An Empirical Analysis of Crowdfunding

Thomas Lambert *
Université catholique de Louvain

Armin Schwienbacher *
Université catholique de Louvain & University of Amsterdam Business School

Abstract:

This study investigates characteristics of crowdfunded projects and drivers of success. In

line with the community view of crowdfunding, our results indicate that much of the funds
provided are either donations or are entitled to receive a final product created by the
project, rather than equity or cash payments. Moreover, crowdfunding initiatives that are
structured as non-profit organizations tend to be significantly more successful than other
organizational forms, even after controlling for various project characteristics. This finding
is in line with theoretical arguments developed by the contract failure literature (e.g.,
Glaeser and Shleifer, 2001) that postulates that not-for-profit organizations may find it
easier to attract money for initiatives that are of interest for the general community due
to their reduced focus on profits.

This version: March 24, 2010

* Contact details of authors: Louvain School of Management, Université catholique de Louvain, Place des Doyens 1, 1348
Louvain-la-Neuve, Belgium; thomas.lambert@uclouvain.be & armin.schwienbacher@uclouvain.be. We are grateful to all
participants in this survey. We wish to thank Paul Belleflamme and Ulrich Hege for their helpful comments and also
Grégoire Krieg for his excellent research assistance. Any remaining errors are the authors alone.

Electronic copy available at: http://ssrn.com/abstract=1578175

1. Introduction

It is well recognized that new ventures face difficulties in attracting external finance at their very
initial stage, regardless whether bank loans or equity capital (see, e.g., Cosh et al., 2005). While
business angels and venture capital funds fill gaps for larger amounts, the smallest amounts are
provided by entrepreneurs themselves and the 3Fs (friends, family and fools). Still, many ventures
remain unfunded, partially because of a lack of sufficient value that can be pledged to investors,
partially because of unsuccessful attempts to find and convince investors. Recently, creative
founders1 have made use of a new source of finance – so-called crowdfunding – by tapping the
crowd instead of specialized investors.

The concept of crowdfunding finds its root in the broader concept of crowdsourcing, which uses the
“crowd” to obtain ideas, feedback and solutions in order to develop corporate activities. In the case
of crowdfunding, the objective is to collect money for investment; this is generally done by using
social networks, in particular through the Internet (Twitter, Facebook, LinkedIn and different other
specialized blogs). The crowd-funders (those who provide the money) can at times also participate in
strategic decisions or even have voting right. In other words, instead of raising the money from a very
small group of sophisticated investors, the idea of crowdfunding is to obtain it from a large audience
(the “crowd”), where each individual will provide a very small amount. For instance, artists seeking
money for their new album through SellaBand sell participation rights at the price of $10 each. Once
5000 are sold, the artist can approach a record company that will then start producing the CD.

While crowdfunding has been primarily used in the entertainment industry so far (especially music
and movie), a few initiatives have been undertaken recently in other industries such as journalism
(Spot.Us), beer (BeerBankroll), software (Blender Foundation) and fashion (Cameesa). Even more
surprising, the amounts that have been raised through crowdfunding have continuously increased,
reaching more than £ 1 million by Trampoline Systems for the financing of the commercialization
stage of their new software. To take another example, BeerBankroll was able to raise $ 2.5 million
from its 5000 members.

These recent entrepreneurial experiences in raising capital through crowdfunding raise new and
interesting questions. For instance, what affects the success chances of entrepreneurs to reach their
capital targets through crowdfunding? What drives the crowd to participate in the first place? Does a

1
In this study, we instead use the term “entrepreneurs”. With this term, we encompass all the individuals and
organizations using crowdfunding.
2

Electronic copy available at: http://ssrn.com/abstract=1578175

promise to reward the crowd-funders or give them voting right make fundraising more successful?
And from a conceptual perspective, how does crowdfunding distinguish from crowdsourcing?

In this paper, we first discuss a definition of crowdfunding and several issues pertaining to the
practice of crowdfunding in connection with entrepreneurial activities. Crowdfunding leads to
complexities that are distinct from its overarching concept, namely crowdsourcing. Next, we derive
characteristics of crowdfunding initiatives by means of hand-collected data of 51 initiatives. These
data are helpful in providing a better understanding of how such initiatives are structured and what
motivates them. Perhaps surprisingly, only a limited fraction of initiatives is based on donations. The
major fraction are passive investments; i.e., investments with a promise of compensation but no
direct involvement in the decision-making process or provision of time or expertise for the initiative.
In most of the cases, the compensation is to receive a product or service from the financed activity
(e.g., BeerBankroll gives tangible benefits such as a t-shirt from BeerBankroll, gift cards to popular
retailers, and memorabilia). Shares are offered in one third of our sample.

Finally, we examine what drives their chances of success. This is done through multivariate analysis.
A striking result is that non-profit associations are significantly more likely to achieve their target
level of capital in comparison with other organizational forms (corporation, individual or in
connection with a single project). This result appears robust to different econometric specifications.
This finding is consistent with the notion that non-profit associations find it easier to attract capital
from donors and other sources, since their focus is not purely profit-driven. As shown theoretically,
among others, by Glaeser and Shleifer (2001) and Ghatak and Mueller (2009), profit-driven
organizations may be prone to focus too much on profits at the expense of other dimensions such as
quality of the product or service provided. This in turn may not be desired from donors and other
sources aimed at fostering specific initiatives.2

The remainder of the paper is structured as follows. Section 2 offers a definition of crowdfunding and
how it relates to concepts such as crowdsourcing and open-source practices. Section 3 presents the
related literature. Section 4 discusses data collection and defines the variables used. Section 5
presents key characteristics of crowdfunding initiatives, based on our hand-collected dataset. Section

2
A related strand of literature argues that individuals may provide public goods due to social reputation, which
induces pro-social behavior (Bénabou and Tirole, 2006). Moreover, experimental economics studies indicate
that individuals become discouraged when faced with fines in case of underperformance or when treated
unfair (Falk and Kosfeld, 2006), indicating that monetary incentives may at times deter individuals to
undertake initiatives and behave altruistically.
3
6 provides results of a multivariate analysis on determinants of crowdfunding success. Finally,
Section 7 concludes by suggesting topics for future research.

2. A Definition of Crowdfunding

As mentioned, the concept of crowdfunding can be seen as part of the broader concept of
crowdsourcing, which uses the “crowd” to obtain ideas, feedback and solutions in order to develop
corporate activities.3 The term “crowdsourcing” has been first used by Jeff Howe and Mark Robinson
in the June 2006 issue of Wired Magazine, an American magazine for high technology. Kleemann et
al. (2008) point out that “crowdsourcing takes place when a profit oriented firm outsources specific
tasks essential for the making or sale of its product to the general public (the crowd) in the form of
an open call over the internet, with the intention of animating individuals to make a [voluntary]
contribution to the firm's production process for free or for significantly less than that contribution is
worth to the firm.” Taking Kleemann’s et al. (2008) definition as starting point, several caveats and
clarifications need to be made in order to transpose the definition of crowdsourcing to
crowdfunding. Hereafter, we offer a discussion on the application of this definition to crowdfunding;
we ultimately provide key elements in understanding why crowdfunding is embedded in the
definition of crowdsourcing.

Raising funds by tapping a general public (or the crowd) is the most important element of
crowdfunding. This means that consumers can volunteer to provide input to the development of the
product, in this case in form of financial help.4 From this perspective, crowdfunding is a subset of
crowdsourcing, since the latter encompasses also financial help.

Several platforms have emerged recently, such as Fundable, Kickstarter, Kiva, Sandawe, and
SellaBand. These intermediate between entrepreneurs and potential crowd-funders. Therefore, a
distinction can be made between direct and indirect fundraising because at times entrepreneurs
make use of such crowdfunding platforms instead of seeking direct contact with the crowd. These
platforms at times share some similarities with online lending markets5 (Everett, 2008; Freedman and

3
For a non technical introduction of crowdsourcing, see Howe (2008).
4
We note that an important motivation for relying on crowdsourcing is that it may contribute in reducing
production costs (Kleemann et al., 2008). For instance, the pharmaceutical company Innocentive has
organized its crowdsourcing practice in form of a tournament, where the provider of the best solution was
rewarded with a prize (Albors et al., 2008).
5
These platforms are sometimes called online peer-to-peer lending.
4
Jin, 2010); while the latter more prominently target social entrepreneurship, crowdfunding platforms
have a broader scope of entrepreneurial initiatives.

As pointed out by Brabham (2008) and Kleemann et al. (2008), among others, the development of
Web 2.0 is a critical ingredient that has facilitated the access to the “crowd”.6 Roughly speaking, Web
2.0 is a Web-as-participation-platform7 that facilitates interaction between users. This structure is
crucial for entrepreneurs to be able to easily reach networks of investors or consumers. Through a
case study, Larralde and Schwienbacher (2010) highlight the importance of efficient communication
and networking. They argue that this is an inherent component of any crowdfunding process. The
argument is also in line with the study of Lee et al. (2008), who identify three properties of Web 2.0
that enhances the ability of entrepreneurs: openness, collaboration, and participation. In contrast to
the Internet that existed before the bursting of the dot-com bubble, the more recent Web 2.0
technology allows user to provide content (beyond simply reading existing one), interact with each
other and thereby create value for the company (Lee et al., 2008).

While the use of the Internet to make an “open call” may be very efficient for crowdsourcing in
general, it can become more problematic for crowdfunding, especially if it involves the offering of
equity to the crowd. Indeed, making a general solicitation for equity offering is limited to publicly
listed equity. Companies cannot do a general solicitation, unless they received prior authorization
from their national securities regulator. In many countries, there is also a limit as to how many
private investors a company can have. For instance, Media No Mad could not have more than 100
shareholders, as imposed by French law (Larralde and Schwienbacher, 2010). While the
crowdfunding process of this company was made in the public domain, shareholder contracts for the
purchase of shares were however only signed with 100 individuals, as a way to overcome these legal
problems. This creates important legal limitations to crowdfunding initiatives, given that the input of
the crowd is capital and not an idea or time. In the case of Trampoline Systems, the company was
required to prepare a detailed mechanism in order to avoid any problems with the UK financial
markets regulator. Therefore, most initiatives do not offer shares but provide other types of rewards
such as a product or membership.

Crowd-funders make voluntary financial contributions with or without the expectation of receiving
compensation. This can take various forms, including cash, bonds, stocks, profit sharing and pre-
ordering of products. At times, this can be accompanied by voting rights or other active involvement
6
In spite of the fact that ventures could be theoretically tapping the crowd via other means of communication
than those associated with Web 2.0, we think that it could be marginal and does not exist to our knowledge.
7
Refer to O’Reilly (2007) for an in-depth understanding of Web 2.0.
5
in the crowdfunding initiative. Our empirical study will provide evidence on different types of
rewards and rights, as well as the magnitude of the financial contributions generated through
crowdfunding.

In practice, entrepreneurs relying on crowdfunding may combine it with other forms of

crowdsourcing. This is the case for instance of Media No Mad that also obtained from the crowd time
and expertise (Larralde and Schwienbacher, 2010).

Crowdsourcing differs in many ways from open-source practices (Brabham, 2008); some of these
differences can be transposed to crowdfunding. An important distinction is that in the of open-
source case, the idea belongs to the community who can then exploit it on an individual basis (there
is no restriction on who can use it); in the case of crowdsourcing, the generated idea ultimately
belongs to the company who will be the only one to exploit it. This distinction with open-source
practices becomes even more obvious when related to crowdfunding, since capital cannot be shared.
Unlike an idea or a software code, capital is not a public good in the economic sense that assumes
non-rivalness and non-excludability (Samuelson, 1954). Under these conditions, a public good is a
good that can be used by many consumers at the same time, without duplicating costs.

Based on this discussion and in the spirit of Kleemann et al. (2008), we offer the following, refined
definition: crowdfunding involves an open call, essentially through the Internet, for the provision of
financial resources either in form of donation or in exchange for some form of reward and/or voting
rights in order to support initiatives for specific purposes.

3. Related Literature

Perhaps unsurprisingly, there is virtually no literature at all on crowdfunding. The little that exists can
be primarily found in the one on crowdsourcing, which is a broader concept that encompasses
crowdfunding.

One of the very few academic articles on crowdfunding is from Kappel (2009) that distinguishes ex
post facto (e.g., when a product is offered after financing is provided) from ex ante crowdfunding
(e.g., financial support for lobbying or political activities). Wojciechowski (2009) discusses donations
in connection with projects funded through crowdfunding. The author argues that social networks
can become a worthwhile model of money collection for many charity organizations and NGOs.
Whether it can be transposed to entrepreneurial activities is not discussed however. Relatedly,

6
Ghatak and Mueller (2009) develop a theoretical framework of labor donation theory to investigate
under which conditions non-for-profit organizations can provide a better alternative to motivated
workers than other forms of organizations. In the spirit of the contract failure literature (Glaeser and
Shleifer, 2001), it is based on the view that limiting monetary incentives of owners attracts more
easily donations, since it signals that the owners put a significant weight on the outcome and less on
monetary gains.

A related branch of research deals with bootstrap finance, which consists of using alternative
financing ways than the traditional sources of external finance (e.g., bank loan, angel capital and
venture capital). Several studies provide evidence of the different forms of alternatives used by
bootstrapping entrepreneurs (see, Bhidé (1992), Winborg and Landstrom (2001) and Ebben and
Johnson (2006), just to cite a few). Bhidé (1992) shows that even among the Inc. 500 companies in
the US, most of them started by bootstrapping the company. Further financing methods for startups
companies are analyzed, for instance, by Cosh et al. (2005), who examine a broader range of
financing alternatives. Theoretical considerations about the optimal timing between using internal
and external resources is provided by Schwienbacher (2007).

4. Data Collection and Variables

To shed light on the structure of crowd-funded investments, we hand-collected data from various
sources on all possible crowdfunding initiatives that we could identify on the Internet. Data collection
took place end of 2009 and early 2010. Since there is no database available or even listing, we relied
on the Internet to construct our sample. One advantage is that individuals using crowdfunding as a
way to collect funds typically use the Internet to do so, as well as social networks, such as blogs,
Facebook and Twitter. This helps identifying cases to construct our sample.

Our focus was on crowdfunded ventures and projects, which largely excludes all initiatives made by
artists. Our criteria to select entrepreneurs relying on crowdfunding have been done in two times.
Initially, we made Internet research on crowdfunded ventures and projects that are explicitly
associated with the word of “crowdfunding”. This way did not allow us to find sufficient number of
such entrepreneurs. In a second time, we decided to revisit the definition of crowdfunding. That is,
we selected all entrepreneurs whom use the Web 2.0 to generate funds for their investments via a
large number of internet users. This step was essential because some entrepreneurs have recourse
to it without knowing that their own fundraising is a kind of a “crowdfunding”. In total, we identified

7
88 cases, out of which we could collect sufficient (but still partially incomplete) information on 51 of
them.

Next to this, we sent a questionnaire, during the months of December 2009 and January 2010, to all
the crowdfunded initiatives that we included in our sample in order to obtain further information on
their motivations. For some, we could not identify a clear email address to contact them. In total, 69
entrepreneurs have been contacted and 21 completed questionnaires have been received (some
only partially). The response rate in this survey is therefore around 30%.

Despite the high response rate, the total sample remains relatively small; this in turn could inevitably
raise potential statistical concerns. Indeed, this may induce some small-sample bias for which it is
difficult to control; on the other hand, crowdfunding is a nascent phenomenon so that our initial
sample of 88 initiatives converges toward the entire population.

All the variables used in the analysis are defined in Table 1. Our criteria to include variables in our
specifications are based on our research questions raised—namely the determinants of success by
using crowdfunding. We count 7 groups of determinants:

1) On the funding outcome: Funds raised, Funds targeted, and Success (which is the ratio of the
two former values);

2) Characteristics of the crowdfunding initiatives, including compensation for crowd-funders

and type of investment (Donation, Active investment, and Passive investment);

3) Date of establishment and start of the crowdfunding initiative; this in turn allows to calculate
the age of the organization at the time the crowdfunding initiative was started;

4) Country of registration/establishment;

5) Type of organizational forms used, namely as a Company, Specific project related, Non-profit
organization, or as an Individual;

6) Communication methods used, where we consider the following types: Blogs, Own Internet
site, CV of founder(s), LinkedIn, Twitter, MySpace, Facebook, and Other methods;

7) Type of industries.

5. Analysis on the Use of Crowdfunding

8
Table 2 provides results of the survey and summary statistics of the full sample. Results confirm that
crowdfunding is a recent phenomenon. Indeed, over 80% of the respondents have used
crowdfunding for projects or their own company most recently only (variable Recent CF); i.e., since
2007. 35.3% are from the United States and 49% from Europe. 63.2% are managed by a single
founder, 15.8% by two founders and 21.1% by three founders (the highest number of founders
observed in our sample). 70% of these founders hold a university degree, 10% are still attending the
university.

Raising money was a strong motivation for all respondents, getting public attention was relevant (or
highly relevant) for over 85%, and obtaining feedback for the product/service offered was still
relevant (or highly relevant) for about 60% of the respondents. Many of them combine crowdfunding
with other sources of finance, notably with own money, friends & family money, business angel and
government subsidy. 76.5% offer to their crowd-funders a reward, mostly in form of right to receive
the own product (66.7% of the cases of these 76.5% of the sample) or shares that may yield
dividends in the future (33.3%). Direct cash payment is expected in 22.2% of the cases where a
reward/return is promised. Eventually, we note that, in 66.7% of the cases, other forms of reward
are afforded; e.g., getting credit on an album or a film, by giving money to a charity of your choice,
etc.

Our study distinguishes different forms of investment: donation, active investment, and passive
investment. As pointed before, pure donation constitutes 22% of crowdfunding. The rest represents
investments (i.e., the crowd-funder expects to receive a return or reward), ventilated between active
investment and passive investment. Both count respectively for 32% and 60%.

In terms of means of communication, it is worthwhile that virtually all used very extensively the
Internet as mode of communication with the “crowd”, evidencing the reliance on Web 2.0 for
modern crowdfunding. Internet enables broad access to a community that may share similar goals
and views. The most widely used methods of Internet is an own website, community blogs, Facebook
and Twitter. Other methods are used by less than 50% of the respondents. However, only 20% of
them (according to our survey) used a crowdfunding platform such as Couch Tycoon.

Are entrepreneurs profit-oriented or not-for-profit-oriented? As discussed previously, most

entrepreneurs have recourse to crowdfunding in connection with a specific project only (in 46% of
the cases). This mean of funding is used by not-for-profit associations in 16% of the cases, whereas
over 35% of our sample represents profit-oriented firms.

9
Several of these variables are correlated with each other, as evidenced in Table 3. While some are
intuitive, others are worth being discussed. Interestingly, crowdfunding initiatives taking place as a
company tend to involve more often active investments and fewer passive investments; company
are more likely to enable individuals to provide input or vote on the project. One possible reason is
that projects done outside a company may be smaller and simpler; also, interacting with the crowd
for the any project requires an organizational structure that individuals may not possess. This
correlation is also in line with the notion than investors may require more control than for other
organizational forms; our simple correlation does however not offer any conclusive evidence on
whether this is actually a main driver. Conversely, not-for-profit organizations less often offer active
involvements of investors; this lends to think that their projects require little input from investors;
also, conversely to companies, investors may put more trust into not-for-profit organizations; but
again, this claim is highly speculative here. The variable Success positively correlates with the
dummy variable Non-profit organization; this finding is confirmed in Section 6 in multivariate analysis
and in line with theoretical arguments proposed, for instance, by Glaeser and Shleifer (2001) and
Ghatak and Mueller (2009). Lastly, an interesting negative correlation exists between whether a
reward is offered (variable Rewards is offered (Dummy)) and whether it is a passive investment (the
variable Passive investment (Dummy)). This lends to expect that rewards and control are substitutes;
investors may require more rewards if they cannot be involved in the happening of the initiative.

6. Determinants of Crowdfunding Success

To understand what may affect crowdfunding outcomes, we use two different measures: one is
simply the total amount raised through crowdfunding (the variable Funds raised, which is the natural
logarithm of the total funds raised); the other one is the ratio of the total funds raised over the funds
targeted (the variable Success).

Table 4 shows multivariate regressions on the natural logarithm of Funds raised. Perhaps as
expected, companies attract larger amounts, most likely because of their greater need for capital.
However, more surprisingly, not-for-profit organizations tend to also raise more money.

Entrepreneurial initiatives that yield a product tend to attract larger amounts of capital than those
who offer a service. This result may be mechanical, as activities that yield a product will on average
require large investments than for providing a service. Indeed, the former may require significant
production facilities that lead to major capital expenditures upfront. A second possible reason for

10
this positive effect may stem from the fact that the investing “crowd” may be more tempted to
provide money if they expect a tangible outcome; one reason could be that the provision of a
product is contractible (Hart and Moore, 1988). In this case, they may favor initiatives that yield a
product as opposed to a service.

The analysis in Table 4 however abstracts from the actual financing needs, or targets. Therefore, we
consider next possible determinants of success measured by the ratio of Funds raised over Funds
targeted. Results are shown in Table 5. Not-for-profit organizations show up strongly as the primary
driver of success, while other variables are never significant. However the result about not-for-profit
organizations is very robust across specifications. The coefficient is also economically meaningful:
compared to other forms, not-for-profits tend to raise 200% more funds than targeted through
crowdfunding. This is remarkable and can be seen in line with the contract failure theory (Glaeser
and Shleifer, 2001; Ghatak and Mueller, 2009) that these organizations are better at attracting
outside funds because of their possible stronger focus on the outcome than on monetary gains.
While we cannot exclude a possible bias due to the self-reporting of target amounts, any bias is likely
to occur for all the initiatives; there is no specific reason to expect that entrepreneurs of not-for-
profit organizations are prone to understate more than entrepreneurs of other organizational forms.
In other words, such a bias would inflate values of the variables Success but it is likely to be similar
across initiatives.

7. Discussion and Concluding Remarks

To our knowledge, this is the very first empirical study directly dealing with crowdfunding on a larger
sample. Existing studies, while providing useful insights into the process, are limited to individual
case studies. While providing first-hand insights into the crowdfunding process, this study raises
follow-up questions that should be examined in future research. For instance, are these investments
worthwhile for individuals? Compared to other means of financings, crowdfunding opportunities
exhibit several important differences that are likely to affect risk-return profile of investors and
motivations for providing money to crowd-funders.

From a general perspective, crowdfunding practices raise questions with respect to corporate
governance and investor protection issues if most individuals only invested tiny amounts. Crowd-
funders are most likely offered very little investor protection. This may lead to corporate governance
issues, which in turn may turn into reputation concerns if some cases of fraud or bad governance are

11
uncovered. Crowd-funders have very little scope to intervene to protect their interests as
stakeholders. Moreover, the fact that their investment is small is likely to create a lack of incentive to
intervene. Therefore, trust-building is an essential ingredient for any successful crowdfunding
initiative.

It is therefore not a surprise that many of the observed crowdfunded initiatives are either project-
based or based on donations. In many cases, the financial return seems to be of secondary concern
for those who provide funds. This suggests that crowdfunders care about social reputation and/or
enjoy private benefits from participating in the success of the initiative (Glaeser and Shleifer, 2001;
Ghatak and Mueller, 2009). This view is supported by our results, since not-for-profit organizations
appear to be more successful in achieving their fundraising objectives.

In any case, any entrepreneur will need to balance the pros and cons of different alternatives, since
crowdfunding will unlikely be the least costly source of financing for most projects. First, the
amounts received from each investor are small, generating potentially substantial transaction costs.
And second, many entrepreneurs need to bring in also expertise, which most crowd-funders do not
provide. However, a strong advantage of this form of financing is the attention that the entrepreneur
may attract on his/her project or company. This can become a vital asset for many of them,
especially for artists or entrepreneurs in need to present his talent and product to the “crowd” (as
potential customers). In other cases, it is a unique way to validate original ideas in front of a
specifically targeted audience. This may in turn provide insights into market potential of the product
or service offered. In any case, crowdfunding may be viewed as a broader concept that purely raising
funds: it is a way to develop corporate activities through the process of fundraising.

12
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Wojciechowski, A. (2009), Models of Charity Donations and Project Funding in Social Networks.
Lecture Notes in Computer Science 5872, pp. 454 – 463.

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TABLE 1: Definition of Variables
Variable
Funding Outcome:
Funds raised
Funds targeted
Success
Crowdfunding Characteristics:
(i) Donation (Dummy)
(ii) Active investment (Dummy)
(iii) Passive investment (Dummy)
Reward is offered (Dummy)
Outcome is a product (Dummy)
Date of Establishment and Start of Crowdfunding Initiative:
CF date
CF age
Recent CF (Dummy)
Country of registration (Dummies):
USA
A European country
Elsewhere
Anglo-saxon countries (Dummy)
Type of Organzational Form (Dummies):
Company
Specific project related
Non-profit organization
Individual
Communiation methods used (Dummies):
Communiation methods used
(Dummies)
Nbr. of communiation methods
used
Whether social networks were
used (Dummy)
Definition
a
Total funds raised (in Euro ) by the entrepreneur since the starting date of his
crowdfunding process
a
Total funds expected initially (in Euro ) from the crowdfunding process by
entrepreneur
Ratio of Funds raised over Funds targeted
Dummy = 1 if crowd-funders make only donation without any kind of financial
return or reward, as understood in the Reward is offered variable
Dummy = 1 if crowd-funders are involved in any way whatsoever in the venture or
project they fund
Dummy = 1 if crowd-funders are not involved in the venture or project they fund
Dummy = 1 if entrepreneur gives any kind of return or reward to crowd-funder,
such as direct cash payment, shares/stocks, including dividends in the future, own
product, getting a credit on the album, the DVD, or the Film, etc.
Dummy = 1 if the goal of the venture or project is the making of a product
(conversely a service)
Year at which the crowdfunding process started
Age in years of the crowdfunding process understood as the CF Date minus the
establishment date
Dummy = 1 if the year at which the crowdfunding process started in 2007 or later
Dummy = 1 if the registered office of entrepreneur is located in USA
Dummy = 1 if the registered office of entrepreneur is located in a European
country
Dummy = 1 if the registered office of entrepreneur is located elsewhere
Dummy = 1 if the registered office of entrepreneur is located in an Anglo-Saxon
country
Dummy = 1 if the crowdfunding initiative is structured as a company
Dummy = 1 if entrepreneur raised money by crowdfunding in connection with a
specific project only
Dummy = 1 if entrepreneur is working on behalf of a non-profit-making association
Dummy = 1 if the entrepreneur acts as an individual (e.g., freelance)
Dummy = 1 if the entrepreneur makes use of specific communication methods; we
use a dummy variable for each of the following communication methods: (i) Blogs,
(ii) Own internet site, (iii) CV of founder(s), (iv) LinkedIn, (v) Twitter, (vi) MySpace,
(vii) Facebook, and (viii) Other methods.
Number of communication methods listed above used in connection with the
crowdfunding initiative; it is the sum of all the different dummy variables above
under Communication methods used.
Dummy =1 if at least one of the following communication methods is used:
Facebook, Twitter, blogs, LinkedIn, MySpace; these methods are characterized by
facilitating social networking.
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Type of Industries (Dummies):
Industry Dummy = 1 if the entrepreneur is in a specific industry; we use a dummy variable
for each of the following industries: (i) Education, (ii) Film/Music, (iii) Finance, (iv)
Food/Restaurant, (v) ICT, (vi) Journalism, (vii) Medical, (xiii) Politics, (ix) Recycling,
(x) Sport, and (xi) Tourism.
a
To convert amount from other currency in euro, we computed an annual average rate (from 1/20/2009 to 1/20/2010) of
the euro foreign exchange reference rates from the European Central Bank online statistics (available at: www.ecb.int).

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TABLE 2: Characteristics of Crowdfunded Projects -- Summary Statistics and Survey Output

Panel A: Summary Statistics

Variables Mean Std. Dev. Median Min Max Nbr. Obs.

Funding Outcome:
Funds raised 3.5 million 15.0 million 28,583 36 82.1 million 33
Funds Targeted 11.0 million 27.7 million 107,185 60 82.1 million 39
Success 245.654 664.375 2.500 0.222 2873.937 33

Crowdfunding Characteristics:
(i) Donation (Dummy) 0.220 0.418 0.000 0 1 50
(ii) Active investment (Dummy) 0.320 0.471 0.000 0 1 50
(iii) Passive investment (Dummy) 0.600 0.495 1.000 0 1 50
Reward is offered (Dummy) 0.860 0.351 1.000 0 1 50
Outcome is a product (Dummy) 0.529 0.504 1 0 1 51

Date of Establishment and Start of Crowdfunding Initiative:

CF date 2007.6 2.048 2008 2001 2009 36
CF age 1.667 2.523 1.000 0 9 30
Recent CF (Dummy) 0.806 0.401 1.000 0 1 36

Country of registration (Dummies):

(i) USA 0.353 0.483 0.000 0 1 51
(ii) A European country 0.490 0.505 0.000 0 1 51
(iii) Elsewhere 0.157 0.367 0.000 0 1 51
Anglo-saxon countries (Dummy) 0.588 0.497 1.000 0 1 51

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Type of Organzational Form (Dummies):
(i) Company 0.360 0.485 0.000 0 1 50
(ii) Specific project related 0.460 0.503 0.000 0 1 50
(iii) Non-profit organization 0.160 0.370 0.000 0 1 50
(iv) Individual 0.020 0.141 0.000 0 1 50

Communiation methods used (Dummies):

(i) Used blogs 0.689 0.468 1.000 0 1 45
(ii) Used own Internet site 0.860 0.351 1.000 0 1 50
(iii) Used the CV of founder(s) 0.106 0.312 0.000 0 1 47
(iv) Used LinkedIn 0.111 0.318 0.000 0 1 45
(v) Used Twitter 0.467 0.505 0.000 0 1 45
(vi) Used MySpace 0.156 0.367 0.000 0 1 45
(vii) Used Facebook 0.533 0.505 1.000 0 1 45
(viii) Used other methods 0.48 0.51 0.000 0 1 46
Nbr. of communiation methods used 3.956 1.954 4.000 1 8 45
Whether social networks were used (Dummy) 0.804 0.401 1.000 0 1 50

Type of Industries (Dummies):

(i) Education 0.020 0.140 0 0 1 51
(ii) Film/Music 0.216 0.415 0 0 1 51
(iii) Finance 0.098 0.300 0 0 1 51
(iv) Food/Restaurant 0.098 0.300 0 0 1 51
(v) ICT 0.137 0.348 0 0 1 51
(vi) Journalism 0.157 0.367 0 0 1 51
(vii) Medical 0.020 0.140 0 0 1 51

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(viii) Politics 0.020 0.140 0 0 1 51
(ix) Recycling 0.059 0.238 0 0 1 51
(x) Sport 0.118 0.325 0 0 1 51
(xi) Tourism 0.059 0.238 0 0 1 51

Panel B: Additional Statistics Based on Survey Output

Questions Answers (%) N
Number of founders:
One founder only: 63.2% 19
Two founders exactly: 15.8% 19
Three founders exactly: 21.1% 19
Question: "Do founders hold a university degree?"
Yes 70.0% 19
No 20.0% 19
Still attending university 10.0% 19
[Note: if more than one founder involved, we consider each founder separately.]
Question: "Do people (the “crowd”) who invest in your company/project expect to receive return or reward from their investment?"
Yes 76.5% 17
No, they only make a donation 23.5% 17
Sub-question: "If yes, what kind?"
Direct cash payment (other than dividends from shares) 22.2% 9
Shares/stock, including dividends in the future 33.3% 9
Right to receive own product 66.7% 9
Other 66.7% 9
Question: "If you give investors shares, do you allocate voting rights to them?"
Yes 18.2% 11
No 81.8% 11

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Question: "If other sources of finance than crowdfunding are used, please specify which one(s)."
Bank loan 0.0% 9
Contributions from family and/or friends 18.8% 9
Business angel 18.8% 9
Founder's own money 25.0% 9
Government subsidy 18.8% 9
Other 43.8% 9
Question: "Do you make use of a crowdfunding platform (e.g. Couch Tycoon)?"
Yes 20.0% 15
No 80.0% 15

Question: "What constitutes your main motivations for using crowdfunding?" (Nbr. Obs. = 14 for all the three motivations provided to respondents and listed below.)

Somewhat Not relevant at

High relevant Relevant Neutral
relevant all
Raise money 92.9% 7.1% 0.0% 0.0% 0.0%
Getting public attention for my company/project 64.3% 21.4% 7.1% 0.0% 7.1%
Validate my product/service before selling it (market
35.7% 21.4% 7.1% 0.0% 35.7%
survey)
[Respondents could also cite other motivations; they are not listed here explicitly.]

Note: All the variables in Panel A are defined in Table 1. Information shown in Panel B was collected through the survey.

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TABLE 3: Correlation Matrix

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)

(1) Company (Dummy) 1.0000

(2) Non-profit organization (Dummy) -0.3273** 1.0000
(3) Outcome is a product (Dummy) 0.1368 -0.0175 1.0000
(4) Reward is offered (Dummy) 0.1901 -0.6086*** -0.0415 1.0000
(5) Passive investment (Dummy) -0.3146** -0.1949 -0.0490 0.3765*** 1.0000
(6) Active investment (Dummy) 0.4124*** -0.2934** -0.0275 0.2768* -0.4901*** 1.0000
(7) Success -0.0101 0.3159* 0.2458 0.0938 0.0056 -0.0728 1.0000
(8) Nbr. communication methods used 0.0895 -0.1263 0.1630 0.2804* 0.2543* -0.1423 -0.2787 1.0000
(9) Whether social networks were used (Dummy) 0.1667 -0.0546 0.1280 0.2306 0.2041 0.0214 0.0177 0.6241*** 1.0000
(10) CF age 0.1520 -0.0529 0.1881 -0.0240 0.0723 -0.3443* -0.0596 0.0379 -0.1114 1.0000
(11) Recent CF (Dummy) 0.0624 -0.2956** -0.0336 0.0033 0.0235 -0.0939 -0.3672** 0.0219 -0.0535 0.2753 1.0000

Note: All the variables are defined in Table 1. * Significance levels for 10%. ** Significance levels for 5%. *** Significance levels for 1%.

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TABLE 4: Regression Analysis on the Amount of Funds Raised

Variales (1) (2) (3) (4)

Non-profit organization 2.92 * 1.66 2.57 * 3.88 ***
Company 5.20 *** 5.53 *** 4.80 *** 3.25 ***
Outcome is a product 3.47 *** 4.29 *** 3.28 *** 3.17 ***
Reward is offered 0.25 1.26
Passive investment -0.79
Active investment 3.92 ***

Whether social networks are used -1.63 -1.29 -1.58 *

Number of communication methods used -0.36
CF age -0.09 -0.39 0.03 0.65 **

F-Stat (P-Value) 0.002 0.001 0.001 0

Adj R-2 58.30% 61.60% 59.40% 80.40%
Nbr. Obs. 23 23 23 23

Note: The dependent variable in all the regressions is the natural logarithm of Funds raised. All the
variables are defined in Table 1. The method of estimation is OLS. A constant term is included in all the
regressions, whose coefficient is not reported. Coefficient tests are based on ordinary standard errors.
Significance levels: *** for 1%, ** for 5%, and * for 10%.

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TABLE 5: Regression Analysis on Success of the Crowdfunding Process

Variables (1) (2) (3) (4)

Non-profit organization 2.07 *** 2.00 *** 2.17 *** 1.98 **
Company 0.15 0.36 0.24
Outcome is a product 0.12 0.57 0.25 0.17
Reward is offered -0.1 0.95
Passive investment 0.49
Active investment -0.19

Whether social networks are used 0.19 -0.03 0.16

Number of communication methods used -0.25
CF age -0.04 0.02 -0.1 -0.08

F-Stat (P-Value) 0.125 0.023 0.082 0.119

Adj R-2 25.60% 42.00% 31.60% 26.30%
Nbr. Obs. 20 20 20 20

Note: The dependent variable in all the regressions is the ratio of Funds raised over Funds targeted. All
the variables are defined in Table 1. The method of estimation is OLS. A constant term is included in all
the regressions, whose coefficient is not reported. Coefficient tests are based on ordinary standard
errors. Significance levels: *** for 1%, ** for 5%, and * for 10%.

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