunding and electronic markets more broadly.

Study C—Privacy Controls: The demand for online privacy remains an ongoing source of debate. Sensitive to this fact, many online platforms now offer users greater, more granular control over how and when their information is revealed. However, recent research suggests i) that users often fail to apply privacy controls as they reportedly intend and ii) that the provision and use of information hiding mechanisms is not necessarily of economic benefit to the various parties involved. In this study, we examine users’ endogenous application of information hiding mechanisms and the economic consequences of users’ doing so. We leverage transaction-level data from one of the world’s largest online crowdfunding platforms, where campaign contributors are given the option of concealing their identity and contribution amounts from public display. First, we find that individuals are more likely to conceal information when they are i) privacy sensitive, ii) when a campaign has received a greater deal of public exposure and iii) when their contribution amount is relatively “extreme.” Second, we find evidence of an anchoring effect, where contributors refer to the amounts supplied by prior others, as a point of reference when deciding upon their own contribution. However, when prior others conceal their contribution amount, the anchoring effect is eliminated. Considering the marginal effects, we find that concealing the prior contribution amount can be beneficial or detrimental for the purveyor or campaign organizer, depending on the contribution size. If prior contributions are small, concealing the amount is likely to be preferred, in order to prevent a downward influence on subsequent contributions. In contrast, when prior contributions are large, it is to the purveyor and campaign organizer’s benefit if the amount is revealed, as this can create an upward influence on subsequent contributions. This finding implies that a nuanced approach to the provision of information hiding mechanisms can help promote larger crowdfunder contribution. We discuss the implications for the design and provision of online information hiding mechanisms.

Source: Crowdfund Conference

Green & Pleasant’s Guide to Crowdfunding

Fleur Emery from Green & Pleasant, who raised £122,950 through Crowdcube earlier this year, was asked to talk about her experience of crowdfunding by AXA Business Insurance as part of a series of video interviews to provide help, advice and insight for other early stage...

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Breaking Down The 2013 Crowdfunding World Summit

Mark Perlmutter is organizing the 2013 Crowdfunding World Summit, a two week online event that will bring crowdfunding experts from all over the world together for a comprehensive series of interviews discussing the history, current context and future path of crowdfunding.

Crowdfunding enthusiasts and interested parties can register for the event at CrowdfundingWorldSummit.com.

 

Registration is free. The event will begin on August 25th at 5 PM PST. Three interviews will be available to stream online each day during the event, which will end on September 7th.

I recently spoke with Mr. Perlmutter about the upcoming event and his hopes for what attendees can glean from it.

The event is divided into four sections or “tracks” as follows…

  1. Track one: Government & Legal
    This track will include lawmakers as well as representatives from the Crowdfund Intermediary Regulatory Advocates (CfIRA) and the North American Securities Administrators Association (NASAA). Also participating are representatives from the White House and US lawmakers. This track discusses the current and past regulatory contexts surrounding crowdfunding in different parts of the world.
  2. Track two: The Business of Crowdfunding
    This track includes platform representatives from companies already facilitating equity crowdfunding offerings in Europe and Australia, as well as companies that plan to grow in (and with) the crowdfunding space. This track will examine the state of crowdfunding from an important point of view, that belonging to the entrepreneurs that power the space.
  3. Track three: The Intersection of the Green Economy and Crowdfunding
    This track includes leaders from the green and socially responsible investment world as well as outspoken people from nonprofits and NGOs promoting green business both at the business and consumer levels. The goal of this track is “to help the general public as well as businesspeople understand that affinity marketing is what crowdfunding is all about, so its a perfect match for a cause-related business to raise capital or presell its products to its intended fans and to its current customers and future customers using crowdfunding as a method.”
  4. Track four: Real Estate
    Perlmutter says that real estate “is a sleeping giant–literally–in the crowdfunding world.” This track includes representatives from platforms in the real estate space as well as real estate investors. Perlmutter believes that crowdfunding has a huge opportunity to change how real estate development happens. He gives a nod to the (often valid) social and environmental concerns from activists and residents when new buildings are proposed, but he believes there is a power in having a few hundred local investors in a project that can advocate for the project’s completion and resulting positive effect on the community around it.

Intrastate crowdfunding may be the big underlying story during the event. As states like Georgia and North Carolina move forward on their own crowdfunding initiatives, Perlmutter thinks this will be an increasingly important approach especially in the absence of any meaningful movement on the JOBS Act. “Marrying up a state crowdfunding law with current state direct public offering laws provide a funding track that is very exciting,” he said.

Source: Crowdfund Insider

Crowdfunding – The Scottish Perspective

This morning a report, commissioned by the Glasgow Chamber of Commerce, was released at a breakfast event in Society M in Glasgow. Called “Crowdfunding – The Scottish Perspective” the report was produced by twintangibles and sets out the findings of a comprehensive review of the Scottish business communities awareness of, and attitude to, crowdfunding and how well it might fit the finance shortfall that persists post the financial and economic crisis of 2008

Amongst its key findings is that there is an ongoing need for finance particularly in the SME sector. This will come a no surprise to even a casual observer of the UK wide business environment. But what is much more interesting is that the size of funding typically sought, and the purpose to which it will be put, both fit well with crowdfunding.

Firms in the survey sought a range of sums which averaged at c.£50,000 and in many cases the funds were sought for innovation and new product or service development. Crowdfunding in its many forms is well able to provide this  sort of sum for a well managed project, and the crowdvalidation element of a crowdfunding project can bring considerable benefit to those developing innovative and new products or service.

However, it is also apparent that Scotland is significantly under utilising the opportunity presented by crowdfunding, and there is no simple answer as to why this is.

It does seem that the awareness and deeper understanding of the potential for crowdfunding needs to be more widely embedded in the business community to build the confidence to turn an interest in crowdfunding into active engagement.

We believe the commissioning of the report and its release today was a far sighted act by the Glasgow Chamber of Commerce and we hope that it marks the beginning of a process that we hope will lead to Scotland taking up a greater share of the crowdfunding opportunity available.

You can find much more detail and food for thought in the complete survey and, best of all, its free!

You can download and read the report here

Source: Twintangibles

 

How to successfully crowdfund a business

Indiegogo has helped fund businesses from the Cat Café in London to the gravity light and a film starring Benedict Cumberbatch. Co-founder Danae Ringelmann explains how to successfully crowdfund a business idea. More and more, crowdfunding is becoming the business world’s incubation platform — they’ve turned...

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