From wooden bow ties and self-tying shoelaces to documentaries about safe drinking water, thousands of innovators showcase their projects on crowdfunding websites hoping to raise the capital they need to make their entrepreneurial dreams a reality. Three Mihaylo college marketing professors assessed these public pitches to determine what makes an online appeal for funding successful.
If you are looking for a low-cost 3-D scanner, three young innovators in Australia have built a product that may end your search: A green-laser scanner that attaches to a smartphone. The creators are working to fund their new business, Eora 3D, and have started a crowdfunding campaign on Kickstarter.com, a popular online platform where entrepreneurs raise capital for creative projects.
Half-way through the 60-day campaign, more than 1,100 donors have pledged nearly $312,000 to Eora 3D, well surpassing their original $80,000 fundraising goal. However, a different Kickstarter campaign has not fared as well: A programmer in Washington, D.C., created an app that helps students estimate financial aid for college. With four days left in his Kickstarter campaign, just $700 has been pledged toward his $2,500 goal.
In the last several years, online crowdfunding – raising money to fund projects through small amounts of money pledged by many donors – has become a very popular vehicle for entrepreneurs looking for financial support. In addition to Kickstarter, there are dozens of digital platforms supporting this type of capital raising, including Rockethub, Indiegogo and GoFundMe among many others. Some projects catch fire and attract the money they need. For others, despite falling short of their funding goals, they at least had an opportunity to try – an attempt that may have been nearly impossible less than a decade ago.
“To raise money in the pre-crowdfunding era, entrepreneurs would have to make a pitch ‘Shark Tank’-style to venture capitalists,” says Steven Chen, associate professor of marketing. “I don’t think crowdfunding replaces venture capitalism, but it adds another option to the portfolio. Instead of trying to collect a million dollars from one billionaire, you can try collecting one dollar from a million people.
“Crowdfunding isn’t revolutionary in terms of dynamics, but rather it is revolutionary in terms of the velocity by which an entrepreneur can quickly garner venture capital from ‘the people.’”
The trick is to entice “the people” to pledge with their pocketbooks. Chen and fellow marketing professors Chiranjeev Kohli and Sunil Thomas recently conducted a study, “What Really Works in Crowdfunding: An Empirical Investigation of Kickstarter,” which will appear in the Journal of Advertising Research in March. They analyzed a random sample of 200 campaigns on Kickstarter to determine the types of appeals that attract donations. They found three variables within a Kickstarter pitch proved effective:
Guilt appeals highlighting feelings of responsibility for the donor
For example, fundraisers appealed to environmental and social responsibility, financial hardships, achieving a childhood dream or asking potential backers to “put yourselves in my shoes.” In one (perhaps extreme) case, an artist who creates stationery reached a $3,500 funding goal with artwork sent to donors and the plaintive plea: “If you are still reading this, please buy something to prevent me from starving to death somewhere in Queens on a frigidly cold night this coming fall.” He’s now in the midst of a subsequent campaign to raise $5,000 more.
Utilitarian projects seeking funding were more enticing to donors than projects marketers call “hedonic,” or strictly for enjoyment. The study finds that fundraisers may attract more donations by “communicating how the product will benefit donors in terms of practical or functional benefits” or outline “how they will use the donations to solve problems” – like community after-school programs – once the project is funded.
Professional presentatation and pitches
In particular, professional-level video pitches are related to increased donations. Surprisingly, neither the length of the video nor the tenor of the message – positive or negative – appeared to impact support.
“This is serious business,” says Kohli of the online campaigns, many of which very thoroughly explain and showcase their projects. “Crowdfunding serves not only as a forum for raising funds but also as a market test and a promotional campaign all rolled into one.”
According to Kickstarter, more than $2 billion has been pledged to nearly 95,000 fundraising projects on their platform. “These crowdfunding sites will likely bring a lot of products and services into the marketplace that would not have been possible in the past,” adds Kohli.
“So, expect many more niche offerings, which could not have been supported earlier. This makes the marketplace more disruptive – the foundation for innovation – and exciting.”