St. Petersburg University
Graduate School of Management
Master in International Business Program
Crowdfunding and entrepreneurship:
Threats and success factors in reward-based crowdfunding
(The case of USA and Russian companies)
Master’s Thesis by the 2nd year student
Concentration — MIB
PhD, Senior Lecturer,
Juan Solervicens Freixanet
ЗАЯВЛЕНИЕ О САМОСТОЯТЕЛЬНОМ ХАРАКТЕРЕ ВЫПОЛНЕНИЯ
ВЫПУСКНОЙ КВАЛИФИКАЦИОННОЙ РАБОТЫ
Я, Романовский Григорий Владимирович, студент второго курса магистратуры
направления «Менеджмент», заявляю, что в моей магистерской диссертации на тему
«Crowdfunding and entrepreneurship: threats and success factors in reward-based crowdfunding
(The case of USA and Russian companies)», представленной в службу обеспечения программ
магистратуры для последующей передачи в государственную аттестационную комиссию
для публичной защиты, не содержится элементов плагиата.
Все прямые заимствования из печатных и электронных источников, а также из
защищенных ранее выпускных квалификационных работ, кандидатских и докторских
диссертаций имеют соответствующие ссылки.
Мне известно содержание п. 9.7.1 Правил обучения по основным образовательным
программам высшего и среднего профессионального образования в СПбГУ о том, что «ВКР
выполняется индивидуально каждым студентом под руководством назначенного ему
научного руководителя», и п. 51 Устава федерального государственного бюджетного
государственный университет» о том, что «студент подлежит отчислению из СанктПетербургского
квалификационной работы, выполненной другим лицом (лицами)».
_______________________________________________ (Подпись студента)
STATEMENT ABOUT THE INDEPENDENT CHARACTER OF
THE MASTER THESIS
I, Grigorii Romanovskii, (second) year master student, MIB program «Management», state
that my master thesis on the topic « Crowdfunding and entrepreneurship: threats and success
factors in reward-based crowdfunding (The case of USA and Russian companies) », which is
presented to the Master Office to be submitted to the Official Defense Committee for the public
defense, does not contain any elements of plagiarism.
All direct borrowings from printed and electronic sources, as well as from master theses,
PhD and doctorate theses which were defended earlier, have appropriate references.
I am aware that according to paragraph 9.7.1. of Guidelines for instruction in major
curriculum programs of higher and secondary professional education at St.Petersburg University
«A master thesis must be completed by each of the degree candidates individually under the
supervision of his or her advisor», and according to paragraph 51 of Charter of the Federal State
Institution of Higher Education Saint-Petersburg State University «a student can be expelled from
St.Petersburg University for submitting of the course or graduation qualification work developed
by other person (persons)».
________________________________________________ (Student’s signature)
Описание цели, задач
Григорий Владимирович Романовский
Краудфандинг и предпринимательство: угрозы и факторы
успеха в краудфандинге (примеры компаний из США и
Высшая школа менеджмента
Хуан Фрейшанет Солервисенс
использовать краудфандинг для своего бизнеса.
- Проанализировать существующую литературу о
- Определить релевантные теории, с помощью которых
можно будет оценить феномен краудфандинга в новом
- Определить сильные и слабые стороны краудфандинга
характеристики помогают в достижении целей в
кампаний в период подготовки и проведения кампании
краудфандинга, помимо привлечения капитала
успешно использующих краудфандинг
- Выявлены важные элементы краудфандинговых
кампаний в период подготовки и проведения кампании
- Предложена новая перспектива оценки краудфандинга
с точки зрения теорий о стартапах
Краудфандинг, Предпринимательство, Стартап, Маркетинг,
Master student’s name
Master thesis title
Crowdfunding and entrepreneurship: threats and success factors in
reward-based crowdfunding (The case of USA and Russian
Graduate School of Management
Main field of study
advisor’s Juan Solervicens Freixanet
Description of the goal, The main goal:
To identify how can entrepreneurs exploit the full potential of
tasks and main results
crowdfunding for their business.
- To review the existing theoretical knowledge on
crowdfunding, its origins, main types and participants;
- To create a theoretical framework for assessment of
crowdfunding through a prism of entrepreneurship, startup
and marketing theories;
- To identify benefits and drawbacks of crowdfunding;
- To identify characteristics of project creators on CFPs;
- To understand what goes into pre-planning and execution of
a crowdfunding campaign;
- To identify what are other applications of crowdfunding
- The description of entrepreneurial characteristics of
- Evaluation of the Pre-planning and Execution phases of
- Startup perspective of crowdfunding;
TABLE OF CONTENTS
INTRODUCTION ....................................................................................................................................... 6
1.1 Context and relevance of the study .................................................................................................. 6
1.2 Problem formulation ......................................................................................................................... 7
1.3 Problem justification ......................................................................................................................... 8
1.4 Goals and objectives .......................................................................................................................... 9
LITERATURE REVIEW .........................................................................................................................10
2.1 Capital raising for entrepreneurial ventures ................................................................................10
2.2 Crowdfunding concept ....................................................................................................................13
2.2.1 Definition and context of crowdfunding .................................................................................13
2.2.2 Types of crowdfunding ............................................................................................................14
2.3 Crowdfunding platforms ................................................................................................................16
THEORETICAL FRAMEWORK ..........................................................................................................18
2.1. Crowdfunding theories ..................................................................................................................18
3.1 Entrepreneurship theories ..............................................................................................................20
3.1.2 Classification of entrepreneurs ...............................................................................................20
3.1.3 Entrepreneurial characteristics ..............................................................................................21
3.1.4 Entrepreneurial skills ..............................................................................................................23
3.2 Startup theories ...............................................................................................................................24
3.2 Marketing theories ..........................................................................................................................27
3.1 Desk research ...................................................................................................................................29
3.2 Case study ........................................................................................................................................29
3.4 Data collection .................................................................................................................................30
3.5 Interview structure..........................................................................................................................31
EMPIRICAL RESEARCH ......................................................................................................................32
4.1 Valuation of crowdfunding.............................................................................................................32
4.2 Crowdfunder as entrepreneur .......................................................................................................37
4.3 Specifics of Kickstarter CFP ..........................................................................................................40
4.4 Specifics of crowdfunding campaign .............................................................................................44
4.4.1 Pre-Planning phase ..................................................................................................................45
4.4.2 Execution phase ........................................................................................................................49
LIST OF REFERENCES: ........................................................................................................................55
Appendix 1 – Top 10 most funded campaign on Kickstarter................................................................59
Appendix 2 – Interview guidelines ...........................................................................................................61
1.1 Context and relevance of the study
The events of 2008 global economic and financial crisis have significantly influenced the
way investors look at venture and high-risk projects. Willing to minimize risks, many banks
decided to distance themselves from venture projects, making many SMEs and start-ups short on
funding. Because of that more and more entrepreneurs started to shift their attention towards
alternative ways of obtaining finance for their projects (Golic, 2013). One of such methods became
to be known as crowdfunding: an internet-based technology that allows unlimited amount of
people to donate small portions of money in exchange for certain rewards – either material or
emotional. During the last decade, this approach has gained significant following from
entrepreneurs all over the world. Crowdfunding attracts creative people not only as a capital raising
tool, which allows individuals and SMEs to get financing in the context of limited options, but
also as a way to test and validate marketability of their ideas. Individuals, on the other hand, receive
a unique opportunity to have an impact on the producers by supporting and contributing to the
ideas they believe in. Amongst other benefits of crowdfunding is also its positive effect on the
global and local economies – job creation, innovation foster, etc.
The basic idea of crowdfunding is not that novel. There are lots of historical evidences of
people uniting to finance certain project or cause. The most common example would be a
construction of Statue of Liberty pedestal, when the needed sum of money has been received
through an open call in the newspapers, encouraging every US citizen to donate. The more recent
example would be Barack Obama’s election campaign in 2008 where his team managed to raise
almost $57 mil. via single donations of less than $200.
Figure 1. Basic concept of crowdfunding. Source: own creation.
However, it is only the development of communication technologies, such as Internet, that
allowed for this simple idea to grow into the phenomenon of crowdfunding. It needs to be
mentioned that term “crowdfunding” is a derivative from a broader term “crowdsourcing”, which
was introduced by American journalists Jeff Howe and Michael Robinson in their article “The
Rise of Crowdsourcing” 1 in June 2006. While the idea of crowdsourcing was about using digital
http://archive.wired.com/wired/archive/14.06/crowds.html - J.Howe, M.Robinson “The Rise of Crowdsourcing”,
Wired Magazine, June 2006
technologies to unite and share people’s talents and skills, crowdfunding stated the same principles
to be applied to the world of finance. At that time the idea didn’t clicked with the business world,
but after the described events of 2008 global financial crisis, when the banking sector’s willingness
to lend and invest into venture projects has significantly decreased, this new option started to gain
Therefore, the financing needs of innovative ideas, start-ups and already existing SMEs, as
well as the development of digital technology and financial innovations has brought to life an
alternative form of financing, one that uses internet platforms to moderate between project ideas
and crowds of backers willing to invest funds. Compared to traditional types of financing – like
banks, venture capitalists or business angels – crowdfunding offers entrepreneurs a much more
flexible and complex set of tools that can be adjusted to needs of both the entrepreneur and his
However, running a crowdfunding campaign is a project of its own. In order to successfully
reach stated goal, crowdfunders need to plan every step, carefully avoiding threats and getting
advantage of various opportunities. While in financial return crowdfunding actors mostly operate
with standard financial pragmatic motives, volunteer crowdfunding operates on some totally
different principles. In this thesis an attempt to understand how can entrepreneurs successfully
utilize crowdfunding for their business will take place. Reward-based model of crowdfunding will
1.2 Problem formulation
Crowdfunding is becoming one of the fastest growing trends on the Internet that is
transforming the socio-economic environment of today’s society. It allows creative and innovative
individuals to target a crowd on the Internet in order to develop products and create business startups by acquiring donations or investments from widely dispersed individuals on the Internet
(Belleflamme et al., 2010). Over the last 5 years, the global crowdfunding market has grown from
$1,5 billion dollars in 2011 up to $34,4 billion in 20152. Such growth rates can lead to thinking
that organizations and individuals around the world are slowly turning away from traditional
organizational structures and professional investors. This signifies that crowdfunding is tapping in
to become a major alternative to traditional business models, where individuals have, for the first
time, the power to shape their success solely by themselves (Beer & Badura, 2012).
http://www.crowdsourcing.org/editorial/global-crowdfunding-market-to-reach-344b-in-2015-predictsmassolutions-2015cf-industry-report/45376 - 2015CF Crowdfunding Industry Report
What is more, individuals are discovering crowdfunding as an easy solution for generating
funding for their creative endeavors. One of the most popular crowdfunding platforms (CFPs) for
creative projects – Kickstarter – has attracted almost $2,5 billion dollars in investments and helped
to successfully fund more than a 100,000 projects3. Kickstarter is one of the many reward-based
crowdfunding platforms that attracts both professional and inexperienced creators worldwide.
However, looking at the top ten most funded projects of Kickstverarter, all of those projects are
created by companies or individuals with professional experience, background in the creative
category of that certain project and previous experience in the industry (Appendix 1). The most
interesting case would be Pebble Industry company, which has managed to successfully
crowdfund 3 of its products by significantly surpassing its funding goal. This signifies, that
experienced creators have higher chances for receiving successful funding and even exceeding the
funding goal tremendously. Projects by inexperienced creators do not appear among the most
successful projects of Kickstarter to date. This situation is not unique to Kickstarter and can be
found on other CFPs.
The problem, therefore, is as follows: individuals with professional experience have
accumulated knowledge and understanding on how to position their creative project in order to
attract attention of target audiences and therefore receive the needed funding. Individuals without
professional experience or background lack this significant advantage. The steps they take in order
to crowdfund their projects are led entirely by their personal conceptions. As crowdfunding
phenomenon has not been extensively researched yet, there is an evident lack of professional
guidance for individuals of how to successfully utilize this instrument for their projects.
Running creative projects on reward-based crowdfunding platforms is a challenge for
inexperienced individuals and entrepreneurs. Therefore, an established framework, constructed
with qualitative research findings, observations and examples, is needed. To determine if and how
creative individuals can benefit from using a model of reward-based crowdfunding, qualitative
research on the most popular reward-based platform – Kickstarter – will be conducted.
1.3 Problem justification
Crowdfunding has not been studied and researched to a large extent as this phenomenon
emerged only recently. Economists and social science researchers have not yet created a stable and
reliable framework for understanding the implications of crowdfunding, and how it should be
perceived and applied for attaining successful results. Moreover, the concept of crowdfunding is
still evolving and continues to identify new forms and activities within its practice. Research that
https://www.kickstarter.com/help/stats - Kickstarter statistics
is currently available and has been conducted addresses mainly the economic intricacies of
crowdfunding. Recently, crowdfunding has been greatly used for funding projects by
organizations and individuals. This signifies a growing demand for both creative project utilization
and the potentials that crowdfunding can provide.
The original idea for this thesis came to me back in 2014. In that year, the massive media
attention was emphasizing a new era for creative people being shaped by the rise of online
crowdfunding. Individuals who have utilized their creative projects by entirely relying on a wide
audience of people were spotlighted. Consequently, it made me wonder how, especially in these
difficult economic times, individuals manage to achieve their goals by relying on geographically
dispersed and unacquainted individuals, and their support. Moreover, I began to think about
possibilities that crowdfunding could bring to creative individuals and whether it is an effective
alternative for raising funds for entrepreneurial projects.
Therefore, the main purpose of this study is to improve the overall understanding of
crowdfunding as a socio-economic phenomenon, explain how crowdfunding functions, what are
the drivers of success as well as its other possible applications for business. The analysis will be
based on qualitative research and investigation of a crowdfunding platforms and projects presented
1.4 Goals and objectives
Based on what has been stated above, the main goal for this thesis has been formulated as:
To identify how can entrepreneurs successfully utilize crowdfunding for their business
In correlation with the stated goal, the following research questions have been formulated:
1. What are the benefits and drawbacks of crowdfunding?
2. What individual characteristics are required for successful crowdfunding?
3. What are the specifics of pre-planning and execution of crowdfunding campaign?
4. What are other applications of crowdfunding beyond fundraising?
2.1 Capital raising for entrepreneurial ventures
During the last decades, entrepreneurship has begun to be recognized as one of the main
drivers of economic growth. It increases employment opportunities, enhances technical innovation
level, and promotes economic growth. From a dynamic perspective, entrepreneurs are agents of
change since entrepreneurship implies starting new businesses, experimenting with new
technology, organization of production, introduction of new products or even creating new
markets. Schumpeter (1934) saw entrepreneurial activity as a tool that encourages innovation and
technological development, that way stimulating economic growth. Kizner (1997) described
entrepreneurial process as an “action through which supply and demand are equilibrated “.
However, at the moment, scientific research of entrepreneurship is still a matter of high
academic interest. Analysis of Google Scholar database shows positive trend in topic discussion
for the last 30 years (Figure 2). It is not surprising, considering the fact that entrepreneurship brings
economic and social benefits and drives development of the economy. However, not until late
1980s the research focus of entrepreneurship has shifted away from simple analysis of
entrepreneurial behavior to understanding the reasons for going venture and start-up (Bolton &
(according to Google Scholar database)
No. of articles
Figure 2. Publications with the key word “entrepreneurship”. Source: Google Scholar database.
Entrepreneurship is considered to be one of the main drivers of innovation and change. It
serves as a channel, through which new knowledge transforms into real products and services.
This idea derives from the definition of entrepreneurship as a process by which “opportunities to
create future goods and services are discovered, evaluated, and exploited... New goods, services,
raw materials, and organizing methods can be introduced and sold at greater value than the cost
of their production” (Shane & Venkataraman, 2000).
As Shane & Venkataraman explain, entrepreneurship is not always about starting a new
business. It’s a complex process of existing resources being recombined in a new innovative way,
making entrepreneurship a creative process. The goal of this process can be entrepreneurs willing
to develop previously identified market opportunity (Shane, Locke & Collins, 2003). As a result,
the proposed idea can be formulated, manufactured, and provided to customers in a form of product
Nevertheless, according to many studies the most serious problem for small businesses has
always been accessible capital. Further, Denis (2004) claims that “one of the most important issues
facing entrepreneurial firms is their ability to access capital”. This problem of capital accessibility
lies in the basis of entrepreneurial finance research.
Yazdipour defines entrepreneurial finance as the finance offered to ventures during the
phase when they are between opportunity recognition and IPO. According to him corporate finance
is for large ventures that have the capability to get listed in the stock exchange. Sapienza,
Korsgaard & Forbes (2003) use the principles of agency theory to differentiate entrepreneurial
finance from corporate finance where the roles of principal and agent assigned to investors and
managers, respectively. Entrepreneurs play the role of both the agent and principal, as in most
cases they hold ownership rights in the venture. In a corporate venture, the managers take finance
decisions on behalf of the owners or board of directors However, in entrepreneurial finance, the
entrepreneur assumes agency risk of both agent and principal, therefore “positioning himself high
both in management skills as well risk and uncertainty of finance” (Sapienza, Korsgaard, Forbes,
Generally, chose of the financing method is correlated to a firm’s stage of life cycle. Small
enterprises are usually capitalized through selling of venture equity. However, this process tends
to be rather chaotic and unpredictable, due to the fact that neither entrepreneurs, nor investors
know how to assess the firm real value and potential. And as it was mentioned in the previous
paragraph, traditional financial theories do not have a specific answer to these questions.
Start-up life cycle is generally divided into different stages or financing rounds, which
somewhat correspond to the firm’s level of development (Figure 3).
Figure 3. Startup financing cycle. Source: Wechsler (2013).
The first stage is called the seeding stage – it’s a period of company’s life when creators
try to find a suitable place on a market to enter. At this point, various concepts and ideas are tested
and validated, and funding is provided by entrepreneurs own savings or friends and family funds.
When all the planning is done and firm starts its slow process of development the amount of capital
needed is increasingly grows. At this moment, firm’s future perspectives attract business angels,
wealthy individuals who are interested in investing into ideas which correlate with their values and
agenda. With the spent of time, firm’s expenditures continues to grow. This is when firm starts to
enter the early stage – it’s still not big enough to obtain funding via public capital markets, but
already getting the attention of certain venture capitalists. This process accelerates when the firm
hits the break-even point and achieves its market share, therefore becoming an object of high value
for VC agencies. The next step begins when company’s sales rapidly increasing but production
capacity lags. This means that the company is becoming more mature and enters the later stage.
Expansion continues, with more and more investors being attracted by that process. The lifecycle
concludes when the owners decide that the company is ready to go public and conduct an IPO.
However, the presented scheme is not the only possible depiction of start-ups lifecycle.
Ross, Westerfield & Jaffe (2013) formulated an alternative classification of financing stages:
Seed money stage – relatively short amount of financing needed. Goal: to validate ideas,
Start-up – funding provided to start production process and finish the R&D;
First-round financing – funding provided to start sales and expand production unit;
Second-round financing – financing need in order to start the product diversification process;
Third-round financing – further diversification and expansion of production;
Fourth-round financing – final capitalization of a company prior to its IPO;
Nevertheless, no matter what type of categorization to choose, one thing will remain
common. At the beginning the entrepreneurs have an idea, relatively small amount of funds, and
quite a limited access to external capital. This phenomenon is known as “funding gap” of startups, and it is considered to be one of the main barriers for entrepreneurship development. As it
was mentioned earlier, after the 2008 financial crisis this problem has become even clearer, with
VC and banks being even more skeptical about investing in high-risk projects. This situation forced
entrepreneurs to look for alternative solutions to obtain capital and influenced rapid development
of alternative finance market.
2.2 Crowdfunding concept
2.2.1 Definition and context of crowdfunding
Crowdfunding (or crowd funding, crowd-funding) is defined as “an open call, mostly through the
Internet, for the provision of financial resources either in the form of donation or in exchange for
some form of reward and/or voting rights in order to support initiatives for specific purposes”
(Lambert & Schwienbacher, 2010, p. 6). Crowdfunding is made possible through the advancement
of Internet technology and features, otherwise referred to as Web 2.0 (Belleflamme et al., 2010;
Kleemann et al., 2008), and also the advent of widely used social networks such as Facebook,
Twitter, Instagram or, in case of Russia, VK, etc. The main objective of crowdfunding is to collect
money needed for investment from a large audience of individuals, otherwise called ‘the crowd’
(Lambert and Schwienbacher, 2010). It differs from traditional business model for it allows
individuals to generating investment for creative and innovative ideas not from professional and
specialized investors, but by small donations from individuals within the crowd.
Due to the fact that crowdfunding is a relatively new concept, the amount of literature on
the topic is rather short. However, according to the Google Scholar database, number of
publications, with key word “crowdfunding” in them, is exponentially increasing each year, which
can be explained by a booming growth of a crowdfunding market itself.
(according to Google Scholar database)
No. of articles about crowdfunding
Figure 4. Publications containing the term “crowdfunding”. Source: Google Scholar statistics
2.2.2 Types of crowdfunding
There are four types of crowdfunding models that can be divided into two blocks
WITH FINANCIAL RETURN
WITHOUT FINANCIAL RETURN
Table 1. Types of crowdfunding. Source: own creation
Equity and lending-based crowdfunding focus on financial returns. Platforms that
specialize in these crowdfunding types enable project owners to ask for donations from the crowd,
for which they grant equity in exchange (Crowdsourcing.org, 2016). These projects are usually
focused on entrepreneurial motives and business start-ups as final result. Donation and rewardbased crowdfunding is based more on philanthropic motives. In donation-based model individuals
are purely donating and receiving nothing in exchange, whereas in reward-based model individuals
receive a non-monetary tangible reward (Crowdsourcing.org, 2016). Donation-based
crowdfunding has been mainly exploited for charitable causes. Reward-based crowdfunding is
mostly used for creative projects like film, music, design etc. and innovative technological
projects. These crowdfunding models signify different scope of activities and project types.
As already discussed in the introduction, this thesis is focused on reward-based
crowdfunding model. Belleflamme et al. (2010), who were among the first researchers to
investigate the economic model of crowdfunding, identified crowdfunding initiatives to be greatly
based on rewards. Today, reward-based crowdfunding accounts to the largest number of all
crowdfunding platforms (Crowdsourcing.org, 2016). In 2014 individuals worldwide collected
more than $7,2 billion on reward-based crowdfunding platforms (Crowdsourcing, 2014).
Reward-based crowdfunding is based on providing rewards in exchange to monetary
donations. Individuals from the crowd, who donate money for a project, receive tangible, nonmonetary rewards as a compensation for their money. For example, t-shirts, CDs, books and
stickers are among the most popular rewards. Pre-orders of the final product copy are also popular
among reward-based crowdfunding platforms.
Initial research suggests that reward-based crowdfunding is based more on ideas or
contents of projects (Beer & Badura, 2012), rather than monetary inputs as individuals do not
receive shares in projects. This model is, therefore, the core focus of qualitative research of this
thesis. The figure below presents the main components of reward-based crowdfunding:
Figure 5. Concept of reward-based crowdfunding on CFPs. Source: own creation
2.3 Crowdfunding platforms
As it has been mentioned in the introduction, the growth dynamics of crowdfunding market
is quite positive. According to Crowdsourcing.org (2016), which is the biggest online community
for crowdsourcing and crowdfunding news; as of April 2016 there are more than 2000
crowdfunding platforms worldwide. Platforms are active and are based on equity, lending, reward
or donation-based models of crowdfunding. Even though the mass usage of crowdfunding
initiatives began only recently, several platforms have been operating long before the term
‘crowdfunding’ has even been defined. Therefore, the following platforms that influenced the
development of crowdfunding are presented:
Kickstarter – founded in 2009 is a reward-based crowdfunding platform based in New-York,
USA. It operates on an “all-or-nothing” business model, where project creators do not receive
money unless the project reaches its funding goal on time (Kickstarter, 2012). Kickstarter
specializes in creative projects related to music, film, design, food, video games and other. The
platform charges five percent for successfully funded projects, along with additional charges
from Amazon Payments (Kickstarter, 2016). Kickstarter is regarded as the most popular
reward-based crowdfunding platform today (Crowdsourcing.org, 2016)
IndieGoGo – based in San Francisco, California, is a reward-based crowdfunding platform
launched in 2008 that enables funding for any type of campaign, be it film, charity or business
(IndieGoGo, 2016). It is based on two types of funding models: individuals can choose, if the
project is not successful, to either keep the generated funds and pay nine percent fee, or
withdraw from taking the money (money is transferred back to people who funded the project)
without any additional fees (IndieGoGo, 2016).
RocketHub – is a reward-based crowdfunding platform for creative projects launched in 2010.
It is based on an “all & more” funding business model that enables project owners to collect
the pledged money even if a project does not reach its complete funding goal on time; when
the project does reach its goal, project owners receive an additional bonus (RocketHub, 2016).
RocketHub charges a four percent fee along with additional three to five percent charged by
credit card companies for transactions (RocketHub, 2016).
Kiva – founded in 2005 and based in San Francisco, California, is a non-profit organization
with a mission to “connect people through lending to alleviate poverty.” (Kiwa, 2016) This
crowdfunding platform is based on philanthropic intentions (Agrawal et al., 2011) and is
categorized as a donation-based crowdfunding platform. According to Kiva website, the
platform has already collected more than $308 million in loans (Kiva, 2016).
Sellaband – is a crowdfunding platform launched in 2006 for undiscovered musicians, who
seek to get funded by fans. Based in Munich, Germany, it is a popular platform for musical
artists all over the world, with over $4,000,000 already invested to independent musicians
(Sellaband, 2016). According to Sellaband’s funding model, artists have 100% freedom of
rights to create the music they like and pertain all the copyrights. Individuals and fans that
invest into a music project on Sellaband, have the ability to withdraw their money anytime
before the project’s funding goal is reached (Sellaband, 2016). Sellaband is often referred to
as the granddaddy of crowdfunding” (Agrawal et al., 2011).
ArtistShare – launched in October 2003 in USA, is among the first crowdfunding platforms
for artists online. It is based on a “fan funding” model, where fans can fund musical artists and
their creations, and in exchange receive some form of access to the creative process
(ArtistShare, 2016). According to ArtistShare, the platform’s projects have received five
Grammy awards and 15 Grammy nominations (ArtistShare, 2016).
Sponsume – launched in 2010 is a reward-based crowdfunding platform for creative
individuals and organizations based in London, UK and operating worldwide. It operates on a
similar funding model to RocketHub, where project creators are allowed to keep the
accumulated pledges even if the target goal is not reached on time. The platform charges a four
percent fee for successful projects and a nine percent fee to projects that do not reach the
funding on time (Sponsume, 2016). Sponsume offers funding in four different currencies (US
dollars, Euros, UK pounds and Australian dollars) (Sponsume, 2016). This differentiates it
from other international platforms that are operating activities only in US dollars.
All of these platforms operate internationally and attract individuals from all over the world.
This fact substantiates the entire concept of crowdfunding practice – boarders do not limit
crowdfunding activities. In fact, Agrawal et al. (2011) acknowledge that distance-related frictions
are overcome by crowdfunding platforms, and highlight three properties that crowdfunding
platforms have in common:
They provide a standardized format for entrepreneurs to present their project in a
comprehensive manner to anyone with internet access
They allow for small financial transactions (e.g., USD$10) to enable broad participation with
limited downside risk
They provide investment information (i.e., cumulative amount raised to date and the online
identity of current investors) as well as tools for investors to communicate with each other;
In the previous chapter, a detailed overview of crowdfunding phenomena and current state
of the crowdfunding market has been given. Analysis of existing literature has highlighted the
growing popularity of this new instrument. However, in order to have a deeper understanding of
the dynamics of crowdfunding, the concept should be analyzed through prism of related theoretical
2.1. Crowdfunding theories
Amongst the existing academic literature on crowdfunding, three papers have been
identified as highly important for this particular thesis. The first one by Belleflamme et al. (2014)
concentrates on various types of benefits of crowdfunding for entrepreneurs: financial and nonfinancial, with mention of non-financial benefits being more important than financial ones. In
addition, Belleflamme et al. (2014) states that social side of crowdfunding – community building
– is the crucial part of crowdfunding process. Just as with the entrepreneurs, crowdfunding
investors are also driven by factors that go beyond acquiring materialistic benefits. Backers are
interested in becoming a running partners alongside the project creators, being an active co-creator
and privileged user. These non-financial benefits concept seems especially important, as it is the
one that distinctively separates crowdfunding from traditional sources of financing as banks or
venture capitalists. Furthermore, Belleflamme et al. highlights a much more complex nature of
crowdfunding as a business tool: due to its nature it can be utilized both as a marketing and testing
tool. Entrepreneurs can apply crowdfunding for product validation, promotion, marketing, cocreation and as a customer engagement channel. Therefore, Belleflamme et al. state the importance
of further analysis of crowdfunding as learning tool through which different types of useful
information can be utilized in business.
This idea is further supported in the second paper by Mollick (2014) who identifies that
backers are in fact expect to receive some unique material benefits in exchange for their patronage,
but also driven by motivations of co-creation and active participation. Furthermore, Mollick (2014)
highlights other sides of crowdfunding besides its prime goal of providing financing. By analyzing
statistical data of successfully funded crowdfunding campaigns, Mollick (2014) concludes that
crowdfunding serves as a transition channel, which helps creative individuals transform into
entrepreneurs. In conclusion, Mollick (2014) provides some valuable insights into factors that
affect the outcome of the crowdfunding campaign. The listed factors include:
Ability to signal preparedness – to create a basis for potential investors by assuring the
quality of the product. This can be achieved by utilization of existing social networks and
connections to one’s loyal community.
Formulation of justified strategy – to successfully deliver promised goods in the given time
period. This can be achieved using careful time and resource management in coordination with
setting of realistic goals.
Development of campaign execution plan – to successfully reach the stated funding goal.
This can be achieved by in-depth through planning of campaign execution process and all of
Mollick points out the need for research on these topics in order to understand how exactly
do entrepreneurs can signal quality, trustworthiness and ability to fulfill in the context of
Table 2. Overview of theoretical concepts on crowdfunding. Source: various authors.
The last paper by Kuppuswamy and Bayus (2014) mostly concentrates on the different aspect
of crowdfunding – attraction of supporters in the process of crowdfunding campaign. By analyzing
the historical data from Kickstarer, the authors conclude that many backers tend to make a decision
to support the project using the so-called social information. In other words, the backers’
willingness to support the project increases in correlation with the current percentage of funding
that campaign has already attracted i.e. the more money has been pledged the more attractive the
project becomes for new participants. Kuppuswamy and Bayus also state that this financial
information is more influential than the total number of investors. Another important evidence
from Kuppuswamy and Bayus work is that campaign success is directly tied with the way
campaign process goes: how much of the communication goes between creators and backers either
in a form of direct communication or by posting updates. The time period of the update publication
is also positively related to the success rate. Usually funding peaks are located within first and last
three days. During these periods the project creators are tend to be more persuasive with promotion
3.1 Entrepreneurship theories
3.1.2 Classification of entrepreneurs
Classification of entrepreneurs into different types provides a starting point for gaining an
insight into how different types of entrepreneurial ventures work and what are the underlying
factors of their success. There exist a large variety of approaches to classification of entrepreneurs,
which can be divided into two main types: either by personality or by venture (Wickham, 2006).
However, as the goal of this chapter is to provide basis for analysis of a crowdfunder as a person,
only personal-based classification will be studied.
Considering the nature of crowdfunding and its possible role in the system of
entrepreneurial finance, the following classification matrix (Figure 2) by R. Landau has been
Landau (1982) has identified the key criteria as level of innovativeness and readiness for risk
bearing. Both of these criteria also play a significant role in entrepreneur’s decision to choose the
crowdfunding way. The four types of entrepreneur identified by Landau include:
Gambler – an entrepreneur characterized by a low degree of innovation and a high level of
risk bearing. The gamble here arises from the fact that entrepreneur risks by attempting to
operate in the market without the needed level of innovativeness, therefore having limited
chances to deliver value in the context of competition from existing players.
Consolidator – an entrepreneur who understands his limited level of innovation and is not
willing to take risks. The expected results here include only marginal improvements over
current value provided by competitors.
Table 3.Landau’s classification of entrepreneurs.
A who understands the risks associated with new venture
Entrepreneur – a “true” entrepreneur
creation and is ready to accept andTmitigate those using
a skills and resources.
t high level of innovativeness with low
Dreamer – an entrepreneur who attempts to combine
risk. Ideally, all entrepreneurs would like to operate in this category. However, the amount of
risk associated with innovation and new product development
makes it almost unachievable.
Nevertheless, one of the propositions of this thesis isnto show that crowdfunding can be one of
the instruments that allow entrepreneurs to become eone step closer to this category.
3.1.3 Entrepreneurial characteristics
Even though there is no way to identify all possible characteristics of entrepreneur, there
exist certain degree of consistency in the way entrepreneurs approach tasks. The following list
includes some of the most common attributes of a successful entrepreneur (Wickham, 2006):
Hard-working – an entrepreneur understands that development of a venture takes a lot of
physical and mental effort.
Self-starting – entrepreneur needs no directions to when, how and why he needs to operate.
He identifies the tasks for himself and follows them through without any endorsement from
Setting of personal goals – entrepreneurs tend to set themselves clear and demanding goals.
They benchmark their achievements against these personal goals. As a result, entrepreneurs
tend to follow internal standards, rather than looking to others for assessment of their
Resilience – entrepreneur understands that failure is a common part of an entrepreneurial
process. He must not only know how to continue operating after things go wrong, but also how
to gain advantage from this experience by learning and using this knowledge for further
Confidence – entrepreneurs must demonstrate that they believe in themselves and especially
in the venture they are creating. In the end, if they do not believe in it, why should potential
customers? However, there always exist a problem of overconfidence, where entrepreneurs do
not will to see their own flaws.
Receptiveness to new ideas – in order to solve the problem of overconfidence, entrepreneurs
need to be able to recognize their own limitations and possibilities of how they can overcome
those. They must be willing to revise their ideas in the light of new experience.
Assertiveness – entrepreneurs need to have a clear understanding of what they want to gain
and express their intentions. Being assertive does not mean being aggressive or stubborn. It
means to have a commitment to outcome, but not the means. True assertiveness relies on
mutual understanding and is founded on good communication skills.
Information seeking – an entrepreneur is usually characterized by inquisitiveness and is
always looking for new relevant information. Successful entrepreneurs tend to ask questions
rather than making statements.
Eager to learn – successful entrepreneurs are always aware that they could potentially operate
better. They are always aware of both the skills they have and their limitations, and are always
receptive to a chance to improve their skills and to develop new ones.
Attuned to opportunity – successful entrepreneurs are constantly looking for new
opportunities. They are never completely satisfied with the way things are now and use this
sense of dissatisfaction to make sure they never become complacent.
Receptive to change – entrepreneurs are always eager to accept change in a positive fashion,
actively embracing the possibilities presented by change, rather than resisting them.
Commitment to others – successful entrepreneurs are not self-centered. They recognize the
value that other people bring to their ventures and the importance of motivating those people
to make active contributions. In order to do this, entrepreneurs need to show commitment to
them, which involves large investments in understanding how this support can be turned into
a real value.
3.1.4 Entrepreneurial skills
A skill can be simply defined as a knowledge which is demonstrated by action (Wickham,
2006). In entrepreneurship, the precise set of needed skills depends on a whole variety of factors
like: selected industry, market in which company operates, etc. Generally, all those skills can be
divided into four main categories (Wickham, 2006):
General management skills
o Strategy skills – an ability to consider the business as a whole, to understand how it fits
within its marketplace, how it can organize itself to deliver value to its customers, and
the ways in which it does this better than its competitors.
o Planning skills – an ability to consider what the future might offer, how it will impact
on the business and what needs to be done to prepare for it now;
o Marketing skills – an ability to see the past the firm’s offerings and their features, to be
able to see how they satisfy the customer’s needs and why the customer finds them
o Financial skills – an ability to manage money, to be able not only to keep track of
expenditures and to monitor cash flows, but also to assess investments in terms of their
potential and their risks;
o Project management skills – an ability to organize projects, to set specific objectives,
to set schedules and to ensure that the necessary resources are in the right place at the
o Time management skills – an ability to use time productively, to be able to prioritize
important jobs and to get things done to schedule;
Human relationship skills
o Leadership skills – an ability to inspire people to work in a specific way and to
undertake the tasks that are necessary for the success of the venture. Leadership is about
more than merely directing people, it is also about supporting them and helping them
to achieve the goals they have set;
o Motivation skills – an ability to enthuse people and get them to give their full
commitment to the task. Being able to motivate demands an understanding of what
drives people and what they expect from their jobs. It should not be forgotten that, for
the entrepreneur, an ability to motivate oneself is as important as an ability to motivate
o Delegation skills – an ability to allocate tasks to different people. Effective delegation
involves more that instructing. It demands a full understanding of the skills that people
possess, how they use them and how they might be developed to fulfil future needs;
o Communication skills – an ability to use spoken and written language to express ideas
and inform others. Good communication is about more than just passing information.
It is about using language to influence people’s actions;
o Negotiation skills – an ability to understand what is wanted from a situation, what is
motivating others in that situation and recognize the possibilities of maximizing the
outcomes for all parties. Being a good negotiator is more about being able to identify
win-win scenarios and communicate them, than it is about being able to bargain;
Industry knowledge – in order to be successful entrepreneur needs not only to identify
opportunity in the market, but also understand its perspective in the given context. This can be
achieved by spotting a gap and figuring out how can this gap can be filled, what features will
be needed and why they will appeal to potential customers.
Personal motivation – entrepreneurship is not an easy way. It involves a lot of hidden pits
and other potential risks. An individual who’s willing to try his best in creating a new venture
should be prepared for all the future obstacles and downfalls. In order to successfully overcome
those, entrepreneur needs to have a strong vision and understanding of why he’s doing what
he’s doing. This confidence should also be translated to potential customers.
Eventually, businesses are made and run by people and can become successful only if the
people who make it up are properly directed and are committed to make an effort on its behalf. An
entrepreneurial venture also needs the support of people from outside the organization such as
customers, suppliers and investors. To be effective, an entrepreneur needs to demonstrate a wide
variety of skills in the way of general management, dealing with other people, in-depth knowledge
of the industry he operates in as well as some degree of personal desire for success. All these
different skills are interrelated and are not of given nature. They must be learnt and practiced both
from entrepreneurs’ personal experience or by exchanging knowledge with others. Entrepreneurs
should constantly audit their abilities, recognize their strengths and shortcomings and plan how to
develop those skills in the future.
3.2 Startup theories
This segment is devoted to description and discussion on related startup theories. The main
reason for choosing the startup perspective is because the crowdfunding process is incorporating
a set of elements – opportunity recognition, designing, pitching, development of a prototype,
organizing a media coverage, etc. – that are very similar to the actions which startup entrepreneurs
undertake in the process of product development and new venture creation.
For a long period of time, researches classified startups just as a smaller version of regular
enterprises. However, in 2011, one of the most famous books on startups in recent years – “The
Lean Startup” by Eric Ries – has significantly changed the way startups are recognized. In it, the
author states that startups operate on completely different principles and therefore require a
different set of skills and approaches. Ries identifies startups as “organizations dedicated to create
something new under conditions of extreme uncertainty”. This uncertainty turns out to be a result
of startup entrepreneurs having very limited understanding of who are their future customers, how
the final product should look like and therefore how to exactly manage the emerging venture. All
of this leads to the fact that majority of startups go shutdown within first couple of years of their
lifespan. In this context, Ries identifies the key success drivers for startup survival in discovering
and engaging of early adopters of company’s products instead of targeting average customer
groups. Ries describes early adopters as individuals who “feel the need for the product most
acutely”. This need later translates into higher indulgency towards entrepreneur’s mistakes and
increased eagerness for provision of feedback. In case of crowdfunding, successful outcome of the
campaign is directly tied in with the attraction of these early adopters (backers) and their further
engagement in creation process. Ries states that the end goal of establishing early contacts with
early adopters is not about gaining definitive answers, but rather clarifying and validating
entrepreneurial understanding of the potential customer base and the problems they demand to be
solved. Based on that, entrepreneurs can “craft a customer archetype” which will become the basis
for further strategic planning. However, it needs to be mentioned that this idea has already been
introduced earlier by Steven Blank in his groundbreaking book “Four Steps to Epiphany” (2006).
In it, Blank criticizes the suitability of product development approach for startups and proposes
the new customer development approach. As it has been stated earlier, the main problem for
startups lies not in the field of new product development, but rather in lack of existing customer
base and tested revenue model.
Considering all of this, Ries proposes a concept of Build-Measure-Learn, where he states
that for startups the vital part and way for building a sustainable successful business is to organize
constantly accelerating process of receiving feedback. “The fundamental activity of a startup”
according to Ries “is to turn ideas into products, measure how customers respond, and then learn
whether to pivot or preserve”. The importance of rapid feedback is also highlighted by Mullins
and Komisar (2009).
Figure 7. “Build-Measure-Learn” loop. Source: Eric Ries “The Lean Startup” (2011)
In case of crowdfunding, the expected findings of this thesis will highlight that this
disruptive instrument allows for outperforming utilization of Ries’s concept by simultaneously
proposing the product concept, receiving real-time feedback and further pivoting. This also leads
to the hypothesis that the accelerated learning loop is as valuable for crowdfunders as getting
Another important element of Ries theory is so called minimum viable product (MVP) – a
rough prototype of the final product, which incorporates the key features that need to be tested in
front of potential customers. The goal of an MVP is to validate ideas and enable fast learning by
assessing initial reactions of users, and even though MVP can “lack many features that may prove
essential later on” it allows for justified pivoting in the process of production. The concept of
MVP perfectly fits into crowdfunding idea – on CFPs entrepreneurs are provided with the unique
testing ground, where they can find out for themselves whether or not their idea is attractive and
has a potential for future growth.
The concept of MVP also highlights the differences between traditional strategy of bringing
an idea to market, and the one of crowdfunding, where potential customers are directly involved
in the process of product development. In this context, the ideas of Roberto Verganti (2009) seem
to resonate well with the crowdfunding way. Verganti states that instead of bringing on the finished
products, companies need to shift to introducing of proposals – a perspective concepts of
entrepreneur’s vision. In that way, CFPs serve as a showroom of these proposals, where early
adopters (backers) decide which proposals (projects) deserve to be realized (funded) and which
need to be reimagined. Due to the relatively low costs associated with running of a crowdfunding
campaign, entrepreneurs can experiment with such proposals, in order to mitigate uncertainty by
locating customer retention point that Verganti calls borderline. According to him, knowledge
about borderline is extremely beneficial for entrepreneurs, which also corresponds with Eric Ries
ideas of validated learning. Ries states that “validated learning is the process of demonstrating
empirically that a team has discovered valuable truths about a startup’s present and future
business prospects”. This type of knowledge can be considered as an essential competitive
advantage of the firm.
The last important theoretical element that needs to be taken in consideration would be
Ries understanding of why do startups tend to fail. He argues that majority of the problems lies
within the field of management, which translating onto the crowdfunding concept highlights the
following possible weak points:
3.2 Marketing theories
As it has been stated earlier, the result of crowdfunding campaign on CFPs is directly
related to the amount of investors (backers), that project creator has managed to attract. Majority
of guides on crowdfunding state the importance of communication as the cornerstone of any
crowdfunding campaign. In addition, even though the crowdfunding’s main goal is fundraising, it
mechanisms mostly incorporate marketing elements – pitching, promoting, communicating, etc.
In this segment, an attempt to assess crowdfunding campaign as a marketing process will take
Osterwalder and Pigneur (2010) approach the process of customer attraction as a result of
company’s value propositions to them. Value propositions can be identified as a set of potential
benefits offered by the company with the goal to satisfy customer’s needs. Considering the basic
principle of crowdfunding – pitching ideas to get funding – formulation of attractive value
proposition is vital for campaign success.
However, just stating the potential benefits is not enough. In order to grasp the attention of
potential customers, the message should be delivered in convincing way. As a results of the
convincing pitch, potential customers should have a clear picture of product’s benefits and value
offerings in order to make a justified decision to support the project. However, it’s also important
not to mislead customer’s perception of the product, by inadequately formulating product
functional benefits (USP) and non-functional benefits (ESP). In order to additionally support the
message, amongst other things, Pelsmacker et al. (2010) highlights the importance of throughout
media coverage of the advertising campaign, the point which can be directly translated onto
In the context of this thesis, one of the research goals is to understand why crowdfunders
communicate with backers, what is going to be communicated and how it’s going to be
Summary of the chapter
In accordance with the stated research questions, the selected theories have been divided
into three parts – Entrepreneurship theories, Startup theories and Marketing theories.
Crowdfunder as entrepreneur
Crowdfunding as a business
Crowdfunding process as a
USP and ESP
Table 4. Overview of theoretical framework. Source: Own creation
This chapter discusses in detail the qualitative research methods used for this thesis in order
to answer the main research questions. Explanations and introductions are given for specific
subjects that each research method is focused on. Moreover, the choice for all research methods is
The research methods conducted for this thesis are entirely based on in-depth qualitative
research. The research methods consist of three methods:
Exploratory case study
Qualitative semi-structured interviews
The body of research findings examines and explains the main motivations, the
characteristics of main actors, the success factors, and drawbacks for using crowdfunding for one’s
business. Furthermore, gathered findings contribute and build on a better understanding of socioeconomic aspects and setting of crowdfunding in general, with a focus on utilization for business
3.1 Desk research
Desk research was carried out to examine the literature and web resources available and
related to the phenomenon of crowdfunding. The main subject of crowdfunding is considerably
new, that is why literature is limited almost entirely to online sources. Examination and
observation of journal articles, research and working papers, as well as web pages dedicated to
crowdsourcing and crowdfunding practice make up the biggest part of secondary data analysis.
3.2 Case study
A case study of several successfully funded crowdfunding projects on Kickstarter was
conducted as one of the research methods for this thesis. The cases were selected to be accurately
representative for the research topic, as we are examining the potential of crowdfunding for
utilization by entrepreneurs. The creators of selected cases reflect the target research group.
A case study method was chosen as one of the qualitative research methods because of its
exploratory nature in investigating a real-life phenomenon (Yin, 2009). As already mentioned
earlier, crowdfunding is a new socio-economic phenomenon that has emerged only recently. Even
though it has been generating a great deal of attention from the media, the long-term sustainability
of its practice has not yet been proven.
A case study method was used instead of a survey, for it permits a more detailed
examination on this subject, which findings contribute to the relatively little research about
crowdfunding in general. The case study approach has a strong advantage over a survey, as it
uncovers complexities for the subject of focus (Denscombe, 2007).
Furthermore, this study focuses on reward-based crowdfunding model, which is associated
with philanthropic motivations and personal aims. Therefore, in order to understand and denote
the social setting of this model of crowdfunding the focus on qualitative in-depth research has been
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Table 5. Overview of the cases. Source: own creation
3.4 Data collection
The case study of selected companies involves four data collection methods:
In-depth semi-structured interview with CEOs or co-founders;
Analysis of secondary data like presentations, documents and notes, news clippings and other
articles in the mass media, newspapers, websites, blogs and social media websites;
Direct observations of crowdfunding campaigns and its dynamics in general;
The selected sources of data allow for more valid research as they fit into the concept of
triangulation, which allows for cross-checking and elimination of invalidity issues (Saunders,
3.5 Interview structure
Semi-structured in-depth one-to-one interviews were conducted as one of the qualitative
research methods for this thesis. Interviews were chosen in order to gain insight information
highlighting entrepreneurial characteristics, motivations, success factors, social relationships and
drawbacks of crowdfunding. Interviewees provide this information based on their experience with
As discussed earlier, crowdfunding is complex in nature and it presents an unexplored area
for research. Interviews were chosen, as part of the qualitative data collection of research, for their
attribute of providing explorative data on subtle phenomena (Denscombe, 2007). The aim of this
dissertation is to investigate crowdfunding practice from various perspectives in order to answer
the main research question. Interviewees provide insight information and serve as informants to a
complex subject such as crowdfunding is (Yin, 2007). In order to gain insights concerning feelings,
emotions, opinions and experiences of individuals (Denscombe, 2007), interviews were chosen to
provide more in-depth data for research findings. The information collected is not simple, but
rather complex. Therefore, a questionnaire method would not have been sufficient to investigate
crowdfunding phenomenon in-depth with a focus on social aspects.
Semi-structured one-to-one interviews were conducted in order to let interviewees develop
and broaden their ideas while keeping a clear focus on the subject. A list of open questions
regarding the main sub-questions of this research topic was used, allowing space for the ‘snowball
effect’ of ideas, opinions and thoughts to be discussed, and thus provide insight information on the
phenomenon of crowdfunding. The majority of interviews were conducted one-to-one using live
Internet-video software Skype, due to interviewees residing in different countries or cities. Oneto-one approach was used for it allows to identify and elaborate on specific ideas of interest, mainly
the sub questions addressing personal characteristics, motivations, relationship between
individuals, success factors and drawbacks for using crowdfunding.
A total of six individuals were interviewed for this study. Interviews took place in the
period from February 2016 to April 2016. All interviewees had been project owners of their
creative projects on crowdfunding platforms. Interviewees were chosen for their experience in
running a project campaign on CFP and the privileged information they possess.
This chapter concentrates on the analysis of results obtained from the qualitative research
using methods of desk research, case study and semi-structured interviews. In order to be able to
answer the main questions of this study, the research methods focused on obtaining results from
conducted interviews to answer the following research questions:
1. What are the benefits and drawbacks of crowdfunding?
2. What individual characteristics are required for successful crowdfunding?
3. What are the specifics of pre-planning and execution of crowdfunding campaign?
4. What are other applications of crowdfunding beyond fundraising?
The obtained research findings and observations conducted via desk research, multiple case
study and qualitative interviews with six entrepreneurs contribute to the main answer of the
research question, which is defined in the conclusion chapter. Moreover, the findings from the
entire qualitative research, as well as the examination of the theoretical framework, serve as a
foundation for final recommendations for individuals willing to utilize reward-based
crowdfunding model in order to successfully achieve desired goals.
4.1 Valuation of crowdfunding
In order to find out what are the benefits and drawbacks of the crowdfunding phenomena
we will take a look at opinions of various expert in the field. The analysis will be carried out using
secondary sources of data. The final conclusions will be presented using SWOT analytical matrix.
We will begin by taking a look at what are the noticeable strengths of crowdfunding. The
first major benefit includes maintaining full control of company’s assets. In the case of venture
capital and business angels, investors gain significant control over company’s decisions.
Crowdfunding is different – entrepreneurs do not need to give away such rights. So, when a
company’s capital is raised through crowdfunding, entrepreneurs do not lose the right to make
company’s decisions themselves.
Secondly, raising capital through crowdfunding platforms is exceptionally accessible.
According to Bechter et al. (2011), crowdfunding platforms “address the problem that the majority
of entrepreneurs fail to raise venture capital for two reasons. Firstly, most entrepreneurs do not
qualify for venture capital since they can’t grow fast enough, nor do they have the potential for a
large public offering. Secondly, there are too few venture capitalists versus the masses of
entrepreneurs who need money.” Sigar (2012) expresses the same ideas – small businesses have
very limited financing options. According to her, bank loans are often denied due to a lack of
collateral, operating history and a proven track record. Also, private financing from venture capital
firms and angel investors only fund a small number of businesses. Sigar (2012) perceives
crowdfunding as an opportunity to fill this capital gap by connecting small businesses, which are
marginalized from the traditional sources of funding, to the general public.
What is more, entrepreneurs seeking to raise capital through crowdfunding platforms are
awarded with a chance to test marketability. The whole mechanism of crowdfunding is based on
attracting a big number of individuals, who find an idea interesting, worth their investment, time
and attention. When a funding portal announces a new idea or business model, a deadline for
reaching a fundraising goal is usually set - some make and even exceed the goal, some don’t.
Ramsey (2012) emphasizes that “they can gauge the potential for a successful start-up of the
business based on the public’s response to the request for support”. In other words, if so many
individuals believe in an idea or a business model and it is crowdfunded, this probably expresses
the “wisdom of the crowd” – the idea or business model is likely to succeed.
Lastly, crowdfunding provides benefits for communities through both local and global
means. Kitchens and Torrence (2012) state that crowdfunding is going to be a tool for people to
invest in their own communities and this will help to create sustainable economic health. Ramsey
(2012) supports the idea by stating that crowdfunding creates “opportunities to talented people
with limited resources and to investors who want to keep that talent in the community”. According
to Blechter et al. (2011), nowadays modern technologies allow to overcome geographical barriers
and access money globally. Findings of the research (Blechter et al., 2011), reveal, that most
entrepreneurs focus on a project within their geographical community but try to raise funds
Some weaknesses of crowdfunding (named by Gobble (2012), Sullivan & Ma (2012),
Galwin (2012), Sigar (2012), Shirky (2012) and others) are of internal origin; they are the
characteristics that place crowdfunding at a disadvantage relative to other means of financing, and
can be perceived as weaknesses.
To start with, entrepreneurs seeking to crowdfund their businesses should consider the
administrative and accounting challenges they are going to face. Even though currently
crowdfunding is based on donors receiving rewards, the job of recording contributions and sending
rewards is time consuming. When a large number of investors become shareholders, business will
face even bigger administrative and accounting challenges – “this would require meticulous and
laborious bookkeeping of all investments and shares in the business to determine the share of
profits to which each investor is entitled to” (Sigar, 2012). Kitchens & Torrence (2012) emphasize,
that a large base of unsophisticated investors is a challenge not only to administrate, but also to
What is more, Sullivan and Ma (2012), Bechter et al. (2011) and Galwin (2012) state that
entrepreneurs seeking to crowdfund their businesses face the risk of their idea being stolen by
better funded investors or large corporations. Entrepreneurs might lack knowledge to protect their
ideas and business plans, and, moreover, in case an idea or business plan is stolen, most
entrepreneurs would lack resources to fight for it in court. Such risk in this paper is considered a
weakness, because it is a feature of the mechanism of crowdfunding – presenting ideas and
business models in public is a must.
Also, the concern for fraud is expressed by Sullivan & Ma (2012), Galwin (2012) & Sigar
(2012). In order to foster the devepment of crowdfunding, various legislative acts are being
introduced which loosens regulatory requirements for small businesses in various ways and it can
become a precondition for fraud via crowdfunding (Gobble, 2012). As a result of reduced
requirements for public disclosures, some businesses can try to conceal their true financial status.
Also, some businesses might even be created as fraud – companies can be started in order to take
funding, pay it all as salary and then shut down. Sigar (2012) expresses opinion that whilst
implementing rules, legislators should carefully consider the ways to protect investors, especially
vulnerable ones, who lack “financial sophistication”. Weaker investor protection and potential for
fraud in this article is considered as a weakness, because, the ongoing legislative changes are solely
subject to crowdfunding, they are not applicable to other means of raising capital.
Also, crowdfunding is an internet based approach. Sigar (2012) draws attention to the fact,
that “the internet, which replaces real life encounters with virtual meetings, could make it more
difficult for investors to determine whether an issuers business in legitimate”. Also there arises a
problem of choosing a trustworthy crowdfunding platform. It is an issue for both, investors and
entrepreneurs. Though huge amounts of information can nowadays be found on the internet, it is
difficult for unsophisticated investors to decide on which intermediary and which business can be
trusted and worthy. There are no brokers to give an advice.
Some opportunities of crowdfunding can also be found listed (Blechter et al., 2011;
Sigar,2012; Kitchens & Torrence, 2012 and others) amongst the advantages of crowdfunding.
Despite that, an insight is needed here – as crowdfunding is a novelty and emerging very fast,
exploring the elements it could exploit to its advantage could enhance the importance of
crowdfunding and fasten its development.
First of all, a good look at the crowd, i.e. the contemporary society, needs to be taken. In
the knowledge economy, the formation of an information society should be noticed and taken into
account. As technology has become more advanced over time, the usage of internet emerged and
this triggered the popularity of various social networks and projects based on crowdsourcing to
increase. Social networks and crowdsourcing can be employed for the benefit of crowdfunding.
Crowdfunding can employ social networks for promotion. Blechter et al. (2011) state, that social
networks can serve as a medium in promoting a project to friends and, respectively, their friends.
Blechter et al. (2011) present data, suggesting that “investment accelerates as the entrepreneur
gets closer to the required sum whereby outsiders contribute most funds as opposed to the initial
phase where friends contribute the most”. So, after family members and friends contribute in the
initial phase, they can recommend the business for their friends through social networks and serve
as a trustworthy source. Having such recommendations and seeing that a big part of the amount is
already raised, outsiders are more likely to contribute. Also, the possibility to couple crowdfunding
with crowdsourcing looks promising. According to Sigar (2012), crowdfunding can serve as a tool
for innovators to improve their business models and products or services before they are even
offered to public. Blechter et al. (2011) say that an idea being posted online would be evaluated
and after consensus has been reached crowdfunded. Blechter et al. (2011) state, that such coupling
may not be suitable for commercial projects due to the issue of ownership.
The positive effects crowdfunding is expected to have on economy can also be perceived
as an opportunity. Crowdfunding is said to be capable to create of new jobs (Sigar, 2012), to
catalyze long-term economic recovery (Gobble, 2012), foster economic development (Kitchens &
Torrence, 2012) and innovations (Shirky, 2012; Kitchens & Torrence, 2012). The JOBS Act is
designed to increase job creation and economic growth by improving access to public capital
markets for emerging growth companies (Kitchens & Torrence, 2012). Similar effect is probably
expected in the Russia. Sacks (2012) says, that even if there are entrepreneurs with ideas, there
will be no businesses and no jobs unless there is capital. The benefits on innovation ecosystem are
also significant. According to Shirky (2012) “This isn’t the side effect, this is really the main effect
of improving the startup economy: getting more people to try more ideas, which inherently means
more failure. But it also means more experience, it means more surprises, it means lower cost”.
Kitchens & Torrence (2012) express very similar ideas stating that economic growth is driven by
innovation, innovation is driven by experimentation and experimentation is driven by
crowdfunding. Also, according to Sigar (2012) small businesses provide consumers with more
product and service options. With so many positive effects expected to occur, implementing
crowdfunding must be considered of high importance, what means that legislators are supposed to
listen to both supporters and opponents and make decisions fairly fast. Also, the positive effects
of crowdfunding might be used as leverage in the discussion between supporters, opponents and
Also, crowdfunding is designed as a niche investment opportunity / way to raise capital. It
is not expected to compete with other ways of raising capital or to invest. On one hand, Shirky
(2012) grounds the idea, that crowdfunding is a niche method to raise capital and states that there
will probably be no overlap, even in the early days, between the VC traditional targets and
crowdfunding. He believes that „crowdfunding will reveal itself to be a source of all kinds of
startups that just weren’t part of the current ecosystem“. On the other hand, Farrell (2012)
introduces an infographic on the history of crowdfunding. The infographic grounds the importance
of small businesses on economy and overviews the investing public. According to the infographic,
crowdfunding should reveal itself as a new investment opportunity, available to those, who don’t
have enough money to invest in stock. The idea, that crowdfunding is more likely to compete with
(attributes of the crowdfunding)
(attributes of the crowdfunding)
gambling than other investment opportunities can be retrieved.
Entrepreneurs keep the right to make
company’s decisions themselves.
Accessibility of capital
A chance to test marketability
Benefits community building
The existence of information society
(social networks for promotion,
possibility to couple with
Positive effects crowdfunding is
expected to have on the economy
A niche investment opportunity / way to
Administrative and accounting
Only internet-based, lack of advise
Ideas and business models presented on
public can be easily stolen
Weaker investor protection and
potential for fraud
Current legal restrictions are not
suitable for crowdfunding
The risky nature of small businesses
Table 6. SWOT analysis of crowdfunding. Source: composed from various sources.
Every novelty is very vulnerable due to the lack of experience and existing negative forces
in the environment. Finding out and monitoring threats - elements in the environment that could
cause trouble for the business or project is especially important for innovative companies or in this
case methods, that are expected to foster huge changes.
The risky nature of small businesses might also be considered as a threat towards
crowdfunding. Sigar (2012) states that startup companies are traditionally riskier and have a higher
rate of failure in comparison with other businesses. Uncertainty about the development of
unproven products and services arises. Sullivan and Ma (2012) also express the fear that many
crowdfunding investors will be sadly disappointed when business they invest in fails, since many
do in the first 5 years. This may cause not only disappointment, but lawsuits might be started as
well. Moreover, Gobble (2012) draws attention to the fact, that getting financing through
crowdfunding is easier, in comparison to venture capital. Entrepreneurs might misjudge by
choosing an easier way, despite venture capitalists offer help - mentorship, advice, useful contacts
- in addition to money. Sometimes such help can be crucial for a small company to succeed.
The identified strengths, weaknesses, opportunities and threats of crowdfunding are
summarized in the Table 2.
4.2 Crowdfunder as entrepreneur
In order to answer the second research question: “What individual characteristics are
required for successful crowdfunding?”, we will take a look at several entrepreneurs who has
successfully financed their projects through crowdfunding. The reason behind the stated question
is the fact that pretty much everyone can create a campaign and try to collect money on CFPs,
however not everyone who’s using this tool can be identified as an entrepreneur. The analysis will
be carried out via conduction of a semi-structured interviews. Primary data will be used.
The main goal of this part is to identify the characteristics of an individual crowdfunders,
based on which to make more general conclusions. It needs to be mentioned, that even though we
investigating into individual entrepreneurial characteristics, the teams behind crowdfunding
projects can consist of more than one person. In coordination with research question and previously
discussed theoretical framework, the following variables will be analyzed: entrepreneurial
characteristics, entrepreneurial skills, and entrepreneurial motivations.
The last thing to mention is that even though the listed variables are separated, all of them
are affecting one another and having an impact on the process of opportunity recognition, idea
development, and value exploitation.
Existing studies and research suggests that individuals use crowdfunding in order to raise
funds from targeting a general public, also called the crowd (Belleflamme et al., 2010). The
research findings gathered from multiple case studies and individual interviews justify this
statement and also present new evidence and perspectives about other motivational factors
influencing creators. Extrinsic and intrinsic motivations are discovered from direct answers to
interview questions, and also by observing and interpreting given answers. Extrinsic motivations
result in obtaining a reward, recognition or satisfaction for the work done, while intrinsic
motivations highlight taking up an activity for fun or one’s own sake (Kleemann et al., 2008).
The main extrinsic motivation was identified as seeking for funding when running a project
on CFP. This finding is confirmed by eight out of eight interviewees, who ran a crowdfunding
project on Kickstarter. Interviewees indicated that finding investors who would be interested to
invest into creative idea projects is extremely difficult, and the results are rarely positive. As one
interviewee notes: “Having a full time job, a marriage, and two children did not present me with
a lot of opportunities to seek professional investors like a record label or whatnot.” (Scott Cross,
flatev). All eight interviewees received successful funding for their project, which confirms the
high success rate for campaigns run on CFPs. According to statistics of Kickstarter, 43% of all
projects receive successful funding (Kickstarter, 2016).
Another extrinsic motivation observed from majority of the interviews is seeking for public
attention for presented projects. This motivation proves to bring awareness to projects regardless
the success of the funding result on crowdfunding platform. One interviewee noted that he gained
public attention for his animation project although his project on Kickstarter did not receive
significant overfunding (Boguslavsky). Creator received personal checks, as philanthropic
donations from strangers after his project had been successfully funded on Kickstarter. This
finding signifies that creators not only gain momentum while their projects are actively running
the campaign on Kickstarter, but also attract attention and bring awareness outside the
With the case of Lightpack, the project gained public attention from various media outside
their home country Russia. For instance, US tech internet magazine Engadget acknowledged
Lightpack and its project on Kickstarter, and brought awareness to its creators4. The CEO of
Lightpack approximated that the overall public attention that the project gained due to the success
on Kickstarter platform is approximated to a value of at least 100,000 USD in advertising.
Therefore, Kickstarter platform is also used for promotion, public attention and awareness
http://www.engadget.com/2013/04/25/insert-coin-lightpack/ - Engadget article about Lightpack
generation, and not only for generating funding. Authors Belleflamme et al. (2010), at the time of
their study of economic implications of crowdfunding, already acknowledged that crowdfunding
could serve as a promotional tool.
Moreover, interviewees noted that once awareness is achieved and a project is successful,
the crowd continues to donate money even though the project has already reached its funding goal.
This finding suggests that crowdfunding model on Kickstarter has the ability to influence a selfgenerating model of bringing attention and awareness to projects and their creators.
The majority of interviewees also identified that Kickstarter was used to satisfy a personal
needs of project creators. Five out of eight individuals (Gagne, Peich, Boguslavsky, Babin,
Gaynullin) who ran a creative project on Kickstarter highlighted different personal selfactualization goals that they anticipated to achieve. Therefore, this confirms that individuals are
also driven by an intrinsic motivation for self-fulfillment. This finding directly relates to Maslow’s
(1943) categorization of human needs based on different motivations. Self-actualization is part of
social needs that are positioned at the top of the pyramid, signifying that individuals realize
personal potentials by presenting projects on Kickstarter crowdfunding platform. Figure 8
highlights motivations for using Kickstarter crowdfunding platform explained with Maslow’s
human needs motivations.
Figure 8. Crowdfunding motivations, explained using Maslow's (1943) foundation
of hierarchy of needs. Source: own creation.
However, these intrinsic motivations were not interpreted in the remaining 3 cases (ATRI,
SNOOZ and Lightpack). The reason for this can be interpreted in the type of these projects.
Although these projects fit the category of creativity on Kickstarter, the main aim for them was to
receive funding for their startups. Thus, the ending result was not a project or a product.
Therefore, a conclusion is drawn based on these findings. It is suggested that individuals
are able to support personal needs when projects are not startup-driven, but focused on a tangible
project or product creation. For instance, one interviewee noted that his animation film project was
very personal (Boguslavsky). His main goal was not to raise money, but fulfil a personal desire
for making something passionate. This project highlights an aim for personal fulfillment depicted
in the tangible product intended for the public.
Moreover, two interviewees acknowledged that improving self-esteem was also among the
most important motivations. One interviewee confirmed to have gained moral support for the
project, even though he did not manage to successfully achieve all the goals on Kickstarter
(Gaynullin). Therefore, individuals who create projects on Kickstarter express the need for selffulfillment.
4.3 Specifics of Kickstarter CFP
In order to gain a clear picture of crowdfunding campaign phases, we first need to clarify
the general specifics of crowdfunding on Kickstarter. We will use the secondary data from the
Kickstarter site itself, as well as two video interviews with one of the co-founders of this CFP –
Perry Chan - who can provide a more detailed overview on the specificities of the Kickstarter
Kickstarter is a crowdfunding website founded on April 28, 2009 by Perry Chen, Yancey
Strickler and Charles Adler, that facilitates online fundraising. Based in New-York, USA, it started
as a platform for filmmakers and artists, today it is one of the largest crowdfunding platforms
worldwide for creative projects, such as film, music, design, art, video games, comics, journalism,
publishing, fashion, food, photography, technology and theater.
To date, more than 100,000 projects have been successfully funded on Kickstarter since
April 2009, with more than 10.9 million backers and $2,4 billion dollars5.
https://www.kickstarter.com/help/stats - Kickstarter Statistics
Image 1. Project landing page on Kickstarter. Source: Kickstarter.com
The platform focuses on creative project crowdfunding. According to co-founder Yancey
Strickler, creativity can be allotted in many different ways (Ryssdal, 2012). This is why there are
15 creative categories that projects have to fit in. Kickstarter is based on a reward-based
crowdfunding model - collecting monetary funding from a general audience of people in exchange
for a reward. This facilitation stands as an alternative to traditional methods of investment
(Schwienbacher & Larralde, 2010). Instead of specific professional investors providing large sums
of money to projects or business start-ups, Kickstarter is a platform where ordinary individuals
fund projects of other individuals by donating small sums of money.
On Kickstarter, project owners are called ‘creators’ while individuals who pledge money
to projects are referred to as ‘backers’. Every project has a funding goal and a time deadline.
Creators have to choose to run their project between one and 60 days, and define the funding goal
in dollars to a sum they need to realize the project. According to Kickstarter statistics, the most
successful project campaigns run for 30 days or less6. After the deadline of a project is reached, it
is classified as ‘funding successful’ or ‘funding unsuccessful’ project. Successful projects are those
projects that reach their funding goal on time, thus creators receive the pledged money. If projects
do not reach their funding goal on time, they are thus unsuccessful. When this occurs, project
https://www.kickstarter.com/help/faq/kickstarter%20basics – Kickstarter Basics
creators do not receive any donations pledged prior to the project’s deadline as all the money is
transferred back to backers’ credit cards. This is called an all-or-nothing business model.
Furthermore, all proposed projects on Kickstarter platform are closely monitored. Projects
have to surpass a quality control evaluation from Kickstarter, examining if criteria and guidelines
are met, before they are presented to the public. The platform disregards any projects that favor a
personal aim or goal, the so-called ‘fund-my-life’ projects (e.g. money for learning a new language,
taking a trip, etc.). This curatorial behavior is one of the most significant characteristics
differentiating Kickstarter from other crowdfunding platforms alike. Moreover, Kickstarter helps
promote projects that are favored by the staff on its blog (Projects We Love section) and on the
front page (Staff Picks section, Curated Pages). Kickstarter holds no ownership in the projects. All
projects are stored in Kickstarter’s data and are open to public view. Kickstarter takes 5% of the
money raised for a project, while Amazon withdraws additional 3%-5%, as all the money transfers
are carried out by Amazon Payments. Kickstarter appeals to a worldwide audience of individuals.
Although, creators of projects have to hold a U.S. bank account, it does not restrict foreign project
owners from using the platform. Foreign entrepreneurs usually find friends, family members or
acquaintances that are willing to process the U.S. based payment system of a project. Backers of
projects, however, are only required to have a credit card, no matter where it is issued.
Perry Chen – one of the co-founders of Kickstarter – states that their main goal was to
create a fundraising platform that will allow for creative individuals to share their vision and ideas
with the Internet community, and let the ‘crowd’ to decide whether or not these ideas are worth
enough to make it past prototype or concept. Chen specifies that Kickstarter is not just another
investment option, because creators do not bear any obligations for the money they receive.
However, crowdfunding is not a donation or charity either. It’s something different. Chen
underlines that they found out that for some reason both entrepreneurs and general public perceives
donations for non-social causes as something negative. Due to this, Kickstarter founders tried to
present a new approach to communication between creator and consumer as something of
correlation between patronage and purchasing, which goes in the line with conclusions of Mollick
(2014). The final result resembles a merge between pre-sales and exchange – crowdfunders receive
money contributions and repay in the form of unique products and services. However, even this
definition is not embraces the whole nature of crowdfunding process, because crowdfunders are
not obligated to fulfill their promises, therefore backers are making their investment decision with
certain degree of risk.
The funding model of Kickstarter is based on all-or-nothing principle. The particular model
allows crowdfunders to collect the acquired sum only if it has reached the funding goal that was
stated from the very start of the campaign. The sum also needs to be collected in the certain time
period, which at average consist of 28-30 days. Otherwise, all donations will be transferred back
to investors. The all-or-nothing model was chosen be Kickstarter founders by several reasons. The
first and the most important one – it helps to “mitigate risks associated with limited legal protection
of backers” 7. We have already highlighted this problem in the valuation of crowdfunding part.
However, this approach helps backers to be more confident in that their investments won’t go in
vain. On the other side, it also benefits the entrepreneurs because “nobody wants to end up
receiving only a part of the needed financing but still being expected to finish the project” 8. The
second reason is that all-or-nothing model encourages backers to be more active and beneficial for
campaign: if they want to see the project being completed it is in their interest to help spread the
word and promote project to others. And finally, it is statistically justified: as we have found out
during the literature review “Of the projects that have reached 20% of their funding goal, 81%
were successfully funded. Of the projects that have reached 60% of their funding goal, 98% were
successfully funded. Projects either make their goal or find little support. There's little inbetween”9.
In addition, Kickstarter has its own rulebook which states certain rules to be followed by
individuals or companies willing to participate. Even though Kickstarter administration
understands that they can’t cover all the possible nuances of crowdfunding, the goal of the
rulebook is to explain Kickstarter’s “purpose and perspective”. There exist three main rules10:
Projects must create something to share with others – even though Kickstarter allows for
all sorts of creative endeavors, the presented projects must have a final outcome that they strive
to achieve. Either in a form of product, service or event: the result should be realistic,
achievable and shareable.
Projects must be honest and clearly presented – in the mentioned context of limited legal
regulation, the Kickstarter community is “built on trust and communication”. Therefore, the
presented projects must show their trustworthiness by not “misleading people or
Projects can’t fundraise for charity, offer financial incentives, or involve prohibited items
– this particular rule just underlines the reward-based nature of crowdfunding by once again
https://www.kickstarter.com/help/faq/kickstarter%20basics – Kickstarter Basics
https://www.youtube.com/watch?v=3R7mTFHEs1k – Perry Chen and Walter Isaacson. Kickstarter and the Economics of Creativity.
https://www.kickstarter.com/help/faq/kickstarter%20basics – Kickstarter Basics
https://www.kickstarter.com/rules – Kickstarter Rulebook
stating that creator are expected to provide something in return for financial support, but “can’t
offer financial incentives like equity or repayment”. In addition, Kickstarter provides a
specified list of prohibited things11 like political fundraising, medical items, financial services,
weapons, drugs, etc.
Moving on to the components of the crowdfunding project itself we can identify the
following noteworthy elements. First of all – comment section. This is the way for backers to
directly communicate with project creators. However, even though everyone can see the comments
posted, only the ones who contributed to the campaign can post them. This highlights the
exclusivity of communication between project creators and backers. During the campaign period,
creators have a set of statistical tools, provided by Kickstarter, for tracking and monitoring all the
numbers associated with their project.
The second important element is updates. Here project creators can post announcements,
share progress or thank the backers. Kickstarter staff emphasizes the necessity of updates, stating
that this is the way of “communicating with backers and keeping them updated on your progress…
Being part of this journey is one of the best things about Kickstarter”12. They later identify three
main types of updates:
Updates that build momentum – are about informing the backers about new developments
and funding milestones;
Updates that share the process – are about keeping backers in the loop after the project is
Updates that celebrate success – after the project is successfully funded become part of a
fully customized spotlight page - “a central hub for news, updates, links to your finished work,
and anything else you want people to know”.
4.4 Specifics of crowdfunding campaign
In order to answer the second question of this research “What are the specifics of preplanning and execution of crowdfunding campaign?”, we’ll focus on what is happening during the
actual process of crowdfunding work. To be more specific, we will investigate the different phases
of crowdfunding campaign separately. Generally, it can be divided into three main steps: preplanning, execution and fulfillment. However, in this thesis we are only interested in the first two
https://www.kickstarter.com/rules/prohibited - Kickstarter’s List of Prohibited items
https://www.kickstarter.com/help/handbook/updates - Kickstarter’s Creator Handbook
Pre-planning – the period of preparation for the crowdfunding campaign. It roughly starts
with the opportunity recognition of a new idea and lasts until the project launches on the CFP.
In coordination with the theoretical framework, we can state that this period is similar to the
product development phase of the startup, therefore it main characteristic is extreme
Execution – the core fundraising period, during which entrepreneur is trying to attract as much
backers as possible in order to successfully reach the funding goal during the limited period of
time. It starts immediately after pre-planning phase and continues until the campaign clock
runs down to zero. In coordination with the theoretical framework, we can state that this period
is similar to what Reis stated as the learning phase of the build-measure-learn loop.
Everything that goes after the crowdfunding campaign is finished is not the focus of interest
in this thesis, but can be viewed on the timeline presented on Figure 3.
Figure 9. Crowdfunding campaign process. Source: own creation
The following research will be done using data from the selected cases both of secondary
and primary nature.
4.4.1 Pre-Planning phase
As it has been discovered during the desk research, the pre-planning phase of the
crowdfunding campaign is crucial for its final outcome. It includes everything that entrepreneur
undertakes before making a decision to go live. Therefore, this stage is highly specific for each
case and amongst other things depends on the individual characteristics of crowdfudner. As we
have established in theoretical framework, Mollick (2014) stated that one of the key determinants
of future success is ability to signal preparedness and assure potential backers of product quality
and uniqueness. However, in this period, entrepreneurs are operating in the context of extreme
uncertainty and do not have a clear understanding of who are their target customer group or how
does the final product should look lie. Therefore, the whole pre-planning period is characterized
by entrepreneurs’ attempt to mitigate this uncertainty. Nevertheless, this situation changes when
preparation ends and campaign goes live. After that, the uncertainty is being replaced learning in
coordination with the ideas of Ries (2011) and Verganti (2009).
Moreover, following the theoretical concepts described earlier, three main elements of
entrepreneurs’ readiness for campaign launch has been identified:
Campaign launch preparation
These elements not only characterize the pre-planning phase but also underline the
traditional approach to innovation, starting with idea formulation, building of a prototype and
future commercialization (Ries, 2011). The last thing to mention is that the financial costs of preplanning are case-dependent and are not the focus of this research.
In this segment, we will take a look at 8 cases of crowdfunding campaigns and how its
creators managed to go from idea formulation to building of an MVP, which was later to be
presented during the campaign and modified in coordination with the received feedback (Ries,
2011). We will use the product development perspective to understand how entrepreneurs
conducted market research, identified potential target customer group and its considerations,
designed and prototyped the MVP.
Amongst selected cases, 4 out 8 has conducted a thorough market research of industry and
similar products (Lightpack, SNOOZ, SmartHalo, flatev). In 2 cases (Lightpack, SmartHalo) the
companies had previously established customer bases. That way, we can conclude that they have
tested their prototypes in advance to launching a crowdfunding campaign. However, the remaining
cases also had some sorts of an MVP (in the case of animation projects they were sketches or
drafts) and therefore could be accepted by Kickstarter rules. The duration, imputed effort and costs
associated with designing of an MVP has varied from case to case and lasted from 1 to 7 months.
6 out of 8 cases ((Lightpack, SNOOZ, SmartHalo, flatev, ATRI, PEGTOP) has decided to patent
their products prior to launch, which corresponds with the idea that entrepreneurs fear the public
disclosure of the concepts and following intellectual rights thievery. Nevertheless, the other 2 cases
were of art nature and the need for patents were not as significant for them. This situation once
more emphasizes the problem of insufficient legal protection of crowdfunding participants.
Moving on to customer considerations – 4 cases (The Saga of Rex, Ships of years past,
ATRI, PEGTOP) did not run any marketing researches and therefore did not knew who are their
customer group. Lightpack and SmartHalo undertake a few market tests and other cases decided
to use only secondary sources of data and concentrate on existing customer segments.
While the goal of the product development was to build a relevant prototype that will reflect
the desired features and show the final vision of the entrepreneur, the way this prototype will be
presented to public during the crowdfunding campaign – is the question of how do entrepreneurs
manage to formulate their proposal (Verganti, 2009). While the CFPs allow for various ways of
presenting a project – text, images, sound, etc. – the core of the project pitch is always a video
presentation. In the video pitch, entrepreneur has to express his vision and convince the potential
investors either by making emphasis on functional benefits of the product (USP) and/or emotional
benefits of the product (ESP) (Pelsmacker et al. 2010).
We will investigate into each case by look at the video presentations of each of the 8 cases.
In order to assess what elements – USP or ESP – prevail in the video presentations we will evaluate
them using the concept of ethos (credibility), logos (logic), pathos (emotion) (Higgins and Walker
2012). The research proposition goes that entrepreneurs will try to establish their credibility (ethos)
by turning to their reputation, experience and skills, as well as personally appearing in the video
in order to present their own products. In case of appealing to backers’ logic (logos), entrepreneurs
will try to emphasize to product useful features and the way it will fill the existing gap. Finally,
the emotional component (pathos) will concentrate on appealing to backers’ feelings.
It is also needs to be mentioned, that according to Kickstarter guidelines, project creators
need to manage to tell their story in the format of 3-5 minutes’ presentation, which requires a
certain level of skill. Therefore, many entrepreneurs turn to professional firms in order to have an
attractive and compelling video.
In the selected cases, 5 out of 8 projects turned to outsourced professional studios for help
in making their pitches (Lightpack, SNOOZ, SmartHalo, flatev, ATRI). The remaining cases
decided to go with their own production. One of the cases (Lightpack) has purposefully shot the
video pitch in the way that it will be suitable for both – presentation on Kickstarter as well as on
the company’s official site.
Considering the video presentations themselves:
The SmartHalo pitch highly relied on ethos and logos, much more than any other cases, which
makes for a conclusion that the goal was to maximize the USP part;
Considering the value propositions of other cases: 5 cases (Lightpack, SNOOZ, flatev, ATRI,
PEGTOP) had an equal mix of both USP and ESP components, while 2 art projects (The Saga
of Rex, Ships of years past) concentrated only on emotional benefits.
The expected findings included all of the video presentation to include significant amount of
ESP elements, however only in 2 cases (The Saga of Rex, Ships of years past) they have
prevailed over the USP, while others preferred to go with the functional benefits. This can be
explained by the artistic nature of 2 of the cases.
Only in 4 of the cases, the creators emphasized the importance of establishing credibility of
the creators (Lightpack, SNOOZ, SmartHalo, flatev). Interestingly enough, this are the cases
with the biggest amount of raised funds.
Based on all that, we can state that the importance of presenting the functional benefits of the
product over emotional ones seems to have a more positive impact on the resulting outcome of the
Campaign Launch Preparation
Due to the limitations of this research, we can’t identify all peculiarities and aspects of the
pre-planning phase. Instead, we will concentrate on the specific aspects that creators prioritize and
the way they promote the upcoming campaign. The research proposition goes that the process of
advertising and promotion starts way before campaign launch and continues until the last day of
All the selected cases and creators has approached the preparation process differently.
Judging from the data, all 8 cases started by investigating of Kickstarter rulebook, guidelines and
prohibition list, meaning that all of them has at least the basic understanding of the crowdfunding
principles. We van judge on the level of their readiness by the fact, that Kickstarter has approved
their projects to be presented on the platform.
However, only 3 of the 8 cases has gone further and undertake an in-depth research on
crowdfunding specifics and peculiarities (Lightpack, SNOOZ, SmartHalo). The others did very
little to almost none. Moreover, its these 3 cases who specifically planned the way their campaign
will go, carefully choosing each of the elements to be presented during execution phase. 2 of the
art project decided to go with their “gut instinct”, and the rest thought that they will figure it out
on the go. Again, in terms of media coverage and promotion, the selected 3 cases (Lightpack,
SNOOZ, SmartHalo) has organized the process way in advance, understanding the importance of
this element. However, it’s only SmartHalo, who decided to organize the “snowball effect of
information” by implementing and embargo on publications until the campaign starts.
Additionally, they have emailed a lot of their previous customers and asked for help in spreading
the word. The result has vary positively affected the way their campaign started.
4.4.2 Execution phase
In this segment we will focus on what is going on during the actual process of fundraising,
which starts after the campaign is officially launches and ends when the stated time period runs
out. We will continue answering the question “What are the specifics of pre-planning and
execution of crowdfunding campaign?”.
As it has been stated earlier, the pre-planning phase of the crowdfunding campaign is
characterized by extreme uncertainty. However, when campaign goes love, the uncertainty is being
replaced by the process of learning. Here, during execution phase, entrepreneurs learn about
whether or not their product qualifies to be realized and if not, where is that thin borderline, which
separates it from being accepted by the public (Verganti, 2009). That way, we perceive
crowdfunding campaign as a certain type of product proposal – an entrepreneurial vision, which
he tries to present to his potential customers. We expect that this validated learning is as important
and valuable for entrepreneur as fundraising is (Ries, 2011). Even if the campaign turns out to be
unsuccessful, the knowledge that entrepreneur acquires is still very beneficial for him. As it has
been discovered in the previous chapters – non-financial goals of project creators are prevailing,
which contributes to this proposition.
The particular elements of execution phase that will be studied are customer discovery and
communication. We will try to understand what actions do project creators undertake in order to
successfully raise the needed sum.
As we have established in theoretical framework, the importance of locating the early
adopters is crucial for success of the one’s venture. They allow not only to test marketability of
the project, but also serve as an extremely valuable sources of feedback provision. As we stated
all of the selected 8 cases have come up with some form of an MVP. Here we will try to understand
how did they managed to use it in order to locate their customers and receive the needed feedback
for further pivoting.
The other studied element is communication. As it was stated in Kickstarter Creator
Handbook – in order to attract potential investors, entrepreneur needs to communicate with them.
Additionally, it emphasizes the importance of honesty and clarity in presentations 13. The
communication side of crowdfunding campaign will be studied from perspective of three elements:
https://www.kickstarter.com/rules - Kickstarter Rules
Updates and Stretch Goals
Media coverage and promotion
As it has been stated earlier, updates and stretch goals help to maintain connection between
creator and backer, keeping them in touch about the current progress of the project or some new
interesting offerings and announcements like the stretch goals. Comments allow for backers to
directly communicate with the creator and media coverage intensifies the supply of potential
Discussion of the results
As all of the 8 creators has stated, we can conclude that they have tested the marketability
of their ideas. All of them agreed that they have successfully located the early adopters of their
products and because of them – successfully reached the funding goal.
In the words of Perry Chen, this is one of the major unique benefits of crowdfunding
“Usually, it is extremely hard to test marketability of products… I mean, there are no magic
solutions to understand whether or not it’s going to work. However, through crowdfunding these
With the video presentations, it has been concluded that using of the USP and ESP is
situational and do not have such a strong impact of the campaign’s outcome. Either way, we can
see that all of the cases tried to explain in their pitches the various benefits of their products. They
tried to appeal both to logic and emotion
The importance of acquiring of the early adopters has been driven by two main factors: to
understand the potential target group for the product and to get access to valuable feedback early
in the process of production. 7 out of 8 cases has successfully discovered something new about
their target group and utilized that knowledge to improve their products.
The concept of communication and its elements in relation to crowdfunding campaign has
also been analyzed. We have identified the positive dependence between the amount of
investments and project updates. Even though the exact number of updates varies quite a lot from
case to case, the positive effect remains constant. All of the selected cases has also implemented
the stretch goals, however the exact effect of their implementation was not measured.
https://www.youtube.com/watch?v=3R7mTFHEs1k – Perry Chen and Walter Isaacson. Kickstarter and the Economics of Creativity.
Nevertheless, it did help to form a loyal community around the project, which has been confirmed
by 6 out of 8 cases. Additionally, interviewees emphasized the importance of updated in resolving
of confusion and misunderstanding between creators and backers.
All of the creators signaled that the amount of work that was putted into crowdfunding
campaign has surpassed their expectations. 5 out of 8 creators called the process “exhausting” but
“satisfying”. The amount of work has proportionally grown in correlation with the amount of
In case of marketing and promotion, we have identified that initially only half of the cases
understood the importance of active promotion off-site. However, as the campaign went all of
them realized that they should have invested more in preparation of media coverage.
Finally, the answer to the question “What are the specifics of pre-planning and execution
of crowdfunding campaign?” is based on the what have been discovered during the process of
research. As a result, the following elements have been identified:
o The through market research
o The designing of an MVP
o The protection of intellectual rights
o The formulation of USP and ESP
o The preparation of campaign materials
o The organization of media coverage
o Location of early adopters
o Active communication with backers
o Acquiring feedback
o Pivoting the project concept
The main goal of conducted desk research, exploratory case study and qualitative
interviews was to observe and define whether there are potentials for entrepreneurs to use
crowdfunding for their business. As we have found out, all of the 8 cases has successfully
completed their crowdfunding campaigns, raised the needed sum of money and successfully
delivered the products in time. Many of the projects finished far above the target goal, showing an
extreme signs of overfunding, which in its own way has led for them to expand and grow further.
However, as it has been formulated by Kickstarter’s co-founder Perry Chan – crowdfunding goes
beyond simple concept of alternative fundraising. It incorporates a set of professional tools,
organized in a form of a crowdfunding platform, which can significantly assist in the process of
entrepreneurial venture creation. Consequently, all of the 8 cases has initially thought only about
making enough money to complete their products, but ended up receiving much more than that –
by incorporating the process of learning they have followed the startup way.
Figure 10. Holistic overview of findings. Source: own creation
As it has been found out during the research, crowdfunding main applications include:
Fundraising – a primary goal and underline basic idea of crowdfunding. All 8 interviewees
confirmed that they perceive crowdfunding as a viable option for capital raising.
Interestingly enough, all participants stated that if not crowdfunding, they would’ve
preferred debt financing, which corresponds with the idea that full creative control over the
company is important for startup entrepreneurs.
Marketing – as majority of respondents stated, a crowdfunding campaign is an effective
way to market a product and enforce community building. Generally, crowdfunding aids
in achieve the following marketing goals: a) attraction of early adopters b) organizing
media coverage c) forging of multi-dimensional communication on creator-customer level
d) viral promotion with the help of supporters.
Testing – crowdfunding to be a suitable way to test markets' need for products - through
financing an initiative, supporters (markets) ultimately vote on the projects they find
Customer engagement – the concept of involvement has surfaced multiple times during
interviews. According to interviewees one of the main benefits and reasons to use
crowdfunding is its ability to involve and engage supporters with the upcoming product.
Real-time feedback – ability to receive and respond in real-time to feedback from
customers was noted by one interviewee as one of the major benefits of crowdfunding.
Participant noted that they could observe successes of their online advertising campaign
on the crowdfunding initiative almost in real time while they could observe the effects of
their own online efforts.
Crowdfunding campaign is eventually an experiment which involves a large number of
activities and characterized by lots of learning. In the Figure 6 we provide a holistic overview of
the findings and answer the main question of this paper – how can entrepreneurs exploit
crowdfunding for their business? The answer is – by obtaining a startup mindset and making a
huge emphasis on the pre-planning of the campaign process.
The main theoretical contributions include deeper understanding of the phenomena of
crowdfunding as well as provision of a new perspective on crowdfunding from the position of
The recommendations for successful utilization and reviewing of relevant theoretical
literature will allow for any reader to gain a much clearer picture of crowdfunding phenomena and
its possible applications.
Limitations of the research
The particular research concentrates only on reward-based model of crowdfunding and
includes only one crowdfunding platform – Kickstarter.
Directions for further research
The particular research can be continued and expanded in the future. The suggestions for
further research include three directions. First, is to study the failed crowdfunding campaigns in
order to understand what kind of benefits one can extract from this unsuccessful experience.
Second, to understand what drives the decision of backers to support certain project and what
elements of the campaign have the biggest impact on that decision. And lastly, to study deeper the
process of communication between creators and backers and the way the connections between
them are formed and maintained.
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Appendix 1 – Top 10 most funded campaign on Kickstarter
Pebble Time -
Watch for iPhone
The World's Best
with 15 Features ||
OUYA: A New
Kind of Video
Pebble 2, Time 2 +
Pono Music -
Where Your Soul
Appendix 2 – Interview guidelines
1. How did you find out about the phenomena of crowdfunding?
2. What motivated you to use crowdfunding?
3. How did you come up with the idea for your project?
4. Did you have any previous experience in running an entrepreneurial venture?
5. Pre-planning phase
a. How did you prepare for your crowdfunding campaign?
b. Did you do any market research prior to launching a campaign?
c. Did you have an MVP ready to be shown to public?
6. Execution phase
a. How did you communicate with backers during the campaign?
7. Do you perceive crowdfunding as a viable option for capital raising?
8. Do you perceive crowdfunding as a marketing instrument?
9. Do you perceive crowdfunding as a testing ground for ideas?
10. What are other applications of crowdfunding for business?
11. What are the main benefits of crowdfunding?
12. What do you think are crowdfunding weak points?
13. What do you think helped you to reach the funding goal?
14. What do you think negatively affected your campaign?
15. Are you planning to continue using crowdfunding in the future?
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