Report Guidelines
Option 1: Kickstarter Reward-based Crowdfunding (RBCF) Platform (100 %) You are expected to write a 2000 – 2,500 word essay
- Literature Review – First review and assess the academic literature on reward-based crowdfunding. You may use the literature suggested in this handbook. However, good essays should also demonstrate your extended knowledge by researching and finding additional academic articles on the subject. Develop a strong research-based view on the subject. Additionally, within this literature review, you should chose and compare reward- based crowdfunding with equity crowdfunding model presented in this module. In other words, what are the similarities (if any) and what are the differences between both funding models base on academic articles, lectures and workshops.
- Select a reward-based crowdfunding project: Select a successfully funded venture or project of your interest as a case study on Kickstarter https://www.kickstarter.com/. Criti- cally analyse the case by drawing on knowledge from the academic literature.
- Critically discuss the Kickstarter (RBCF) campaign of your choice reflecting on your knowledge gleaned from the academic literature review:
Why you have you selected this particular model and campaign? Review and describe the perceived quality and impact of RBCF campaign markers: Video, narrative, updates, feedback from funders, types of rewards, news and press releases when available. Any third party endorsements if available.
Identify amount raised and number of funders. Average contribution amount.
- Additional questions to be answered in your report. After reviewing the academic literature and the material evidence of the campaign: a. In your opinion what worked and what did not work? Why? b. What would you do differently? How? Why?
- How could the campaign creators pitch this project differently? Use your own creative ideas and storyline.
- You may add images and graphs to enhance your report.
CAMPAIGN: Coffee Joulies
LINK:https://www.kickstarter.com/projects/705847536/coffee-joulies-your-coffee-just-right
Introduction
Purchase is a type of investment. (A GOOD HOOK). The emerge of crowdfunding created a new financing world for early start-ups enjoying the benefit from social media, using the lowest cost to capture the most potential customers. Thus, it would be useful for project owners know which element to develop when creating the campaign that inspires the crowd to contribution. This essay aims to critically discuss the influence of different campaign elements that motivates backers contributed to the success of reward-based crowdfunding. Literature review with comparison to equity-based crowdfunding will be outlined firstly, then the essay will analysis based on selected case (Coffee Joulies), supported with views from personal perspective.
Literature review
The concept of crowdfunding started as a mean of raising funds for photographer, film makers, musicians and other artists on internet platforms such as Artistshare (Alexandra Moritz). It has now encompassed a much broader range of activities, from small charitable endeavours to businesses seeking hundreds of dollars in return for equity (Freeman andNutting, 2015). Definitions of crowdfunding has been discussed in a varied way. To begin with, the basic understanding is analogue of the word crowdsourcing which means outsource specific tasks for products (Kleemann et al., 2008) from general publics while crowdfunding is to obtain money on purpose as well as feedback or solutions from the crowd to help developing activities (Bi, Liu and Usman, 2017). This highlighted the efforts made by individuals or groups (Cox and Nguyen, 2018). In addition, the definition can be understood from two perspectives, founders and funders respectively. From founders’ aspects, Mollick (2014) explained the concept in a more entrepreneurial context. He has pointed that ‘crowdfunding is a novel method for funding a variety of new ventures, allowing individuals founders of profit, cultural, or social projects to request funding from many individuals, using the internet without intermediaries’. And is often in return for future products or equity. From backers’ aspects, Schwienbacher and lorradle (2010) defined crowdfunding is more like the provision of financial recourses by donation or exchanges to receive different rewards or voting right (Molick, 2014). Based on funder’s perspective, crowdfunding can be differentiated into four types which include donation-based, reward-based, lending-based and equity-based crowdfunding ( Gierczak, Bretschneider, and Leimeister, 2014).
In this essay, we mainly summarise literatures on reward-based and equity-based crowdfunding. As one of the most popular crowdfunding method and the largest crowdfunding category in terms of overall number of crowdfunding platforms (Massolution, 2012). The motivation of backers contributes to reward-based crowdfunding has attracted attention in academic area. In this approach, project participants receive non-monetary return (e.g. products or services) in exchange for their contribution while in equity-based crowdfunding investors are offered a share in future earnings (De Buyser et al 2012). Thus, the reward offered by creators is the most important motivation in reward-based (Du, Li and Wang, 2018). Even it has been found that equity investors are willing to keep a pledge also rather than redirect their funds into an campaign (Cholakova and Clarysse, 2014), researches find that non-financial motives play no significant role in their investment decisions (Block et al., 2017).
Moreover, in a conventional reward-based campaign, different levels and number of pledged rewards make differences to backer’s behaviour, in which number of options is the most considered (Desai, Kupta and Truong, 2015). Different levels of reward used to encourage more funds (intellectual) but pledges such as a dinner at new restaurants are not sustainable and has limitation which could lower the interest of customers being ‘special early birds’. As a result, success probability reduced (Brüntje and Gajda, 2016). Researches also shows having at least one limited reward level reduces the success probability (Joenssen and M¨ullerleile, 2016). Opposite statement can also be found saying that participants tended to choose rewards that were offered in limited numbers, even if they had to pledge more for them (Weinmann, 2017). In addition, the potential of reward-based crowdfunding that attracting more funding in R&D activities has been discussed (Cox and Nguyen, 2018). It is viewed highly successful reward-based crowdfunding campaigns such as pebble smart watch and Oculus Rift virtual headset are mostly technology start-ups. However, according to Cox and Nguyen, (2018), campaigns in technology category do not attract more backers or funds compared to film or other fields. Also, it is suggested that geographic similarities and working group similarities would increase the willingness to collaborate (Muller et. al., 2014)
Furthermore, the similarity of reward-based crowdfunding and equity crowdfunding is that there are no promises from founders, promised reward will possibly not deliver and equity founders would possibly spend all the money raised without earning profit. Thus, signals of quality that establish trust relationship has an effect on decision makings. A study by (Mollick, 2014) on Kickstarter dynamics finds that higher funding goals and longer project duration lead to lower chances of success. The financial goals of most successful reward-based campaigns on Kickstarter or Indiegogo are around 30 to 40000 US dollars (Block et al., 2017). As well as inclusion of a video in a project pitch and frequent updates on the campaign strongly increase the likelihood of full funding (Desai, Kupta and Truong, 2015), even the size of network has positive effect on crowdfunding performance (Mollick, 2014). T. Compared with equity-based crowdfunding, the importance of amount of equity offered and information of risks are highlighted by (Ahlers et al., 2012). Broad experiences, capital market road map and other business strategy information would positively attract incests (Ahlers et al., 2012). People have higher expectation if they see the possibility of receiving better financial returns. Furthermore, video pitches that is a crucial part of both crowdfunding, which contains many elements that seems could determine participants. Analysis also found that successful campaign text conveys gratitude towards the backers (Desai, Kupta and Truong, 2015). For example, using ‘we’ instead of ‘I’ to represent the corporate attitude with the public.
Discussion
The Coffee Joulies case is used to critically discuss the motivation of backers influenced by different element in a successful reward-based campaign, comparing to theoretical works. The coffee Joulies campaign on kickstarter was created in 2011, aiming to raise funds for a stainless steel beans which has the function to cool coffee faster and keep it warm longer (Kickstarter, 2011). The project has achieved huge success which has met the 9500 dollars’ target goal in three days and has exceed 297444 dollars. More than 4818 backers with an average of 63.7 dollar contribution has supported the project. I found this campaign accidently when exploring on the website, and was captured by the first sight (cover page of the video). The influence of video visualization has not been addressed but it helped me quickly select from the campaigns and influenced my duration time personally. However, the view that the the highest motivation of reward-based crowdfunding is the desire of collecting a reward (Du, Li and Wang, 2018) be confirmed on myself. Due to my personal life style, some categories like games or music are not interests me because their rewards will not be considered beneficial to me.
The second element is category and feature. Category is hard to notice on the web page and I was completely not care about it. When exploring projects, I normally choose from collections where ‘trending projects’ or ‘nearly founded project’ shows. I also looked at the most funded campaigns on the website, top campaigns are distributed in vary sectors. This shows an contrast with most highly successful reward-based crowdfunding are in technology category. It seems category makes no difference in the evaluating funding process (Cox and Nguyen, 2018). Even though according to another research, it has been found the performances of campaigns in ‘business’ category are lower than average. I consider category is not the effect of performances, it is a result from the mechanism of reward-based crowdfunding because it leads to more focus on product innovation area. In addition, it is interesting that campaigns with ‘projects that we loved’ feature like Coffee Joulies attracts my attention mostly. For me, this is also a way to building trust though quality signals in order to motivate (Bi, Liu and Usman, 2017). Critically, from my view, because the unique feature on kickstarter are given randomly based on their staff preferences (Kickstarter), there might be a negative effect on many other creative and potential campaigns. I noticed there is a comment from another creator on Coffee Joulies questioned the reason of his failure. These people might not lucky enough to get featured and will be skipped quickly by people like me and buried in thousands of campaigns.
Next, the most important element, reward, is offered in three types of pledge way in exchange of reward by Coffee Joulies. Despite with many other projects in product design who mainly offer discounts or products, Coffee Joulier not only offer copied of things (products and travel mug with logo), it also has creative collaborations of various kinds (carring pounch for people to resell); creative mementos (name listed on website). The campaign’s rewards combined mainly of the common reward types on Kickstarter website (Kuppuswamy and Bayus, 2015). If it is me, I would like to add ‘make pledge without a reward’ option or more reward types for increasing possibility before I did not know whether the campaign will be successful or not. However, there is no discussion on the relationship between diversity of reward and motivation found. Nonetheless, I assume increased the diversity which leads to stronger motivates. Meanwhile, the description of the campaign alongside with pictures of different levels of reward. This fits the statement being able to fine-tune the projects would increase the purchasing willingness of people (Crow). Even though there is no limitation on the reward itself of Coffee Joulies, I could not owe the success to this. But I could say their rewards avoid reductions in success. Furthermore, Coffee Joulies rewards has none limited reward numbers. By noticing country differences of the two controversial literatrure. In my view, the positive or negative influence by the number of limited pledge might determined depending on background of backers. With different cultural, some people might found projects with limited pledge numbers could fulfill the satisfaction of being unique early adaptors while others think unlimited stands for the ability of creators that they could provides more. Besides, I noticed that shipping internationally will costs extra on the campaign. As a potential backer, I have to consider how my money will be used and is worth backing. Because the fee is cheap so even this has a negative impact on my decision process but it is ignorable. To improve the performance of campaign, I would have provided free shipping and instead, adding the fee to pledge choices if being the creator.
Additional, many other elements of motivation could be found in the Coffee Joulies campaign and they seems have done in the right way based on the literature review. Firstly, more than 66% percent of backers of Coffee Joulies come from the same geographic country with creators and most of these people comes from the same city with the project. Secondly, the funding goals of Coffee Joulies is 9500 dollars is between the price intervals of most highly successful campaigns which seems affect the performance. Thirdly, the project creator updated on the web frequently not only the plans which helps to build potential company image but also suggestions on reward selection or propose tweet campaign which active the community. And they are always enthusiastic in responding to people’s comments. Not long after the end of fundraising, they successfully sent those rewards and continually try to solve problems for those who did not received. Now they are starting new project. Compared to projects like Coolest cooler which is one of the most successful and most funded campaign but fail to complete promises and tried to get more funds (Epstein, Smith and Estrada, 2016). Coffee Joulies’s successes result from keeping the trust between creators and backers. Fourthly, languages used in the video pitch use ‘we’ mainly. Even though one of the partners is not on the scene, he still participant in the video by facetiming. Others-benefit appeals such as ‘your donation helps us achieve our goals’ highlights the beneficial of support make the video more conventional (Chen, Thomas and Kohli, 2016). Fifthly, information is descriptive. Technology spec, rewards explanation, pre-predicted FAQ are clearly on the campaign, the slogan ‘your coffee, just right’ is a clear mission statement. However, the duration of the video is 2:51 seconds which a bit longer than others successful campaigns I found. Accordingly, I cannot infer the setting goals and the duration of video time contributed to the success of the campaign. Besides, I never thought have a look at networking of the creator (e.g. searching on Facebook). Since it has been mentioned by many academics, I think this factor would have greater performance in other types of crowdfunding such as equity-based, where people are more careful due to high risks. But the creativity shared though reward-based crowdfunding will attract more like-minded people and have the chance turning them into potential customers. Also, the video pitch is real and authentic, it would be better if both of the creators can be together when shooting the video. Otherwise, it look that they did not make enough effort into it. In addition, as they have mentioned that they have already made some products for testing. I suggest doing street action testing and record the real feedback from the public in order to show the real product performance and give quality signals to potential backers.
Conclusion
Platforms like Kickstarter is a stage for early start-ups, but is also a stage for backers seeking opportunities to invest in value. Elements such as proper use of language or diversity of reward types seems boost people’s awareness of buying while categories or network ties seems no significant effect. Knowing the influence of the elements helps funder’s to better deliver the campaign. Ultimately, backers motivated though different elements because they saw the underline value, especially on those reward. According so, the motivation actually originally comes from the creator itself, showing their faith and enthusiastic because they have motivation to start their company and their motivation will be reflect in the campaign elements.
Ahlers, G., Cumming, D., Guenther, C. and Schweizer, D. (2012). Signaling in Equity Crowdfunding. SSRN Electronic Journal.
Belleflamme, P., Lambert, T., & Schwienbacher, A. (2014). Crowdfunding: Tapping the right crowd. Journal of Business Venturing, 29(5), 585–609.
Block, J., Colombo, M., Cumming, D. and Vismara, S. (2017). New players in entrepreneurial finance and why they are there. Small Business Economics, 50(2), pp.239-250.
Bi, S., Liu, Z. and Usman, K. (2017). The influence of online information on investing decisions of reward-based crowdfunding. Journal of Business Research, 71, pp.10-18.
Brüntje, D. and Gajda, O. (2016). Crowdfunding in Europe. Cham: Springer International Publishing.
Chen, S., Thomas, S. and Kohli, C. (2016). What Really Makes a Promotional Campaign Succeed on a Crowdfunding Platform?. Journal of Advertising Research, 56(1), pp.81-94.
Cox, J. and Nguyen, T. (2018). Does the crowd mean business? An analysis of rewards-based crowdfunding as a source of finance for start-ups and small businesses. Journal of Small Business and Enterprise Development, 25(1), pp.147-162.
Cholakova, M. and Clarysse, B. (2014). Does the Possibility to Make Equity Investments in Crowdfunding Projects Crowd Out Reward-Based Investments?. Entrepreneurship Theory and Practice, 39(1), pp.145-172.
De Buysere, K., Gadja, O., Kleverlaan, R., & Marom, D. (2012). A framework for European crowdfunding. Retrieved from http://www.eurocrowd.org/files/2013/06/FRAMEWORK_EU_
CROWDFUNDING.pdf
Desai, N., Gupta, R., & Truong, K. (2015). Plead or pitch? The role of language in kickstarter project success. Retrieved from http://nlp.stanford.edu/:
http://nlp.stanford.edu/courses/ cs224n/2015/reports/15.pdf
Du, Z., Li, M. and Wang, K. (2018). “The more options, the better?” Investigating the impact of the number of options on backers’ decisions in reward-based crowdfunding projects. Information & Management.
- W. Joenssen and T. M¨ullerleile, “Limitless crowdfunding? the effect of scarcity management,” in Crowdfunding in Europe, 2016
Epstein, Z., Smith, C. and Estrada, M. (2016). The second-biggest Kickstarter project ever is also a spectacular fail. [online] BGR. Available at: https://bgr.com/2016/04/15/kickstarter-coolest-cooler-fail/ [Accessed 6 Jan. 2019].
Gierczak, M., Bretschneider, U., Haas, P., Blohm, I., and Leimeister, J.M., 2016.
Crowdfunding: Outlining the new era of fundraising. In: D. Brüntje and O. Gadja, eds. Crowdfunding in Europe: FGF studies in small business and entrepreneurship. Cham: Springer, pp.7–23.
HALT, J. (2018). Intellectual property and financing strategies for technology startups. [Place of publication not identified]: SPRINGER, pp.11-33.
Freedman, D. and Nutting, M.R. (2015), “A brief history of crowdfunding”, working paper.
Kickstarter. (2011). Coffee Joulies – your coffee, just right. [online] Available at: https://www.kickstarter.com/projects/705847536/coffee-joulies-your-coffee-just-right.
Kleemann, Frank, G. Gunter Voss and Kerstin Rieder. 2008. “Un(der)paid Innovators: The Commercial Utilization of Consumer Work through Crowdsourcing.” Science, Technology & Innovation Studies 4:1, 5-26.
Kuppuswamy, V., & Bayus, B. L. (2015). Crowdfunding creative ideas: the dynamics of project backers in Kickstarter (November 2, 2015). UNC Kenan-Flagler Research
Massolution. 2012. “Crowdfunding Industry Report: Market Trends, Composition and Crowdfunding Platforms.”
Mollick, E. (2014), “The dynamics of crowdfunding: an exploratory study”, Journal of Business Venturing, Vol. 29 No. 1, pp. 1-16.
Muller, M., Geyer, W., Soule, T., Daniels, S., and Cheng, L. T. (2013). Crowdfunding inside the enterprise: employee-initiatives for innovation and collaboration. In Proceedings of the SIGCHI Conference on Human Factors in Computing Systems, 503-512, Paris, France.
Schwienbacher, A. and Larralde, B. (2010). Crowdfunding of Small Entrepreneurial Ventures. SSRN Electronic Journal.
Weinmann, M., Simons, A., Tietz, M., and Brocke, vom, J. (2017), Get it before it’s gone? How limited rewards influence backers’ choices in reward-based
crowdfunding. In Proceedings of the International Conference on Information Systems (Seoul, South Korea, Dec. 10–13). Association for Information
Systems, Atlanta, GA, 2017, 1–10.
