20 March 2018

The power of crowdfunding

Once upon a time, entrepreneurs and others might seek financial backing for a project from corporate entities, government, grant-awarding bodies, and perhaps even public donations. In the age of online social networking and social media, a new opportunity for raising capital has emerged and has been dubbed crowdfunding.

With the help of crowdfunding, aspiring entrepreneurs can raise money from a large number of ordinary people (the “crowd”). Since crowdfunding is Internet-mediated, it generally involves offering incentives and recruiting donations through social media activities, such as blogging, sharing videos and photos, and perhaps even podcasting. Now, researchers in Germany have investigated how three of the most well-known “Web 2.0” systems – Facebook, YouTube, and LinkedIn – interact and can be best used to improve the outcome of a crowdfunding campaign.

Kaja Joanna Fietkiewicz, Carina Hoffmann, and Elmar Lins of the Heinrich Heine University, in Düsseldorf, Germany, have focused on the various factors that actually lead to success in a crowdfunding success. Importantly, they point out that the emergence of countless Web 2.0, social media, and social networking websites and applications, and almost certainly the advent of the smartphone have made national boundaries almost transparent. This allows an entrepreneur in one place to reach a global audience.

The researchers have found that it seems that Facebook offers the greatest opportunity for electronic “word-of-mouth” marketing of a campaign whereas LinkedIn and YouTube, which are in several ways more passive online tools than Facebook, offered a different type of eWoM. YouTube can increase interest despite the weak ties between users in contrast to the strong communities on Facebook. Any impact of LinkedIn a crowdfunding campaign seems to rely on priming via Facebook and/or YouTube.

Fundamentally, the team says, “An optimal solution for founders appears to be to focus on the connection of two social media platforms, e.g., Facebook or YouTube for eWoM, and LinkedIn for social capital.” They add that the common assumption that if nobody sees it, it didn’t happen holds true. “A great business-oriented network might be the decisive point for many investors,” they add. Hence, entrepreneurs must either turn to their own network and start the domino effect of eWoM on Facebook, or make an appealing and informative video that will be distributed by those who are not necessarily familiar with the project, but will be interested to see something engaging on YouTube and share their thoughts and perhaps even pledge to the campaign and encourage others to do so also.

Fietkiewicz, K.J., Hoffmann, C. and Lins, E. (2018) ‘Find the perfect match: the interplay among Facebook, YouTube and LinkedIn on crowdfunding success‘, Int. J. Entrepreneurship and Small Business, Vol. 33, No. 4, pp.472-493.

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