graphicstockOn the surface, the growth of crowdfunding has been phenomenal. Since its inception in 2009, projects listed on Kickstarter have raised $3.3 billion. Over 133,000 projects have become successfully funded. This has led many to claim that crowdfunding can democratize product innovation and access to capital by allowing small entrepreneurs, who lack access to resources, to find funding and markets.
The World Bank is upbeat. It estimates the crowdfunding market will reach $90 billion annually by 2025. That’s roughly 1.8 times the size of the global venture capital industry today.
But, similar to the age-old adage that most startups fail, most Kickstarter projects also fail to get fully funded. Because Kickstarter is “all or nothing,” projects need to meet their funding goal before pledges are unlocked to the project founder. But, only about 36 percent of projects make it. In many cases, those that don’t make it across the line do raise some interest, but not enough to become projects. This is not too different from what happens in the venture capital world. According to research by CB Insights, just over 70 percent of startups stall at some point in the VC process and fail to exit or raise follow-on funding.
Kickstarter is often seen as a haven for innovators as it allows them to circumvent hard-nosed bankers, VCs and risk-averse traditional lenders. But, it looks like the crowd could be as skeptical as the average venture capital firm.
You’re overselling it.
One reason why Kickstarter projects could be falling short of their funding goals could be how the ventures are pitching their projects. In my recent research paper with co-authors Anirban Mukherjee of Singapore Management University, Cathy Yang of HEC Paris and Ping Xiao of University of Technology Sydney, we found, surprisingly, that claiming a product is innovative reduces the total pledge amount by 26 percent. We tested this by looking at the product descriptions on Kickstarter, focusing on claims of the two main dimensions of innovation: novelty and usefulness, traditionally considered prerequisites of product success in the marketplace.
Examining all Kickstarter projects concerning products since the platform’s launch in 2009 (excluding art and categories that accounted for less than 1 percent of listed projects), which totaled 50,310 projects, we found that most of them claimed to be both and…
