Globally crowdfunding is experiencing rapid growth, expanding by 167% in 2014 to reach$16.2 billion raised, up from $6.1 billion in 2013 (Massolution, 2015). Unsurprisingly, therehas been much media and practitioner attention devoted to rewards based crowdfunding. Yetthe emergent research suffers from selection bias, insofar as the focus has been mainly onfirms that have succeeded in raising the target finance. Consequently, the generalunderstanding of how firms undertaking rewards based crowdfunding fail remains deficient.This gap in our understanding is addressed in the context of a potential International NewVenture (INV). We seek to understand the antecedents to failure, and the subsequentconsequences and cognitive impacts on the entrepreneurs utilising a single in depth casestudy built from both primary and secondary sources. This case focus on one firm (Alpha)who had internationalisation intentions for their educational game offering, and who failed toclose the Kickstarter project.Key issues were identified with respect to rewards based crowdfunding failure. Alpha soughtcrowdfunding to overcome an impending funding scarcity and bring their educational game tothe market. Arguably, the entrepreneurs did not fully evaluate the pros and cons ofcrowdfunding as a financing option and under estimated the risk resulting in an overlyoptimistic crowdfunding attempt. The offline rules with regard to understanding the marketdynamics for products/ services should still apply to companies contemplating rewards basedcrowdfunding. Alpha clearly had several key resources/knowledge absent (key productionskills, key marketing resources, the right team in place) and ultimately low exposure failed tobuild the right crowd.We suggest that rewards based crowdfunding is a high risk strategy with an extremely highchance of failing, and that increased understanding of failure in this context is urgent, as untilthis is the case, many more small firms may jump on the crowdfunding bandwagon, to theirdetriment. It was evident that failure held severe consequences for the firm. Undoubtedlyrewards based crowdfunding brings many non-fiduciary benefits, however these also havethe potential to cause operational and reputational damage to the firm when projects fail. Theinformation was freely available to potential funders, clients, partners and the wider industry,allowing the wide dissemination of the failure and the attendant reputational damage. Theoutworking was that this firm did not attract any further funding and almost failed entirely,eventually changing its business model to survive.The cognitive processes at work after rewards based crowdfunding failure were similar tothose experienced after a venture failure. The entrepreneur’s attribution processes sought torecognise if the causes were beyond their control or due to some internal reason. The internalattribution of blame was associated with effective post-failure learning as the actions taken bythe entrepreneurs were identified as possible causes of the failure. Finally a set of questionsare posed for those contemplating rewards based crowdfunding are posed:1. Are you willing to gamble your reputation?2. Is it the Funding or Crowdfunding3. How much do you really need?4. Have you researched other projects in your industry,5. Have you enough experience?6. Do you assume the crowd will come?
|Number of pages||29|
|Publication status||Published (in print/issue) - 1 Dec 2015|
- rewards based crowdfunding
- potential INV