15 March 2023

Research pick - Beyond the Bucks: supporter recognition is key to crowdfunding success

Crowdfunding is an approach to raising money to kickstart a project or business venture. It usually involves soliciting small contributions from a large number of people, often via the internet. The idea behind crowdfunding is that many people can pool their money together to support a project, which can make it possible for entrepreneurs, artists, and other creatives to get the funding they need to turn their ideas into reality. The supporters are often rewarded with early access to a product or service once it becomes available or exclusive rewards, such as special editions, signed versions, or attractive paraphernalia associated with the product or its creators.

The approach allows entrepreneurs and creatives to sidestep the traditional gatekeepers of funding, such as banks and venture capitalists. They can engage with potential investors who have an intrinsic interest in supporting innovative projects and ideas rather than simply looking for a return on a financial investment. Some supporters will even be keen to feel that they are part of a pioneering community around the venture. Another aspect of crowdfunding is that the supporters can give direct and invaluable feedback to the creatives and entrepreneurs about their offering.

Much of the research into crowdfunding that has been carried out over the years, focuses on how trust is established and maintained around the transactions and relationships. Writing in the International Journal of Entrepreneurship and Innovation Management, an international team considers that “recognition” rather than trust per se should be a focus of theoretical frameworks aimed at improving our understanding of the dynamics of crowdfunding.

Jack Wroldsen of the Orfalea College of Business at California Polytechnic State University in San Luis Obispo, California, USA and Djamchid Assadi of the Burgundy School of Business, Campus Lyon, France, explain that recognition, or the sphere of solidarity, is what emphasises the mutual relationships and respect between entrepreneurs and supporters and how these translate into value for the former and meaning for the latter in the realm of crowdfunding. The team has undertaken several case studies to demonstrate where recognition is present or absent and how this impacts the outcomes of a given project. Overall, they suggest that the concept of recognition, rather than trust alone, provides a more accurate and holistic view of crowdfunding.

The team shows that recognition involves nurturing a reciprocal relationship of mutual respect, not simply maintaining trust. In the case study where the crowdfunding relationship was broken, they explain, it was not that erstwhile supporters lost trust in the venture it was that they were ultimately excluded from the community of collaborators, early-adopters, and developers that had built up around the product. They were no longer recognised.

Wroldsen, J. and Assadi, D. (2023) ‘Trust is not recognition: an exploration of revolts in crowdfunding’, Int. J. Entrepreneurship and Innovation Management, Vol. 27, Nos. 1/2, pp.1–18.

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