Financing Nascent Entrepreneurs by Reward-Based Crowdfunding

Abstract

A problem faced by nascent entrepreneurs is to attract outside capital to finance a new venture. A new promising funding mechanism created outside the banking system is crowdfunding (CF). The reward-based model of CF allows nascent entrepreneurs to capture funds from a large group of small investors through a campaign on the Internet. In return for the contribution of the backers, crowdfundees provide rewards (tangible items or services) or other types of incentives. However, in order to be successful a campaign must be designed according to a strategy that encompasses important steps. This study collects data from projects posted in the Indiegogo platform to identify the critical factors of a successful reward-based campaign. The results indicate that it is possible to find an explanation for the different levels of success of reward CF campaigns based on the analysis of the characteristics of the project (depth of the description, updates, and type) and its founders (own presentation, number of backers, team involved, and previous experience).