Reward-Based Crowdfunding for Technology-Oriented Start-Ups

Dennis Brüntje, Dieter W. Joenssen, Britta M. Gossel, Thomas Müllerleile, Maike Brehm Ilmenau University of Technology

G-Forum 2014 – November 13, 2014 – Oldenburg, Germany

Reward-based Crowdfunding for technology-oriented start-ups

An empirical investigation along the entrepreneurship process

Outline

1.  Introduction

2.  Theoretical basis and research questions

3.  Methodology

4.  Results

5.  Conclusion

G-Forum 2014 | Reward-based CF for technology-oriented start-ups | © D. Brüntje et al. Page 2

State of the art about crowdfunding

•  Exploration from different perspectives in various disciplines (e.g. Dolata & Schrape 2013; Kuppuswamy & Bayus 2013; Leimeister 2012)

•  Further establishment of an autonomous field in entrepreneurship research –  Conferences (e.g. G-Forum: Brem & Wassong 2013; Hagedorn & Kortleben 2013; Hagedorn

2012; Müller & Walther 2011; IECER: Beier & Wagner 2014; ICEIRD: Müllerleile et al. 2014)

–  Journals (e.g. Mollick 2014; Moritz & Block 2014; Schwienbacher & Larralde 2012)

–  Scientific Work Groups (FGF, European and German Crowdfunding network)


1. Introduction


•  Numerous opportunities for empirical investigations

•  So far essentially we observe … –  Industry reports (e.g. Crowdfunding Industry Report)

–  Literature investigations (e.g. Moritz & Block 2014)

–  Overview articles (e.g. Hemer 2011)

–  Model-theoretical comparisons (e.g. Belleflamme et al. 2012, 2010)

–  Expert interviews (e.g. Steward & Ramos 2014)


1. Introduction


•  Different topics in the various types of crowdfunding (i.e. equity-, lending-, reward- or donation-based) –  Regulatory questions

(e.g. Germany: Klöhn & Hornuf 2012; USA: Bradford 2012; EU: De Buysere et al. 2012)

–  Success factors (e.g. Harzer 2012; Müllerleile & Joenssen 2014)

–  Capital seeker/provider motivation (e.g. Gerber et al. 2012)

–  Decision behaviour of capital providers (e.g. Burtch et al. 2013; Agrawal et al. 2011)

•  But only few works analyze data from crowdfunding projects and campaigns (Mollick 2014; for an overview see Moritz & Block 2014)


1. Introduction

Observation 1: Crowdfunding in the entrepreneurial process


2. Theoretical basis and research questions

cf. Moritz & Block 2014:59 based on Hemer 2011:31

Classic Venture Capital

IPO

Seed Venture Capital

Business Angels

Founder, Friends & Family

Sources of finance

StagePre-Seed / Seed Start-up Emerging Growth Expansion

Bank loans

Early-Stage-Gap

Crowdfunding

Observation 2: Signals in Crowdfunding

•  Challenges for entrepreneurs: –  Instill confidence in potential clients & investors – Achieve reasonable level of sincerity

•  Possible signals to reduce perceived risk: – Certain organizational structures – Sound company history –  ...



Mollick 2014

Observation 3: Crowdfunding as catalyst for company foundation?



Classic Venture Capital

IPO

Seed Venture Capital

Business Angels

Founder, Friends & Family

Sources of finance

StagePre-Seed / Seed Start-up Emerging Growth Expansion

Bank loans

Early-Stage-Gap

Crowdfunding

cf. Moritz & Block 2014:59 based on Hemer 2011:31

Research questions

1.  In which phase of the entrepreneurial process can crowdfunding be relevant for financing start-ups?

2.  Are crowdfunding projects, which are proposed either by project initiators not explicitly organized in a legal entity or by recently founded companies, less likely to be funded?

3.  What factors that characterize the crowdfunding campaign influence whether the project initiators found a company after the campaign?



Data collection and analysis

•  Automated collection of all (N=1,500) technology projects on Kickstarter (04/2009-04/2013) –  Variables: project title, kickstarter url, location, associated website,

requested & pledged goal (! success), start date, funding period, number of updates & comments, pledge levels

•  Manual coding of successful projects (n=707) –  Variables: foundation (y/n), date of foundation, legal form, name,

associated website, date of “death“

•  In-depth interviews with n=6 German start-ups which utilized Kickstarter and Indiegogo


3. Methodology

Interview partners (n=6)

Interview partner (IP) Name Company Product Crowdfunding

Platform

IP1 Marijo Sarac Bragi LLC. The Dash Kickstarter

IP2 Matthias Bürger Kinematics GmbH TinkerBots Indiegogo

IP3 Friedrich Spielhagen

LUUV Forward GmbH

Camera Stabilizer Indiegogo

IP4 Mario Martin Panono GmbH Panoramic Ball Camera Indiegogo

IP5 Tore Meyer 4tiitoo GmbH NUIA EyeCharm Kickstarter

IP6 Eugen Pflüger Parce UG Parce Indiegogo


3. Methodology

Brehm 2014

Technology projects?


3. Methodology

Image Source: https://www.kickstarter.com/discover/categories/technology?ref=discover_index [11/12/2014]

RQ 1: Entrepreneurial Process


4. Results

n=707



4. Results

n=707



4. Results

n=707



4. Results

n=707

RQ 2: Company foundation as signal


4. Results

Founded before Founded after Never founded

Projects (n) 290 88 329 Pledge goal ($) 15,000 15,000 3,100 Pledged ($) 34,153 37,606 5,843 Goal achievement (%) 167 203 139

Days for funding (total) 31 31.5 30 Pledge levels (total) 9.5 9 8

Comments (total) 43 58.5 11 Backers (total) 267 335.5 95

n=707, median of all projects within groups

RQ 2: Company foundation as signal


4. Results

Founded before Founded after Never founded > 1 year < 1 year < 1 year > 1 year

Projects (n) 193 97 57 31 329 Pledge goal ($) 19,500 10,000 25,000 10,000 3,100 Pledged ($) 43,371 25,496 61,274 16,243 5,843 Goal achievement (%) 156 178 226 179 139

Days for funding (total) 31 31 31 35 30 Pledge levels (total) 10 9 9 7 8

Comments (total) 52 30 71 38 11 Backers (total) 311 248 471 158 95


RQ 3: Crowdfunding as catalyst


4. Results

Founded before Founded after Never founded > 1 year < 1 year < 1 year > 1 year

Projects (n) 193 97 57 31 329 Pledge goal ($) 19,500 10,000 25,000 10,000 3,100 Pledged ($) 43,371 25,496 61,274 16,243 5,843 Goal achievement (%) 156 178 226 179 139

Days for funding (total) 31 31 31 35 30 Pledge levels (total) 10 9 9 7 8

Comments (total) 52 30 71 38 11 Backers (total) 311 248 471 158 95


RQ 1 & 3: Results Interviews (n=6)

•  Company foundation: 1 before, 5 after crowdfunding campaign (! Early-Stage)

•  If crowdfunding has not been successful, further company development would have been difficult

•  Faster company development because of successful crowdfunding campaign

•  Utilization of crowdfunding because of financing and marketing aspects (pre-selling, market-proof)


4. Results

Brehm 2014

Conclusion

•  Crowdfunding seems relevant in every stage of the entrepreneurial process, but early-stage financing stays most prevalent.

•  Company foundation could prove as signal to reduce perceived risks for investors.

•  Higher goal achievement, pledge goals, amount of backers and backer feedback seem to have a positive influence on company foundation.


5. Conclusion

Implications for research and practice

•  We respond to the call for more research that analyzes the relevance of crowdfunding for entrepreneurship.

•  We respond to the call for more empirical studies.

•  We examine the relevance of reward-based crowdfunding for financing technology-oriented projects.

•  We offer a reflection on crowdfunding beyond the borders of the platform by considering the post-crowdfunding phase.

! New dimension of research for crowdfunding: success and relevance of crowdfunding for entrepreneurs over time.


5. Conclusion

References Agrawal, A.; Catalini, C. & Goldfarb, A. (2011). The geography of crowdfunding. NBER Working Paper Series No. 16820. Beck, R. (2014). Crowdinvesting – Die Investition der Vielen. 2nd edition. Leipzig: Amazon. Beier, M. & Wagner, K. (2014). Getting money from the crowd: Drivers of fundraising success. Paper IECER 2014, Chur. Belleflamme, P.; Lambert, T. & Schwienbacher, A. (2010). Crowdfunding: An Industrial Organization Perspective, SSRN Working Paper 2151179. Belleflamme, P.; Lambert, T. & Schwienbacher, A. (2012). Crowdfunding: Tapping the Right Crowd. CORE Discussion Paper No. 2011 / 32, SSRN Working Paper 1578175. Bradford, C. (2012). Crowdfunding and the Federal Securities Laws. Columbia Business Law Review, 2012(1), 1-150. Brehm, M. (2014). Crowdfunding als Instrument des internationalen Marketings für technologische Produkte. Master thesis: Ilmenau. Brem, A. & Wassong, N. (2013). Wer investiert warum? Ergebnisse zu individuellen Investmententscheidungen in Crowdfunding-Projekten. Paper G-Forum 2013, Koblenz. Burtch, G.; Ghose, A. & Wattal, S. (2013). Cultural Differences and Geography as Determinants of Online Pro- Social Lending, SSRN Working Paper 2271298. Crowdfunding Industry Report (2012, 2013). Annual reports by Massolution, Retrieved June 26, 2014 from http://www.crowdsourcing.org/document/crowdfunding-industry-report-abridged-version-market-trends- composition-and-crowdfunding-platforms/14277 & http://research.crowdsourcing.org/2013cf-crowdfunding- industry-report De Buysere, K.; Gajda, O.; Kleverlaan, R. & Marom, D. (2012). A Framework for European Crowdfunding, European Crowdfunding Network. Dolata, U. & Schrape, J.-F. (2013). Zwischen Individuum und Organisation. SOI Discussion Paper 2013-02. Gerber, E. M.; Hui, J. S. & Kuo, P. (2012). Crowdfunding: Why people are motivated to post and fund projects on crowdfunding platforms, Northwestern University, Creative Action Lab. Hagedorn, A. (2012). Crowdinvestment als Finanzierungsform für Unternehmensgründungen in Deutschland. Eine kritische Analyse. Paper G-Forum 2012, Potsdam. Hagedorn, A. & Kortleben, H. (2013). Eine Analyse des Investitionsverhaltens beim Crowdinvesting. Die Rolle der Motivation und asymmetrisch verteilter Information. Paper G-Forum 2013, Koblenz.


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Contact Information Dennis Brüntje Media and Communication Management Group Institute for Media and Communication Science – Ilmenau University of Technology Ernst-Abbe-Zentrum – Ehrenbergstraße 29 – D-98693 Ilmenau – Germany T: +49-3677-69-4680 F: +49-3677-69-4650 E: [email protected] www.tu-ilmenau.de/mkm www.facebook.com/fgmkm www.twitter.com/fgmkm
