Researchers at the University at Buffalo identified the top three keys for securing crowdfunded investments. They are high quality photos and video, previous crowdfunding success and positive comments from backers. The study found that potential backers gain valuable information from these signals.
"These sources are important because backers of crowdfunded projects have less access to information than typical private equity investors," says study co-author Yong Li, PhD, associate professor of strategy and entrepreneurship in the UB School of Management. "Private equity investors follow a stringent due diligence process to assess the quality of a startup, while crowdfunding backers rely more on the information on the campaign's webpage.
Researchers analyzed a sample of over 170,000 Kickstarter projects from the site's inception in 2009 through Dec. 27, 2015 for the study. They used a computer-based algorithm to measure the strength of positive comments and examine the impact on crowdfunding campaigns.
Crowdfunding platforms like Kickstarter and Indiegogo allow entrepreneurs to fund projects through contributions via the internet. They allow business owners to bypass more traditional channels of investment like venture capital. Despite the reality of less access to information, researchers are optimistic about the medium's viability as an alternative investment channel.