Reputation Is Key To Crowdfunding Success

As the crowdfunding market has grown, so too have attempts to understand it.  We’ve had a paper from UCL/Stony Brook that revealed the importance of early success in your crowdfunding.  A Georgia Tech study focused instead on the language you should use in your pitch, and revealed that having a community before you crowdfund is great, as is regular engagement with that community throughout your campaign.

Another study has looked at the kind of people that support projects, be they occasional investors or professionals.  It outlined a number of qualities that frequent backers look for in a project.

The latest study, from Binghamton University, State University of New York, suggests that backers are as likely to be interested in your reputation as your idea.

Reputational value

The value of reputation is especially high in crowdfunding because platforms don’t usually have a rating system like sites like Amazon and eBay do.  This introduces an element of uncertainty to the process.

“Crowdfunding is interesting because you’re literally buying something that isn’t finished from a person who has never made it before. There are no product reviews, and there are no seller reviews,” the authors say.

The researchers showed mock campaign websites to volunteers for products of varying levels of complexity.  When the volunteers were quizzed, it emerged that they were primarily concerned with the reputation of the seller than they were their competence and likelihood of actually delivering the product they promised.

“We found that people worry more about the seller’s honesty than whether the seller actually has the ability and knowledge to finish and deliver on the product,” the researchers say. “People don’t want sellers to just take their money and run.”

Complexity matters

What’s more, the importance of reputation increased in conjunction with the complexity of the product being sold.  Interestingly, as the concern for the seller’s reputation increased, the concern over their ability to deliver the complex product decreased.

“This was an unexpected finding,” the researchers explain. “You’d assume that people would think if the product is very complex, the seller may not actually have the ability to make it. On the other hand, you’d think that people wouldn’t worry about seller competence in low-complexity products.”

The authors suggest this happens because the funders for such highly complex products may have high levels of familiarity with the technology behind such products, with those who aren’t so familiar not looking at such products in the first place.

They believe that their findings suggest that those taking to crowdfunding, especially for complex products, should do all they can to underline their reputations, whether in terms of their credentials or previous successes.  It’s further evidence of the crucial role reputation plays in modern society.