Playing both sides of the market: success and reciprocity on crowdfunding platforms
Crowdfunding platforms enable the financing of projects by soliciting small investments from a large base of potential backers over the Internet. These platforms create a dynamic funding network. This study uses data collected from Kickstarter, the largest crowdfunding platform, to study some of the dynamics of such a network. It focuses on project owners who choose to operate on both sides of the market, creating campaigns of their own as well as backing the projects of others. It finds that an owner’s backing-history has a significant effect on financing outcomes; campaigns initiated by entrepreneurs who have previously supported others have higher success rates, attract more backers and collect more funds. It extends network exchange theory to the domain of crowdfunding and finds evidence for both direct and indirect reciprocity. It quantifies the impact of such reciprocal forces on the performance of crowdfunding platforms and campaigns. It also shows that owners who are backers form a sub- community that is active in backing projects, especially those initiated by its members. These findings suggest that backing the projects of others is a rewarding strategy.