Do Backer Affiliations Help or Hurt Crowdfunding Success?

Abstract

Crowdfunding has emerged as a mechanism to raise funds for entrepreneurial ideas. On crowdfunding platforms, backers (i.e., individuals who fund ideas) jointly fund the same idea, leading to affiliations, or overlaps, within the community. The authors find that while an increase in the total number of backers may positively affect funding behavior, the resulting affiliations affect funding negatively. They reason that when affiliated others fund a new idea, individuals may feel less of a need to fund, a process known as “vicarious moral licensing.” Drawing on data collected from 2,021 ideas on a prominent crowdfunding platform, the authors show that prior affiliation among backers negatively affects an idea’s funding amount and eventual funding success. Creator engagement (i.e., idea description and updates) and backer engagement (i.e., Facebook shares) moderate this negative effect. The effect of affiliation is robust across several instrumental variables, model specifications, measures of affiliation, and multiple crowdfunding outcomes. Results from three experiments, a survey, and interviews with backers support the negative effect of affiliation and show that it can be explained by vicarious moral licensing. The authors develop actionable insights for creators to mitigate the negative effects of affiliation with the language used in idea descriptions and updates.