Crowd inputs in reward-based and equity-based crowdfunding: a latent Dirichlet allocation approach on their potential for innovation

Abstract

PurposeCrowdfunding platforms are important innovations that allow nascent entrepreneurs to gain access to financial resources and crowd inputs to better refine and develop their business idea. The purpose of this paper is to investigate user-generated content (UGC) from both reward-based and equity-based crowdfunding platforms, in order to determine its implications for open and user innovation.Design/methodology/approachA total sample of 200 most funded technology products was extracted from four distinct crowdfunding platforms. A latent Dirichlet allocation (LDA) analysis was performed in an attempt to identify critical latent factors. The analysis was carried out through the theoretical lens of innovation literature, in an attempt to uncover the implications for open and user innovation.FindingsThe authors were able to highlight the implications of crowd inputs for open and user innovation, as backers provided nascent entrepreneurs with several types of feedback, ranging from product co-development to strategy and marketing. Furthermore, the study provided an overview of the key differences emerging between reward-based and equity-based crowdfunding platforms in terms of crowd inputs.Research limitations/implicationsThe present study features intrinsic limitations of the LDA approach being adopted. More specifically, it only provides a “snapshot” in time of the current sample, rather than investigating its development over time.Practical implicationsThe present study solidifies the value of UGC as a resource to mine for trends and feedback.Originality/valueThe study contributes to both the innovation literature and the crowdfunding literature. It bridges several gaps found in both literature streams, by providing empirical evidence to test and verify pre-existing exploratory research.