When Investors Meet Consumers : The Interaction of Different Backers in Crowdfunding Markets

Crowdfunding has changed the way startups, entrepreneurs, and individuals raise capital by harnessing the power of the crowd. Reward-based crowdfunding is an established and attractive fundraising option for entrepreneurs with creative projects. Recently, investment-based crowdfunding has also gained popularity thanks to the progress of related regulations. A growing number of startups are beginning to seek funding opportunities using both types of crowdfunding. Crowdfunding backers on different types of platforms exhibit distinct motivations. Understanding the behavior and interaction of different types of backers is critical for a startup to launch a successful crowdfunding campaign across distinct platforms. To address this issue, we conducted a field study on a popular crowdfunding platform, where each campaign offered both reward- and investment-based funding. Interestingly, we find a positive relationship between investors' contributions in the early stage of the campaign and the likelihood of the campaign's success. We propose two mechanisms to explain this pattern: a screening effect, in which early investors can better extract information about the innovation project to predict crowdfunding success, and a cheerleading effect, in which early investors voluntarily act as sales agents to encourage purchases by potential consumers of reward-based crowdfunding. Moreover, our empirical analysis reveals that despite these critical roles (predictors and sales agents) of early investors, the funding goal of a successful campaign is mainly accomplished by consumers in the later stage. These results are consistent with several robustness checks. Our findings provide relevant managerial implications for entrepreneurs and valuable insights towards platform design