3 key crowdfunding success factors
12/20/2018
Mikael Petitjean
Based on an interview with Mikael Petitjean, IÉSEG, about his paper “What explains the success of reward-based crowdfunding campaigns as they unfold?” (Finance Research Letters 26, 2018, 9-14).
Reward-based crowdfunding platforms such as Kickstarter and KissKissBankBank have exploded in recent years, making entrepreneurs out of people who once would never have had the opportunity to bring their creative ideas to realization. IÉSEG’s Mikael Petitjean has studied what factors makes these campaigns flourish and what makes them fail.
Past empirical studies conducted in Europe on crowd funding platforms have focused exclusively on equity-based platforms, with little research attention being paid to their reward-based counterparts. The impact of reward-based platforms however is not to be sniffed at. In the US, Kickstarter has resulted in more than 150,000 successful projects with over 3.5 billion US dollars being successfully pledged.
Past research confirms what Kickstarter has long informed its budding entrepreneurs: “Rule #1 for Kickstarter videos: make one”. It is also no secret that encouraging early interest in campaigns is important to their success. But are these factors really the most important things for budding entrepreneurs to consider, and are they also as important for smaller sites, such as French reward-based crowd funding platform KissKissBankBank?
“I didn’t expect the number of comments to be so important” – Mikael Petitjean
To answer this question, Petitjean hand-collected data from KissKissBankBank, a crowdfunding platform that has raised 90 million euros (for projects)… Petitjean found that the inclusion of a video was an important factor during the first week of the campaign, however by the end of the campaign it was no longer a key factor for determining success. Three other key factors also stood out:
1. Comments are crucial
“What becomes important at the end, when you have all the information is the number of comments left by the backers. As the campaign unfolds, the presence of a video that was very important at the start becomes less important, because it is in some way compensated by the number of comments left by the backers. People tend to focus more on the comments than the number of backers,” Petitjean explains. “I didn’t expect the number of comments to be so important”.
2. Some fields are tougher to break into than others
Another factor Petitjean found surprising was that project category was not only a very strong predictor of success, but the success rate of a category remains remarkably consistent over time. The top three most successful categories on KissKissBankBank are music with a success rate of 73%, followed by theatre/dance and film/video both at the same success rate of 66%. In contrast, the toughest field to break into is tech with a success rate of only 34%, followed by games, with a success rate of 39%. It’s possible however that some of this phenomenon is due to the geographical audience of KissKissBankBank.
3. The first week is key
Finally, the project confirmed once again what those in the crowd-funding sphere have long known. A successful first week is paramount to a successful campaign. Those crowd funding projects that fail to garner a crucial threshold of funding and buzz online within the first week after launch are unlikely to ever make it off the ground.
What additional advice can we give to entrepreneurs launching crowdfunding campaigns based on this research? According to Petitjean, “My main advice to campaign launchers would be to make sure you have a sufficient level of interest right from the start and to motivate the community around you to be active on the platform and to show how interested they are. It is very important to have an active community at the start. Then they will share this interest and create a virtuous circle very quickly.” Petitjean believes this is due to a kind of herding behaviour that occurs among potential backers. “They will look at this kind of project after one week or two weeks or three weeks and see what others believe. If they see a positive impetus they will be more likely to join the crowd.”
For those backing projects, Petitjean’s advice is simple: “Collect as much information as possible and don’t place too much trust in other people, otherwise you could end up being part of a bubble where people rush to back projects just because they believe others are bullish”.
Watch the video about crowdfunding here: