The Incentives of Launching and Funding Online Offerings
Many article and studies have been done on what motivates an entrepreneur in general, but what about crowdfunding? What motivates entrepreneurs to join crowdfunding platforms? As we near the eventual date of the enactment of Title III, many American entrepreneurs must soon make a choice so what is going through their head? Lucky for me, after careful research I came upon a wonderfully insightful research paper written by three Northwestern University students. The paper, “Crowdfunding: Why People Are Motivated to Post and Fund Projects on Crowdfunding Platforms”, offers calculated research on the motives for entrepreneurs joining crowdfunding platforms. Their findings actually shed light on a variety of motivations for both entrepreneurs and investors, but today we will focus on entrepreneurs.
The study included 11 informants and three crowdfunding portals, and while some may argue how universal their findings may be, the three motivations I chose to highlight make sense for any entrepreneur. Here are the three motivations for entrepreneurs joining crowdfunding portals that I agree with the most:
I envisioned a collective “duh” from all of you as I typed that. Although there are other motives to joining a crowdfunding platform, which I will cover later, raising capital is certainly the #1 reason. Crowdfunding has become the savior for companies all across the world, and once Title III is enacted in America, equity crowdfunding will undoubtedly give U.S. startups a new outlet for success as well. With crowdfunding so prevalent in today’s entrepreneurial society, it is hard to imagine what these companies did before. Or worse, what ground-breaking companies fell apart because it didn’t exist.
One of the more common motives of raising funds via crowdfunding platforms is the avoidance of VC’s and angel investors altogether. Many startups can’t even get in the door with them, and if you asked, even more don’t want to deal with the politics and loss of control. Entrepreneurs enjoy the less stressful experience. Here is an anonymous entrepreneur quote from Egerber, Juliehui and Pykuo’s research paper on the subject:
“I think the basic reason for me is getting financial support from a lot of small contributions, which I like, which is different from going and applying for a grant, from, you know, an organization. … it’s a very different process. And I like the process of … crowdfunding. It’s satisfying.”
Entrepreneurs are traditionally confident, successful people but everyone needs a little reassurance now and then. And not just for your self-worth; if you have given your life to starting a company, you want a little reassurance you are on the right path. The old way of hunting down capital must have been a motivation and spirit killer for a lot of entrepreneurs. Preparing a pitch for months only to be told “No” over and over again by VC’s and angel investors. With crowdfunding you simply post an offering and literally watch your capital rise, which is important to a lot of entrepreneurs.
The Northwestern research paper states that people experience an increase in personal ability when they experience online validation. This public and unbiased reassurance of their dreams may be the extra nudge or nod of approval some people need at a certain point. Here is a quote from a founder of RocketHub taken from the research paper:
“You are embedding yourself in an active community…you are being validated…Friends and families become evangelists for you…these are completely normal people [creators] and they are working way outside their comfort zone…With crowdfunding, you are allowing people to do something…You have people saying, I believe in you.”
Expand Awareness of Work through Social Media
At truCrowd we are well aware and highly encouraging of the importance of linking social media and crowdfunding. We have provided a variety of social media tips for equity crowdfunding and will help all of our users expand their awareness through social media. The third and final quote I will use from the paper is from an anthropologist funding her research on ancient Roman skeletons. She used RocketHub and her story is a primary example of why entrepreneurs should join a crowdfunding platform and maximize their social media:
“I’ve gotten dozens of emails from people around the world who are really interested in the project, and who want to help on the scientific end or telling their friends and family. A documentary TV producer contacted me… these are things that don’t normally happen if you just have a grant proposal, or you have an article in the journal, you know, that maybe nobody reads. And so putting it out to the public um has been really, really great for me…[My project] was picked up on Twitter by a British science journalist, and so he pitched it to CNN, and then CNN covered it and Forbes covered it and then everything just went crazy after that… I really didn’t expect this… I’m really excited that people are just so, so excited about this project that they’re willing to give me $20 or $50 or $1000.”
Raising money, building confidence and increasing your audience are three actions every entrepreneur would like to experience in a funding phase – and it can all happen with crowdfunding. There is a lot more quality information on what motivates entrepreneurs to join crowdfunding platforms in the research paper, so please give a read when you have time.
A big thank you to Elizabeth M. Gerber, Julie S. Hui and Pei-Yi Kuo of Northwestern University for their amazing and intuitive paper. You were my motivation to write this blog and I appreciate you sharing your hard work with the world.
Thank you all for reading and please leave your comments below!
Please note that you are not allowed to post public information about the equity offering campaign you are running on truCrowd platform on any of your social media channels.
Follow the link for more details about Social Media regulations and restriction: http://trucrowd.is/1EZj07M