Crowdfunding and the Entrepernuer 22.7.2013

1. Playing Both Sides of the Market:
Success and Reciprocity on
Crowdfunding Platforms
Dr. Ohad Barzilay
Recanati Business School
Tel Aviv University
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2. @ohadbr
 I started as a software
engineer
 Software Engineering Lecturer
2

3. @ohadbr
 Research interests:
 Contemporary Software Development
 Digital platforms, BIG DATA
 Social and Crowd networks
 Video Blogger:
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Agile and Lean
Software Management

4. Agenda
• Crash course on Information Systems and
Digital Platforms
• The Crowdfunding platform
• Success and Reciprocity on KickStarter
– Joint work with Dr. David Zvilichovsky
and Yael Inbar
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5. Information Systems Research
• The “physical world” is gradually being “projected”
into the computer
– We study the effect on business and society
• 15 years ago: Enterprise context (ERP, CRM)
• Later: Everyday life
– Shopping
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6. The Rise of Platforms
• The maturity of information systems create
platforms which brings into play new
mechanisms
– The platforms re-design the “physical” process
– They introduce new abstractions and terminology
– They create an ecosystem
– They are used in surprising ways
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7. The Crowdfunding Platform
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8. Crowdfunding (‫המון‬ ‫)מימון‬
• Definition:
 Crowd - Small investments from a large base of
contributors
 Funding - In order to finance projects
 Over the Internet
• Gaining momentum:
 Crowdfunding Platforms
 More Projects
 Higher Sums
 Legislation8

9. KickStarter Stats
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http://www.kickstarter.com/help/stats,2013,10July

11. The Funding Challenge
Reaching the financing goal
within the allocated period
56% fundraising
campaigns fail
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44% fundraising
campaigns succeed

12. Research Question
• What makes a crowdfunding campaign
successful?
 Successful = raising the goal within the funding
period
• In order to answer this question we go
back to the “physical world”
 The business process that the platform
encodes
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13. Fundraising => Crowdfunding => Crowdfunding Platforms
• What affects success?
• Any disadvantages?
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14. 14
Fundraising => Crowdfunding => Crowdfunding Platforms

15. 15

16. The Crowdfunding Platform KickStarter
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17. The Crowdfunding Platform Kickstarter

18. Fundraising
Multidimensional Success Factors
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The entrepreneur:
- Experience
- Learning
- Reputation
- Social capital
Viral
Marketing
Online
Communities
The platforms:
- Digital platforms nurture
online communities
- Socially involved users are
more likely to pay
The importance of
community leaders: hubs,
salespersons, mavens
Crowd
funding

19. Success and Reciprocity in
Crowdfunding Networks
David Zvilichovsky, Yael Inbar, Ohad Barzilay
Recanati Business School
Tel Aviv University

20. Research Data Set
• After cleaning the data (March 2013):
 68,057 projects
 60,680 project owners
 3,001,417 backers
 5,647,547 pledges (covering more than 400M $)
• “Big data” analysis
 Some of the backers had projects of their own
 Direct reciprocity
 Indirect reciprocity
 Also in the “opposite direction”
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21. Results
• Owners’ backing history has a positive impact
on projects’ financing success
 Has backing history
 Number of backings
Playing both sides of the market pays off
 OR = 1.84***
 OR = 1.06***
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22. Results
• Owners prev. Backing
 Impact on Num. of Backers  Coefficient = 3.91***
***- significant at the 0.01 level
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350
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14-20
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Average
Number
of Backers
Number of backing actions
Frequencies
Num. Backers

23. Results (cont.)
• Owners’ creating history has a negative
correlation with projects’ financing success
 Has creating history
 Num. of prev. created projects
• Depends on success history
 OR = 0.88***
 OR = 0.98***
Experience is not enough
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24. Results (cont.)
• Projects created by owners with a backing
history :
 Have a higher chance to secure financing
 Have more backers
 Have higher goals
 Raise more money
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25. Backer Owners
 BOs create more projects and succeed more than Owners
 BOs back more projects than Backers
 BOs as “power users”, “community pivots”
Backers
3M
Owners
60K
BO
34K
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26. BOs Projects vs. O Projects
BO projects O projects
t-test
P Value
Success Rate 62% 49% 0.00***
Number of Backers 124.33 54.92 0.00***
Goal $16,968.4 $12,863.41 0.008**
Successful
Projects
Only
Goal $7953.36 $5140.93 0.00***
Money Raised $13,551.98 $6927.93 0.00***
**-Significant at the 0.01 level *** - Significant at the 0.001 level
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27. BOs Projects vs. O Projects
Average Values BO projects O projects
t-test
P Value
Success Rate 62% 49% 0.00***
Number of Backers 124.33 54.92 0.00***
Goal $16,968.4 $12,863.41 0.008**
Successful
Projects
Only
Goal $7953.36 $5140.93 0.00***
Money Raised $13,551.98 $6927.93 0.00***
**-Significant at the 0.01 level *** - Significant at the 0.001 level
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28. BOs Projects vs. O Projects
Average Values BO projects O projects
t-test
P Value
Success Rate 62% 49% 0.00***
Number of Backers 124.33 54.92 0.00***
Goal $16,968.4 $12,863.41 0.008**
Successful
Projects
Only
Goal $7953.36 $5140.93 0.00***
Money Raised $13,551.98 $6927.93 0.00***
**-Significant at the 0.01 level *** - Significant at the 0.001 level
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29. It is not a “crowd” - it is a network
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30. Summary
• Crowdfunding platforms
• Two-sided market: the dual role of the user
• Visibility of on-platform actions
• Long-term participation
• Strategic & Community Interactions on Platform
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31. Summary
• Backing others pays off:
 Higher success chances
 More backers
 More money raised
• Sub-Community of Backer-Owners:
 More engaged in platform
 Potential long and short term strategic benefits
• Direct and indirect reciprocity:
 Crowdfunding platforms as social networks
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32. Thank You
Questions?
ohadbr@tau.ac.ilEmail me:
Full paper will be uploaded soon to the SSRN digital library – check it out