What Do Crowds Really Want? Crowdfunding and Early Product Access

Abstract

In this study, we analyze one motive for funders to invest in crowdfunding campaigns, namely to obtain early access to innovative products. We find that early access to products (which we term as pre-order perk) increases the fraction of crowdfunding campaign goal amount raised and the likelihood of raising significantly more money than the campaign goal. This effect of pre-order perks on campaign fundraising success is greater when the pre-order product has greater technological novelty, which we proxy for using “connected devices.” Textual analysis suggests that funder comments for such products contain greater anticipation and positive sentiment. Further, the effect of pre-order perks on campaign fundraising success is greater for fixed funding type campaigns, wherein campaign teams are only able to access funds if they raise at least their stated campaign goal. We argue that such campaigns are chosen by entrepreneurs with products that are at a later stage of development. Consistent with this, we find that the likelihood of product delivery to funders is higher for fixed funding type campaigns. We also find that fixed funding campaigns have more factual statements in their campaign description whereas flexible funding campaigns have more uncertain and forward-looking (i.e., planning) statements. Overall, our results are consistent with individuals investing in crowdfunding campaigns as being at least partly motivated to obtain products that they may not be able to access in regular product markets.

Keywords: Crowdfunding, Entrepreneurship, Entrepreneurial Finance

JEL Classification: M13