How to run a successful crowdfunding campaign

More and more innovators are turning to platforms like Kickstarter to support their new products or services, but what does it take to run a successful crowdfunding campaign? Two new studies from professors at the Freeman School offer fresh insights for startups and entrepreneurs.

In the first, Assistant Professor of Management Junchao “Jason” Li finds that the passion displayed by an entrepreneur in his or her pitch plays a key role in the campaign’s success.

Li says that through a process called “passion contagion,” entrepreneurs can increase their viewers’ enthusiasm for a project, making those viewers more likely to contribute financially or share the campaign’s information via social media.

In a series of experiments, Li and his co-authors instructed study participants to view introductory videos from actual campaigns featured on Indiegogo and Kickstarter to assess the passion of the entrepreneur. They also hired a professional actor to create different versions of introductory videos to gauge how participants responded to different levels of entrepreneurial passion.

“We were looking at how the passion that entrepreneurs displayed in the videos influenced their crowdfunders’ decisions to invest,” said Li.

Study participants rated the videos using multiple scales to describe their experienced enthusiasm (with choices like “I couldn’t help smiling” or “I felt tired”), their intended funding amount and their willingness to share the content online.

“We found that passion is a very strong predictor of entrepreneurial success as well as the funding amount that the project receives,” Li says.

In the second study, Assistant Professor of Management Yuchen Zhang finds that the worst enemy of a crowdfunding campaign may be the overuse of tech jargon in the project’s description.

Zhang’s research focuses on technological crowdfunding projects, whose backers tend to make funding decisions based on the description of the quality and viability of the product.

Through an agent-based simulation model, Zhang replicated a crowdfunding community of 10 projects and 1,000 contributors. Zhang counted the use of technical terms in each project’s description and compared the funding performance with the number of technical terms they featured.

The results showed an inverted U-shaped relationship between project descriptions and product funding, meaning that the two extremes would decrease a project’s financing performance.

If a proposal uses too many technical terms, potential funders may have difficulty understanding the product’s description. However, if a project lacks enough technical terms in its description, then backers cannot properly evaluate the project.

“People want to ‘buy’ a novel product, but they also want to make a rational evaluation of how good that product is before they buy it,” says Zhang.

Li’s paper, “Catching Fire and Spreading It: A Glimpse into Displayed Entrepreneurial Passion in Crowdfunding Campaigns,” co authored with Xiao-Ping Chen, Suresh Kotha and Greg Fisher, appeared in the Journal of Applied Psychology in March 2017. Zhang’s paper, “Devil in the Detail (or not)? A Study of Crowdsourcing Performance of Entrepreneurial Projects,” appeared in the Academy of Management Proceedings in November 2017.

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