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Crowdfunding and Venture Funding: More Alike Than You Think

Crowdfunding and Venture Funding: More Alike Than You Think | crowdfunding | Scoop.it

 

A recent academic study looked at theater projects on Kickstarter, including one titled “Thanks For Playing: The Game Show Show!,” found that projects picked only by crowds were as likely to deliver on budget — and achieve commercial success and positive critical acclaim — as projects favored by experts.

 

Hug wants to raise $34,000 to build an app and sensor band that wraps round your water bottle to track daily hydration. Van Eko is targeting €150,000 (about $200,000) for an eco-friendly electric scooter made of hemp fibers. PetTunes is seeking $196,000 to build a personal music player that optimizes sound frequency for dog and cat ears.

A catchy, even irrelevant idea is seemingly all an aspiring entrepreneur needs these days to raise money on crowdfunding sites like Kickstarter — a point driven home this summer when a Columbus, Ohio, developer, Zack Brown, raised $55,492 to make a potato salad.

Now, researchers are tapping into the growing data on crowdfunding to take stock of the phenomenon. A central question: Do crowds — driven by a herd mentality, crowd euphoria or sheer silliness — gravitate toward funding seemingly irrelevant ideas? Or can crowds make rational funding decisions and, better yet, exceed venture capital investors and other traditional gatekeepers in identifying promising projects?

A recent academic study explored those questions by looking at theater projects on Kickstarter. In that study, researchers tracked 120 theater-related campaigns on Kickstarter between May 2009 and June 2012 that aimed to raise at least $10,000. Researchers also asked 30 professionals, all with experience in evaluating applications for grant-making organizations like the National Endowment for the Arts, to evaluate those same campaigns.

Their findings: Crowds and experts agreed substantially on what makes promising theater. Where crowds and experts disagreed, crowds were generally more willing to fund projects. Yet projects picked only by the crowd were as likely to deliver on budget — and achieve commercial success and positive critical acclaim — as projects favored by experts. The crowd, in effect, picked strong projects that experts might not have recognized.

“The crowd is often thought as being crazy. There was a sense that they would back musicals about Internet cats, and experts would back serious work,” said Ethan R. Mollick an assistant professor of management at the University of Pennsylvania’s Wharton School. “It turns out the crowd does consider the quality of projects and outcomes pretty well.”

One reason crowds might do as well, or even better, at picking promising projects is that they tend to be more diverse and might avoid, for example, some of the gender biases that have long directed the bulk of the venture capital funding to male entrepreneurs.

Two recent studies of Kickstarter projects have found that crowndfunding is indeed opening entrepreneurship and investing to more women. A recent study of 16,000 Kickstarter projects, by researchers at the University of California, Berkeley and the Hebrew University of Jerusalem, found that female investors were more likely to invest in female entrepreneurs, and that these female entrepreneurs enjoyed higher rates of success in reaching their funding goals.

Another study by Jason Greenberg at New York University’s Stern School of Business and Mr. Mollick also found higher proportions of female funders led to higher success rates in capital-raising for women.

Venture capital investors are scrambling to tap the wisdom of the crowd, financing projects that found their first legs in crowdfunding. In the last quarter of 2013 alone, 10 previously crowdfunded hardware start-ups raised a total of over $150 million, according to a report published on Monday by CB Insights.

In March, Oculus VR, the virtual reality company that raised $2.4 million on Kickstarter, was acquired by Facebook for $2 billion. And with 19 deals through July, investor deal activity to crowdfunded hardware companies is on pace to break 2013’s record this year, the report said.

Crowdfunding platforms have become “a valuable source for dealflow” for venture capital investors, the report said.

Still, what explains the success of potato salad guy? Or projects like the first-ever all-pug production of Hamlet, successfully funded this month?

The Wharton School’s Mr. Mollick shrugs off those examples. “Sometimes, there’s just weirdness on the Internet. The Internet likes strange things.”

 

 

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Crowdfunding Can Be Really Effective -- If You Know What You're Doing

Crowdfunding Can Be Really Effective -- If You Know What You're Doing | crowdfunding | Scoop.it
This source of raising capital can secure significant cash for a startup as well as publicity and contacts.
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What it Takes to Create a Crowdfunding Movement - The Crowdfundamentals

The post discusses movements and provides a checklist to gauge your whether your idea fits crowdfunding movement criteria

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Crowdfunding Generates More Than $60,000 an Hour (Infographic)

Crowdfunding Generates More Than $60,000 an Hour (Infographic) | crowdfunding | Scoop.it
A look at the eye-popping growth of the crowdfunding industry.
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How to Convert Visitors Into Backers Without Being Annoying

How to Convert Visitors Into Backers Without Being Annoying | crowdfunding | Scoop.it
What inspires potential donors to back a crowdfunding campaign? Here are 3 simple and important things you can control that will make a big difference...
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Success breeds success with crowdfunding

Success breeds success with crowdfunding | crowdfunding | Scoop.it
It's frequently said that success tends to breed success.  Whether this is down to skill or not however is slightly more open for debate.  On the one han
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Harnessing the Power of the Millennial Generation Through Crowdfunding

Harnessing the Power of the Millennial Generation Through Crowdfunding | crowdfunding | Scoop.it
Cori Snedecor, co-founder of recently-launched environmental crowdfunding platform WorthWild.com, writes in to discuss the importance of wooing the Millenial generation when running a crowdfunding campaign.

The Millennial generation (ages 18 to 35) is viewed as a struggling one, burdened by student-loan debt and soaring unemployment rates. Often referred to as the “Me Generation,” Millennials are sometimes represented as selfish, living at home with their parents, and unwilling to participate in society.

What is often overlooked, however, is the tremendous power this generation wields: their social consciousness, their global connectedness, and the fact that they’re already shaping the future right before our eyes.

To read the full article, click on the title.

 

 

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The full recipe for success? Try 'Crowdfunding formula,' a presentation by Growthink's CEO, affordable too.


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Marc Kneepkens's curator insight, December 16, 2013 11:49 AM

Interesting to see some numbers on this new generation, the power they have and will have, and the openness to make changes and contribute to charitable causes.

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The rise of crowdfunding: 10 things to know

The rise of crowdfunding: 10 things to know | crowdfunding | Scoop.it
Crowdfunding platforms are changing the way we finance projects and services, but the laws surrounding them are still ambiguous. Here are 10 facts to get you up to speed.

Crowdfunding is a tool that allows anyone -- be it startup founders, musicians, artists, students, children, or even someone in a developing country who lacks basic electricity -- to attract a pool of people via the internet to invest in their business idea. A funding target is established, and rewards to backers are offered.This new type of startup business model has the opportunity to disrupt industries and change the way we determine success and let the best ideas flourish, rather than the best access to capital. It's exciting, because the venture capital model that powers Silicon Valley and the global startup scene is inherently biased based on geography and connections. According to the Small Business Administration, about 600,000 new businesses are started in the US every year. The number of startups funded by VCs? 300. That means 99.95% of entrepreneurs won't get funded.To affect real change, we have to understand the basics: what defines crowdfunding, how it works best, and how the current laws shape what's possible. We also need to look at the ways the law is changing and what it means for the future of crowdfunding.Here is a list of the 10 most important things to know about this important new buzzword.

To read the full article, click on the title or image.

 

 

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Marc Kneepkens's curator insight, April 30, 2014 8:44 AM

Startup or small business looking for funding? Here is a great introduction to crowdfunding, with links to funding platforms and a good overview of how crowdfunding works.

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14 Must-Know Stats About Fundraising, Social Media, and Mobile Technology

14 Must-Know Stats About Fundraising, Social Media, and Mobile Technology | crowdfunding | Scoop.it

Spring is report season in the nonprofit sector. A slew of new data is released and this year the emerging theme is that online fundraising is rapidly rising, especially on mobile devices. Nonprofits that have not yet adopted a mobile-first approach to online communications and fundraising can use the new data to help convince executive staff and board that a new mobile-compatible website should be high on their priority list. Crowdfunding, peer-to-peer fundraising, monthly giving, and email fundraising is also proving to be effective, as you can read and see below.

To read the full article, click on the title or image.

 

 

 

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Marc Kneepkens's curator insight, July 12, 2014 8:11 AM

Interesting stats and some good ideas for non profit fundraising.

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How does it feel to back crowdfunding projects

How does it feel to back crowdfunding projects | crowdfunding | Scoop.it
I have made donations to a number of crowdfunding campaigns over the past few months Was it a positive experience? Did it give me a warm glow inside?   Yes - but it could have been better I ha...
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Crowdfunding Growing at a Startling Rate, New Report Says

Crowdfunding Growing at a Startling Rate, New Report Says | crowdfunding | Scoop.it
An analysis on the relatively new world of crowdfunding provides many answers to common questions.

Just a couple of years ago, providing answers to some of the most common questions on crowdfunding was based evenly between limited anecdotal evidence and my gut feelings as an attorney with keen business instincts.But as with any fledgling industry moving towards maturity, more and more data has started to appear that makes answering these questions a bit easier. One recent mountain of data on the crowdfunding world that just arrived contains a plethora of information -- read on as I distill some of it for you.


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Marc Kneepkens's curator insight, June 22, 2014 4:47 PM
Numbers for crowdfunding are in! Great data.
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Building Authority Online: Crowdfunding Accountability - CrowdClan

Building Authority Online: Crowdfunding Accountability - CrowdClan | crowdfunding | Scoop.it
Crowdfunding accountability does not necessarily mean crowdfunding success, but rather coping with hiccups professionally, openly, and timely.
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12 Tips to Write an Engaging Crowdfunding Campaign

12 Tips to Write an Engaging Crowdfunding Campaign | crowdfunding | Scoop.it

You’ve carefully chosen your campaign's goal, rewards and promotion, but —have you paid enough attention to your messaging? One of the most important aspects of your crowdfunding campaign is the message you transmit, as it has a direct impact on the overall impression that your project conveys. In the end, this is what will get someone to become your supporter. As a Georgia Institute of Technology researchhas showed, your choice of words can actually make a huge difference on your campaign’s results.

Below we have gathered some advice and key strategies that will help you create a persuasive pitch: The message you transmit is not just about what you say, but also how you say it.

To read the full article, click on the title or image.

 

 

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Marc Kneepkens's curator insight, May 6, 2014 2:23 PM

Tips that work! Read this article before starting your campaign. Don't make any beginner mistakes. You only get one chance.

VisionFunder's curator insight, September 7, 8:52 PM
engagement is key for successful crowdfunding
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Advice From The Kickstarter Millionaires Club On Raising Seven Figures

Advice From The Kickstarter Millionaires Club On Raising Seven Figures | crowdfunding | Scoop.it
We spoke with six of the tech startups who smashed the seven-figure mark to see how you can make it into Kickstarters most exclusive club.
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Beating the Kickstarter clock: 4 lessons to reach a crowdfunding goal - Upstart

Beating the Kickstarter clock: 4 lessons to reach a crowdfunding goal
Upstart
Crowdfunding is not magic. There's real work that has to be done. Just posting a campaign on Kickstarter, or any one of its competitors, isn't enough to guarantee success.
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