Tag Archives: crowdfunding

The number of Facebook friends on crowdfunding success


(*This entry is based on the research article ‘The Dynamics of Crowdfunding – An Exploratory Study’ by Ethan Mollick)

In order to make something work, one aims to find a recipe for success. This principle holds for crowdfunding, too, in which founders of all sorts of projects request funding from many individuals, often in return for future products or equity (Mollick, 2014). Many crowdfunding projects, however, fail. Therefore, it is of importance to find out the underlying dynamics of success and failure among crowdfunding ventures. This is exactly what Ethan Mollick, Professor of Management at Wharton University of Pennsylvania and author of The Dynamics of Crowdfunding – An Exploratory Study, has done. By analysing a dataset containing 48,500 crowdfunding projects with a combined funding over $237 M, Mollick researches the effects of a fund seeker’s personal network, underlying project quality and geography on successful fundraising. In this post, I will focus attention on the effect of a fund seeker’s personal network through the notion of one’s number of Facebook friends. Then, I’ll show how this looks like in practise on Kickstarter.com. Finally, I suggest a way in which the power of an entrepreneur’s personal network could be even better put to use.

Ethan Mollick

(Professor Ethan Mollick)

Social capital

Social networks have long played an important role in the funding of new ventures (Hsu, 2007; Shane and Cable, 2002). An entrepreneur’s social network influences the succes of raising capital, as it provides (1) connections to funders and resources as well as (2) endorsements of project, its product or service, and the initiator (Shane and Cable, 2002; Sorensen and Fassiotto, 2011; Stam and Elfring, 2008). Actually, an entrepreneur’s social network is the initial source of funding, called friends and family money (Agrawal et al, 2010). As Mollick found, about one in three Kickstarter.com accounts are linked to social network Facebook. Hence, the author looked at Facebook friends of founders (FBF) for the project initiator, as this number is less likely to increase as the project progresses. Here, FBF is a measure of the size of a founder’s social network. Models 2 and 5 in Mollick’s results (see table below) show that social network size predict success. According to the author, the link between social network size and crowdfunding succes could be compared to the following. Having just 10 Facebook friends leads to 9% chance of succes, whereas a 100 Facebook friends lead to 20% of success. With 1000 Facebook friends denoted on Kickstarter.com, a fund seeker has 40% change of success. However, Model 6 in Mollick’s results (see table below) shows that having no Facebook account coupled to Kickstarter.com is yet better than just having few online connections. This suggests that, although larger networks generally lead to more success in fundraising, entrepreneurs yet need to strategize on whether or not linking their social network to their fundraising, based on the number of friends they have on Facebook.

Results Mollick

If you are interested in how the number of Facebook friends is depicted on Kickstarter.com, visit:

https://www.kickstarter.com/projects/snappower/the-snaprays-guidelight-illuminate-your-life?ref=nav_search.

Here you see the SnapRays project on Kickstarter.com by entrepreneur Jeremy Smith. Click on Jeremy’s photo on the right to view his profile. The number of Facebook friends is depicted on the right.

A suggestion

Could an entrepreneur’s social network be leveraged more as to earn more trust among investors and hence raise more capital? In addition to stating the number of the fund seeker’s Facebook friends, the crowdfunding platform could enable the fund seeker to show the number of steps and the actual relations between him or her and a particular potential funder the way LinkedIn depicts the relations between you and someone else. To get an idea, see the mock-up I made below. To my belief, this would give a potential funder a feeling of being ‘more connected’ to the fund seeker, hence it would raise trust and it might lead to more funding.*

*Note: I e-mailed Professor Ethan Mollick about this suggestion. I’ll update this post if he replies.

howyouareconnected

Your turn

Now, could you think of other reasons why the number of Facebook friends is a quality signal to potential investors? And could you imagine different ways in which a fund seeker’s personal network could be leveraged more on crowdfunding platforms? Let me know you thoughts in the comments below.

References

  • Agrawal, A., Catalini, C., Goldfarb, A., 2010. The geography of crowdfunding. SSRN Electronic Journal.
  • Hsu, D., 2007. Experienced entrepreneurial founders, organizational capital, and venture capital funding. Research Policy 36.
  • Mollick, E., 2014. The Dynamics of Crowdfunding – An Exploratory Study. Journal of Business Venturing 29, 1-16.
  • Shane, S., Cable, D., 2002. Network ties, reputation, and the financing of new ventures. Management Science 48, 364.
  • Sørensen, J., Fassiotto, M., 2011. Organizations as fonts of entrepreneurship. Organization Science 22, 1322–1331.
  • Stam, W., Elfring, T., 2008. Entrepreneurial orientation and new venture performance: the moderating role of intra-and extra industry social capital. Academy of Management Journal 51, 97–111.

Using the internet to create a better world


We all know it, but often we are reluctant to acknowledge it: there are a lot of people in the world that need our help. This is why there are so many charities, often calling or approaching you on the street asking for money. But many people simply ignore this, thinking their money will probably not reach the cause anyway… The problem with these organizations collecting money is that they often convince you to send a monthly payment to the organization, and you end up not even knowing exactly how your money is being used. (Yes, I am one of those victims that has been donating a couple of euro’s a month to a charity organization for several years now, I have no idea where it is going though).

So what can you do if you want to give aid to a specific cause, and decide for yourself how much and when you are giving money? Here the online world comes into play once again. Through crowdfunding based on donations there are many sites that facilitate you to donate to a specific cause of your choice. For example the websites Geef.nl or JustGiving.nl, which allows you to search for a cause, make your own ‘giving-page’ and start giving!

These sites also use crowdsourcing to their advantage: most causes on the site are advertised by the crowd: let’s say I want to run 5 miles to support Kika cancer fund, companies and individuals can then decide to support me and donate a small price. Besides individuals, also companies or events can register on the site and start giving to or advertising their cause.

Continue reading Using the internet to create a better world

Crowdfunding – Last resort for high quality online journalism?


“Online journalism is dead”. This statement is the driving idea behind the business model of the German online magazine Krautreporter. A paradox?

Today many websites are exclusively financed by online advertisements. Google, the most visited website in the world, provides its services to the Internet users for free. Revenues are exclusively generated from advertisers who are interested in reaching out to the online users. Today Google is one of the most valuable companies in the world. Virtually no website misses the chance to broach the lucrative source of online advertisements. Websites with the highest click rates generate the highest profits, since advertisers are willing to pay premium prices for increased reach. In general there is nothing wrong with it. But how about non-commercial Internet content?

Freedom of the press is a crucial element of each democracy. This freedom mostly implies the absence of interference from overreaching states. Public opinion should be shaped by unbiased information. Online journalism, the distribution of editorial content via the Internet, is increasingly suppressing traditional print media and has democratized the flow of information. Today any content can be found online at no charge; therefore print media sales are falling. To ensure sustained revenue, publishing companies are using the previously described business model, by running advertisements on their websites, on which they also display their journalistic content.

Continue reading Crowdfunding – Last resort for high quality online journalism?

Athletes crowdfunding their way to the Olympics


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Making your way to the Olympic Games as an amateur athlete requires talent, hard work, dedication and discipline. But not only! Training sessions, coach, equipment, flight tickets, hotel rooms… the life of an athlete comes with a considerable cost. While professional athletes are sponsored by various brands and potentially collect money by winning competitions, amateur athletes must rely on alternative sources of revenue to fund their sporting career.

Having faced the dilemma of choosing between an athlete career and a more conventional path, two Canadian former amateur athletes founded the website Pursu.it. This non-profit crowdfunding platform is run by volunteers and designed to help amateur athletes of any country to gather funding in order to reach one specific goal in their athletic careers such as making the podium, getting to the next competitive event, or making the national team.

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Pursuit uses reward-based crowdfunding, meaning that contributors are promised varying levels of rewards depending on the amounts pledged. The usual rewards include signed equipment, lessons and personal phone calls. As described by co-founder Leah Skerry, the givebacks are personal items and real “bragging-right pieces”. The main incentives for contributors are thus clearly the access to exclusive products, the belonging to a community of close fans and philanthropy. (Agrawal et al., 2010)

Continue reading Athletes crowdfunding their way to the Olympics

Warning: Fraudfunding


Over the past few years, crowdfunding platforms have become more popular. Just within 5 years, the number of the platforms had risen from 21 websites in 2007 to 143 websites in 2011 (a). Crowdfunding platforms offer the opportunities for people to pursue their dreams or to raise money for good a cause.  On the other end of the spectrum, these platforms also provide opportunities for investment. However, as the popularity goes up, controlling this growing community is challenging since there are no concrete law or regulations, as can be seen in fraud cases occurring across crowdfunding platforms.

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Take for example the Kobe-red project on Kickstarter, which was intended to raise money for beef-based jerky made with 100% organic and beer-fed Japanese cow. This project was supported by 3,252 funders generating over $120,000! Being as successful, it was approached by two filmmakers who would like to include this project in a documentary called Kickstarted. Looking back on hindsight, it was then discovered that many features provided by the project creators on the page were suspicious, raising concerns about the legitimacy of the project. Continue reading Warning: Fraudfunding

Crowdfunding: only 986 years left?


“Dear Kickstarter community,

I am a master student with a background in business administration from a respected university. I have worked out an amazing idea to make sure the world is a sustainable place to live and not one person in the world will suffer from hunger. Also, I am well on my way to beat AIDS and infant mortality. This all seems like great news, however there is a downside to it: in order for this project to succeed I do not need funds and therefore I do not need this platform, or you creative input. ‘Why?’ you may wonder. This is because Chris Anderson was right about one thousand years ago. “Every industry that becomes digital, eventually becomes free”. These were his famous words. With everything now being digital, everything is free. So will be my solutions to these global issues. All in all, I want to thank you for your previous commitments but your financial input is no longer necessary. Hakuna Matata.”

This is certainly an extreme outlook on the future but it could possibly be the last post on Kickstarter in the year 3000 if Chris Anderson’s theory proves to be correct. No more expensive investor management, no more creator incompetence and certainly no more failure to facilitate welfare-enhancing transactions by the market (1). Rather a shift in the economy “from a focus on only that which can be quantified in dollars and cents to a more realistic accounting of all the things we truly value today” (2). Continue reading Crowdfunding: only 986 years left?