Jan 10 • 6 min read

Since the late 1990s, entrepreneurs have used crowdfunding campaigns to fuel projects ranging from cookbooks to 3D printers and molecular ice cream. Those campaigns have spilled over into popular culture. Crowdfunding financed the Veronica Mars movie, the Pebble smart watch and the Coolest Cooler, with all three projects raking in several million dollars through Kickstarter.

But in 2016, with thousands of campaigns running across Kickstarter, Indiegogo, and similar platforms, how can users and businesses launch campaigns that rise above their competition?

Dr. Sunil Wattal and Dr. Gordon Burtch sought to answer that question.

After seven years of analysis on the crowdfunding campaigns and a few research papers later, the research team summarized its findings in a primer published in the Institute for Business and Information Technology, titled “Crowdfunding: Tapping into the Wisdom (and Wealth) of Crowds,” co-authored by New York University professor of information, operations, and management sciences Dr. Anindya Ghose.

“At the time, crowdfunding was a bit of a new area of business study,” said Wattal, Associate Professor of Management Information Systems at Temple University’s Fox School of Business. “Very few people knew how these markets worked, what didn’t work, and other dynamics of crowdfunding.”

Burtch, who earned his PhD from the Fox School of Business, developed an interest in crowdfunding in 2009, after a family friend introduced him to one of the earliest crowdfunding platforms – the now-defunct Cameesa. The platform allowed users to buy “shares” in a T-shirt design and earn royalties after it had gone to print.

“I thought the concept was really very interesting, because it was combining so many novel ideas in one market: crowdsourcing, creativity, investment and so on,” said Burtch, an assistant professor of information and decision sciences at the University of Minnesota.

Burtch worked with Wattal, his academic advisor at the Fox School, to study crowdfunding data sets and research ideas. Together, they wrote papers that would ultimately provide key takeaways and tips for entrepreneurs and businesses interested in crowdfunding, all of which can be found within the Fox School Institute for Business and Information Technology (IBIT) Report.

“I repeatedly see people make the mistake of failing to realize just how much preparation and groundwork goes into the execution of a successful campaign,” Burtch said. “A lot of things are done behind the scenes, before the campaign even launches.”

Selecting the Appropriate Crowdfunding Platform

Not all crowdfunding platforms are the same, cautioned Wattal and Burtch, who outlined a few of the more-popular types:

  • Donation- and lending-based crowdfunding, in which online donors receive no financial return.
  • Rewards-based crowdfunding, or campaigns that prompt individuals to contribute in exchange for incentives like a form of the product for which funds are being raised, or another service.
  • Equity-based crowdfunding, which provides donors with an ownership or stake in the project in exchange for donations.

“With the donation-based approach, backers’ expectations are more realistic in that if you are giving money, you don’t expect anything in return,” Wattal said. “Reward-based crowdfunding has been around for a long time, and sites that use this approach attract millions of users and a lot of web traffic. It’s a low risk and low return.”

Equity-based platforms tend to have a higher risk and higher return, Wattal said, adding that backers carry higher expectations because they are investing in the product and growth of a business.

Projects for goods in the technology, books, or gaming sectors are better suited for equity- and lending-based platforms, he said. And research shows that initiatives around public good, charity, or community projects work well on donation- and reward-based models.

Striking a Balance with Campaign Duration

In the IBIT Report, the authors suggest that extended fundraising durations tend to negatively impact a campaign. This is because backers do not feel an urgency or level of excitement to help the campaign reach its goal. However, some lengthier campaigns may lead to greater attention and awareness of the project’s promotion. Finding a balance is important, Wattal said.

“It’s not just about how much money is raised, but also how much is raised over time,” said Wattal, who found that the average campaign duration is between 30 and 45 days.

Establishing Realistic Goals

In the review, the authors suggest that lofty fundraising goals may lead funders to believe the goals are excessive or unrealistic. Most crowdfunding platforms do not require the funding campaign to close when a goal is reached, which encourages entrepreneurs to set a lower threshold.

Again, balance is important when setting goals, the authors said; they state that when a goal is met, crowdfunders may fade because they assume the campaign has been fulfilled. To decrease the likelihood of this happening, they recommend including in the campaign pitch that the goal will only address a portion of the project’s budget.

Maintaining Campaign Engagement

Many campaigners make the mistake of underestimating the social aspect of crowdfunding, Wattal said. This happens in the presentation of the product on the campaign page, or in the failure to execute a proper promotional strategy on social media or other marketing channels.

“When you create a campaign for a product, it should have the potential to go viral and create a lot of buzz,” Wattal said. “Some campaigners hope the product or idea will sell itself, but that’s not the case.”

The professor recommends campaigners create descriptions that are easy-to-read and error-free. He also advises that they should develop a thorough promotional plan for social media and beyond.

Preparation Is Paramount

The authors warn not to launch a campaign too early. If a project doesn’t appear to be well prepared or organized, crowdfunders may be less inclined to contribute.

Another reason to ensure proper preparation revolves around intellectual property issues. Wattal said there have been a few high-profile incidents in which projects were replicated or copied. He cited the TikTok Lunatik watch kit, a 2010 Kickstarter campaign that raised more than $900,000. Its creator, Scott Wilson, did not pursue proper creative protections before the campaign, however, and his designs were copied. “Those kinds of issues aren’t very common, but it’s a possibility,” he said.

A Successful Campaign

Entrepreneurs and business owners can learn a lot from Pebble watch’s campaigns, said Burtch and Wattal. Its first campaign generated more than $10 million. The Kickstarter for Pebble Time, a second-generation watch, met its fundraising goal of $500,000 in less than 20 minutes, and went on to eclipse $20 million from more than 70,000 crowdfunders.

The latest campaign for the third-generation watch, Pebble 2, launched in spring 2016 and raised more than $12 million.

“The Pebble Time campaign was a slam-dunk because Pebble already had an established following of backers on Kickstarter from its original campaign,” Burtch says. “Moreover, it had gained a great deal of experience. Nothing beats first-hand experience.”

Wattal added that it is important for entrepreneurs to understand the elements of a successful campaign, as crowdfunding continues to grow.

“It’s an exciting market,” Wattal said, “and there is going to be a lot of action in this space over the next few years.”

Management Information Systems