How important engagement is to crowdfunding success

Entrepreneurs who run crowdfunding projects alongside another job find it harder to succeed on crowdfunding platforms. That’s according to a new study that looked in depth at how founders’ involvement affects the goal.

Researchers have long known that many entrepreneurs start businesses alongside employment or other enterprises. Previous studies have often suggested that these so-called hybrid entrepreneurs and portfolio entrepreneurs (those who run multiple businesses) can perform as well or even better than those who work full-time on their crowdfunding project. However, this view has largely been based on those who have managed to move on and go all in.

The new study, based on 1 529 Kickstarter projects between 2009 and 2012, also includes those that did not make it all the way. This allows the researchers to see what actually happens at the very early stages of entrepreneurship – before the winners and losers have been weeded out.

Engagement – the forgotten resource

At the heart of the study is how much commitment the founder can put into the project. Those who work full-time on their crowdfunding project have more time and mental capacity to follow the campaign, update backers (the investors) and manage feedback. The researchers use the amount of text in project updates as a measure of how much engagement the founder actually shows during the campaign. The results are clear:
The more time and energy the entrepreneur spends communicating with their backers – the more likely they are to reach their funding goal. Attention thus becomes a crucial link between the entrepreneur’s entry strategy and how much money the project actually raises.

Communication that builds trust

Crowdfunding relies heavily on relationships and trust. Visible engagement – such as updates and responses to questions – is a clear signal of the entrepreneur’s commitment. The study shows that a lack of attention directly affects these signals and thus the chances of success.

Previous research has suggested that engaged founders also receive emotional support from investors. The new study places personal commitment as a central part of this dynamic, especially in the early stages when uncertainty is high.

Not all hybrid entrepreneurs are equal

The study also makes a distinction that further nuances the picture. Hybrid entrepreneurs who later transition to full-time crowdfunding tend to perform better than those who have engaged full-time from the start – which is consistent with some previous research. But those who stay in hybrid entrepreneurship perform worse.

This means that the hybrid position can be a smart way to test your ideas before going all in. However, if it becomes a permanent state, it can rather become a hindrance, as there is not enough attention to drive the campaign forward.

3 concrete lessons learned:

• Engagement is a critical resource. Hybrid and portfolio entrepreneurs need to be aware of their limitations during active campaign periods.
  
• Crowdfunding requires presence. Continuous updates and communication with backers affect both trust and funding performance.
  
• It is possible to compensate. Other members of the team can take a bigger role in the communication if the entrepreneur himself has limited time.

For backers, the study emphasizes that the entrepreneur’s involvement during the campaign is an important signal of future ability to drive the project forward.

More about the article and the authors
The article Founder’s entry strategy and funding performance in the crowdfunding industry: The mediating role of founder’s attention is published in the scientific journal Strategic Management Society.

The authors are Dalee Yoon, University of Hawaii, USA, Joon Mahn Lee, Seoul National University, Korea and Luke Rhee at the University of California, USA.