How Crowfunding Influences Innovation

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For technology entrepreneurs, crowdfunding platforms can be appealing as a possible source of funding for product development.  But, as the authors explained recently, crowdfunding backers are also important for the feedback, ideas, and word-of-mouth they can provide.

Crowdfunding is changing how entrepreneurs bring new products to market.  It has allowed thousands of innovating entrepreneurs to raise money, build brand awareness, and join a broader conversation with large numbers of potential backers, all while still in the product development process.  Examples of crowdfunded products include the Glif, whose creators raised more than $137,000 for the device, which allows smartphone users to prop their phones up at an angle or attach them to tripods.  Another is the Oculus Rift, a virtual-reality gaming headset that raised $2.4 million via crowdfunding; Oculus VR was later acquired by Facebook Inc. for $2 billion.

Stanko and Henard set out to better understand how crowdfunding affects innovation.  To do this, they followed up, at least one year after a crowdfunding campaign, with organizations that had developed products through “funded Kickstarter campaigns.”  Kickstarter, a platform founded in 2009 to focus on funding creative projects in the arts, community initiatives, music, and publishing, is a prime example of a reward-based crowdfunding platform, in which backers do not receive equity but instead receive some other reward for their contribution, such as a preorder of the product.  Since its inception, Kickstarter has also morphed into a funding platform for innovators creating technology products.

The more than 200 Kickstarter alumni providing data for this study collectively raised more than $17 million from roughly 239,000 backers during their Kickstarter campaigns.  Since the authors were primarily interested in product innovations, their research focused on four categories:

  1. Technology
  2. Product design
  3. Hardware
  4. Video games

By combining data from the campaigns with survey data concerning the product’s market performance and the organization’s innovation tendencies, Stanko and Henard gained insights into how crowdfunding campaigns can help — or hinder —...

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