Kickstarter fundraising and the power of helping projects

New research from Olin Business School on crowdfunding websites discovers that projects actually raise money faster just before they reach their funding goal. (Image: Olin Business School)

A Kickstarter project for a cool new card game promises donors a free game for a $100 donation. When are you more likely to contribute — before or after the entrepreneurial project reaches its funding goal?

Conventional wisdom (and some economics research) suggests that once the project is funded — ensuring it can move forward — that’s when donors are even more likely to lock in their chance for a free reward. They’ll follow the “herd” toward the projects other donors have marked with their stamp of approval.

Instead, a forthcoming paper from a Washington University in St. Louis researcher shows otherwise: Projects actually raise money faster just before they reach their funding goal. The result is a revelation in an industry that raised more than $5.2 billion across more than 6.4 million fundraising campaigns worldwide last year, according to Statista, a market and consumer data site.

Zhang

“It’s about the tendency of helping people,” said Dennis Zhang, assistant professor of operations and manufacturing management in Olin Business School and co-author of the paper, “Prosocial Goal Pursuit in Crowdfunding: Evidence from Kickstarter.com,” forthcoming online prior to June publication in the Journal of Marketing Research.

“Are people purchasing stuff to get a discounted price or because they want to contribute to a campaign and help the owner succeed?” Zhang asked. “After the goal is reached, you’re not one of the reasons this project has succeeded.”

According to the research paper, written with Hengchen Dai from UCLA, the effect is even more pronounced among projects that have a stronger “pro-social” component. In other words, they evoke a stronger sense among donors that they’re helping someone to fulfill a dream.

The researchers found that Kickstarter projects involving art or music tend to have stronger “pro-social” scores, for example. Projects involving electronics are much lower. Games fall somewhere in the middle.

In their work, the two researchers used a combination of methods, starting with raw data scraped from more nearly 29,000 Kickstarter crowdfunding projects from September 2016 to August 2017. They combined analysis of that data with a qualitative analysis of a sampling of projects in order to gauge the level “pro-social” motivation they elicited.

In fact, for the qualitative analysis, it was as simple as investigating which project creators literally asked for help from donors in the short description of the project — and whether the project was developed by a single person or a group of people.

Projects that exceeded 105 percent of their goal spent 2.4 times longer on their trek from 100 to 105 percent than they did from 95 to 100 percent of their goal. The researchers said the phenomenon existed as they widened or narrowed the range as well — in other words, they observed the same speed differential between 99 and 101 percent of goal or from 90 to 110 percent of goal.

Projects also got new backers faster — and donations were larger — before reaching their goal.

“Specifically, the average time it took a project to gain a new backer during the 100 percent to 105 percent period was 1.84 times as long as it took during the 95 percent to 100 percent period,” the researchers wrote. “Average contribution size decreased by 19 percent during the 100 percent to 105 percent period, relative to the 95 percent to 100 percent period.”

All of these effects were magnified for projects developed by an individual who specifically used the word “help” in the project’s description. For example, one project noted, “The saga continues! Help us print Kamikaze Volume 2 and SoundBox, a thrilling spinoff comic.”

Another asked donors to “help make the iconic image of the Mickey Monster become a vinyl toy with moveable head and arms!” Others succeeded by indicating their intention to help others: “A sustainable business to help the people of Kosrae, Micronesia: Creative passion, ethical mission, incredible story.”

Zhang said the research findings have implications for both the project creators and the platforms they use to raise money — platforms like Kickstarter, Indiegogo, Patreon and GoFundMe.

“From a managerial perspective, if you’re a creator, you have to tailor your campaign to evoke pro-sociality. What you should emphasize is important,” Zhang said. “And from a platform perspective, it’s important. We are suggesting that projects that are below the goal are more appealing that those that are above the goal.”

Thus, crowdfunding platforms might consider making it easier for site visitors to find the projects that are nearing their goals.

“I take this as an example of how when designing an economic system, non-economic factors matter,” Zhang said. “It’s also driven by psychology. It’s an argument that behavioral economics matters.”

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