SBU researcher eyes crowdfunding success factors

The smart money: Succesful crowdfunding campaigns factor in more than a clever product or service, according to Stony Brook researcher Richard Chan.
By GREGORY ZELLER //

The ultimate success of a crowdfunding campaign depends largely but not exclusively on the product or service at hand.

That’s the main thrust of “Reward-Based Crowdfunding Success: Decomposition of the Project, Product Category, Entrepreneur and Location Effects,” a research paper published in June by Venture Capital, an international journal of entrepreneurial finance.

The paper – completed by a quartet of researchers, including lead author Richard Chan, an assistant professor in Stony Brook University’s College of Business – is among the first published studies showing that factors beyond the product or service being funded significantly influence the results of crowdfunding efforts.

“Specifically, we found that agency predictors related to entrepreneurs and projects could better predict funding success than situational predictors related to product category and location,” Chan said in a statement.

But “structural factors,” such as the product category and “location effects,” also significantly effect outcomes, according to the paper, which details how the researchers – including Chan and partners at the University of Texas at Dallas, Villanova University and the Lee Kong Chian School of Business at Singapore Management University – applied “variance decomposition analysis” to a sample of 98,336 crowdfunding projects launched between May 2009 and May 2014 on the popular Kickstarter platform.

Richard Chan: Standing out in crowdfunding.

Their primary findings: “Agency factors,” such as the project and the entrepreneur, generate the highest relative variance regarding pledge amounts, number of pledges and overall funding success.

These findings are “of practical relevance to aspiring entrepreneurs seeking funding through reward-based crowdfunding platforms,” according to the paper’s abstract.

They also dovetail nicely with the findings of another Chan-led paper, “Crowdfunding Innovative Ideas: How Incremental and Radical Innovativeness Influence Funding Outcomes.”

That treatise, published in 2017 by the peer-reviewed journal Entrepreneurship Theory and Practice, explores how more-successful crowdfunding impresarios tend to favor small steps over giant leaps when it comes to innovation.

The 2017 paper’s primary conclusion: Crowdfunded campaigns featuring radical innovation are “riskier to develop (and) harder for crowd-funders to understand,” resulting in less-favorable funding outcomes than those featuring “incremental innovativeness,” which are generally “more comprehensible and generate more user value” for the crowdfunding audience – and therefore, better funding-campaign results, according to the paper’s abstract.

The exploration of crowdfunding platforms and other entrepreneurship angles is nothing new to Chan, whose research on the seed-funding success of startups with unique names and related business-formation topics has been cited by Business Insider and a host of other top-shelf business publications.

Chan also is the director of SBU’s new Center of Entrepreneurial Finance, which is designed to advance and share research into how entrepreneurs acquire and manage their financial resources.