Covering the crowd 1

Introduction

There are many differing definitions of what exactly crowdfunding is, but

generally it is a method for creators and entrepreneurs to go directly to their

customers, or backers, to help finance a project or venture by spreading the cost of

success across a group of individuals who want to see it succeed over a fixed period

of time through various websites on the internet dedicated to the concept

(Belleflamme, Lambert, & Schwienbacher, 2013).

Crowdfunding can rely heavily on incentives. These incentives can come in the

form of a copy of a completed CD or film or even one’s name painted on a wall at a

restaurant. Whatever the incentive is, “Kickstarter is clear that funds raised are not

donations, nor are they traditional investments. Rather, they are, in the language of

the site, ‘exchanges that are a mixture of commerce and patronage’” (Goalen, 2011).

Other sites have different language for what they consider funding to be.

The concept has risen in popularity since the website Kickstarter was launched

in 2009 and multiple similar services have opened since. Through promises of

rewards for completion of funding, creators aim to incentivize donations to acquire

the submitted amount, a necessity for the all-or-nothing model of fundraising the

site takes. Other services utilize a friendlier model, allowing creators to keep all

money raised during the funding period, regardless if their goal is met.

Crowdfunding has exploded in the past few years. More than one million

campaigns were successfully funded raising $2.7 billion in 2012, an 81% increase

from the year before. In 2013, more than $5 billion is forecast to be raised through

crowdfunding platforms (Massolution, 2013).

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While there has been sufficient study on crowdfunding and the people that

utilize the model, there has only been basic work done on the effects media plays in

the process, with most of it focusing on social rather than more traditional channels.

Crowdfunding is a new model of raising revenue with a need for more study to

determine the value of traditional news coverage when compared to the impact of

social media campaigns.

Literature Review

Crowdfunding

Crowdfunding is popular for raising small amounts of money, even as little as

under $1,000 for some projects, and for larger ventures that require thousands of

people donating, as well as demonstrating demand when seeking more traditional

forms of financing for ongoing businesses and marketing to create interest in

products still in the early development (Mollick, 2013). It is also popular among a

wide range of areas ranging from an artist trying to raise their profiles to funding a

startup company and shooting a movie (Cañas, Palomino, & Rubio, 2012).

Motivations of funders are complex and without much uniformity. There is a

wide range of situations for funders to give money to projects, with models

including investment with expectation of a return, with the majority of backers

primarily motivated by altruism (Burtch, Ghose, & Wattal, 2013). Despite this, the

most common tactic to get funding at present is a rewards-based return model, with

funders who give at a set amount receiving rewards like a credit in a movie, a copy

of the product when it is available or creative input during the production process

(Mollick, 2013).
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Despite billions of dollars raised through millions of users, crowdfunding is

still a recent development in the world of entrepreneurship and is relatively

understudied with regards to the effects of the funding model in financing smaller

ventures or what variables affect the success or failure of the model most.

Because projects seeking to be financed through crowdfunding are essentially

evaluated and selected by those choosing to give money, there is a significant

potential of social influence on any given project’s success or failure (Burch, Ghose,

& Wattal, 2013). By this regard, those with the larger influence, either personal

networks or those that can get the most larger coverage are more likely to be

successful in raising their goal amounts if the product stands up to scrutiny.

When crowdfunding campaigns are complete, projects that fail usually do so

by a large amount, with 10% of projects that fail only managing to raise 30% of their

goal and projects that are successful usually only are by a smaller amount with 25%

of projects only meeting their goal by 3% or less (Mollick, 2013). Furthermore,

while quality of the project has a definite influence on its success, early donations

generally mean more to the success of each campaign as backers are more likely to

contribute to a project that is more likely to succeed than not.

The more funders a campaign can get early on will greatly impact the reactions

of others when making the decision to contribute. In addition, there is generally an

increase in funding toward the deadline of a near-successful campaign produced by

final pleas for help by the creators and more publicity due to increased visibility on

sites advertising projects near the end of their lifespan. The end result of the funding

produces a bathtub shaped model of funding with peaks at both ends of the
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campaign with a valley of comparatively low interaction between backers and the

project in the middle of the campaign (Bayus & Kuppuswamy, 2013). This pattern of

success or failure, along with the all-or-nothing approach for funding Kickstarter

and other similar services take, means every donation and every funder is essential

to the life of the campaign, especially early on and late for most projects posted on

the site.

However, early success can sometimes lead to apathy from backers who

presume others will donate and push the project over the edge to successful

funding, though this is often negated as the final deadline draws near if the

campaign has still not reached its mark (Bayus & Kuppuswamy, 2013).

Perhaps obviously, projects that are deemed high quality by potential backers,

using metrics like videos, lack of spelling and grammatical errors in pitch copy and

any concrete examples of the product and its uses, are also more likely to be funded

(Mollick, 2013).

Certain categories of projects have also been found to have a higher chance of

being successfully funded than others. In the study of crowdfunding campaigns by

Mollick (2013), the art and music categories were the most likely to be funded while

fashion, publishing and technology were the least, overall. These categories were

not necessarily the ones asking for the least amount of money, either. On average,

publishing campaigns set goals of similar dollar values to music but were

significantly less successful in achieving them, indicating some categories have more

interested backers than others.

Even beyond not raising enough money to complete a funding goal, using
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Kickstarter or other crowdfunding services to finance a project is a risky venture.

Many launched campaigns on Kickstarter are done so without copyright and patent

already instilled, which means that nothing is keeping an onlooker from taking the

ideas presented by the project owner and copyrighting them (Wells, 2013). This

puts a premium on a successful campaign to get the project funded before ideas can

be stolen and created by onlookers with enough funds to complete it themselves.

Kickstarter allows for members to leave comments, many of which suggest

new ideas or possibilities to be incorporated into the project. Should the project

owner decide to use these ideas, it begs the question of whether or not the person

who proposed the idea is entitled to financial compensation or listed as someone

who helped in the project (Wells, 2013). It is up to the people involved to decide on

how credit should be distributed.

Meeting the obligations of a successful Kickstarter campaign is risky because,

unlike conventional, big business-driven ventures, these projects can be completed

only by the will of the creator (Wells, 2013). There are no contracts to sign or strict

obligations to adhere to when the funds are met. There is no deadline or rulebook to

follow. Large, well-known campaigns are more likely to be followed through

completely, but the nature of Kickstarter allows for anyone to launch a movement,

regardless of how proactive or honest they are. Should the project be drawn out or

finished in a way that comes off as dishonest or illegitimate, it could be seen as theft

(Wells, 2013). Too many negative stories from funders disappointed with the result

of the project they put money toward could result in negative coverage for the

entire financing concept in both social and traditional media forums.

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The Effects of Social Media

The traditional media outlets of newspapers, magazines and television

programs have dominated the media landscape for years. Now, though, social media

outlets like blogs, online discussion forums and online communities have increased

in popularity and are now supplementing traditional media outlets. This change has

allowed ventures like Kickstarter to thrive, so it’s important to understand social

media (Stephen & Galak, 2012).

Social media covers a broad demographic spectrum; as much as 72% of

Internet-using adults in the United States use online social media web sites regularly

(Brenner, 2013). This shows how much potential lies in using social media as a

marketing tool and thus gives more reason to understand how to best utilize social

media alongside traditional media.

Those who participate in social media and are mobilized through it are

usually younger and of a lower socioeconomic status than those that are compelled

by traditional media sources (Enjolras, Steen-Johnsen, & Wollbaek, 2012). The

medium allows for an alternative structure to organize and disseminate information

on a specific topic that serves a different audience while coexisting with mainstream

media outlets and established organizations.

Traditionally in sales, social media has been as valuable or more so when

compared to traditional earned or paid media primarily because of the frequency

(Stephen & Galak, 2012). While articles on a product or service in major

publications or journals produce a larger impact on sales due to their more

expansive audience reach, they only occur every so often. Social media activity, on
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the other hand, while producing a smaller impact, can happen much more

frequently and consistently, producing a major impact on long-term sales.

Furthermore, social media attracts a more specific audience in the form of

blog readers and online communities that are more likely to act than those that just

stumble upon the topic from a traditional, general news source (Stephen & Galak,

2012). Social media allows and even encourages consumers to be highly involved

whereas traditional media outlets are more broad in their marketing and thus don’t

allow for this type of relationship between consumer and the product’s supplier

(Stephen & Galak, 2012).

Crowdfunding and social media share only the barest of similarities in that

most websites dedicated to the former allow for basic communication through an

update system and comments between the project creator and the people donating

money to see its completion. Additionally, most companies allow creators and

funders to connect with their personal Facebook and Twitter accounts to maximally

utilize their personal networks (Moisseyev, 2013).

Social media can go hand in hand with crowdfunding because crowdfunding

initiatives involve the introduction of new products and services and occur in

environments in which uncertainty is prevalent (Stephen & Galak, 2012). Social

media helps break that uncertainty by bringing users close to the products/services

in new ways. “Social Media Outlets are often topic-specific (e.g. online brand

communities) and socially interactive (Stephen & Galak, 2012). Social media allows

consumers to discuss topics of mutual interest with like-minded others, which

eventually leads consumers to understand these products/services.

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The size of personal networks can have a sizable effect on a project’s success

or failure, with large networks being a predictor of successful funding and a small

network of online connections acting as a detriment to success, making it better to

have no connection to personal accounts at all (Mollick, 2013). This falls in line with

previous studies showing those with larger networks of individuals are more likely

to succeed in entrepreneurial ventures due to a larger group to call upon and spread

the word initially (Shane & Cable, 2002).

If a creator lacks a substantial personal network from which they can cull from

by connecting the services, gaining seals of approval from backers in the form of

“likes” on social media from unknown funders can be just as effective at increasing

the chance for successful funding of the project as possessing a large personal

network to echo their projects. (Moisseyev, 2013).

Media

Crowdfunding shares many aspects with social media, both in the way they

tap into personal networks and the force they have been in destroying old models

and theories in favor of new ones, in communication and fundraising, respectively.

Despite the similarities, crowdfunding initiatives still receive bigger increases in

exposure from more traditional online sources, though they are less frequent

(Stephen & Galak, 2012)

Traditional coverage of crowdfunding is all but limited to online news

coverage from traditional outlets due to the nature of the funding deadline and its

short availability of newsworthiness as well as the generally niche subjects money is

being raised for that cater more closely to certain online communities.
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Traditional mass media is very influential at making people think about certain

ideas or topics but may not hold the same power in the modern age. As users

continue to seek out sources of information that give them only what they want and

need, not to mention the fact that consumers of information are becoming

producers themselves, much of the traditional agenda-setting power of the media is

being lost (Freeman, 2011). The lack of any time lag with a near-constant news

cycle of online and television news leads to information overload for many, only

diminishing the traditional effect further. As a result of the changing news

landscape online, project creators could have a harder time getting potential

funders to take necessary notice of their campaign within the short timeframe if

they are not already aware or in their personal networks.

Fortunately for creators, web coverage from traditional outlets offers them the

best chance of getting backers to participate in the funding since web mobilization is

successful with garnering web participation more than any other medium (Vissers,

Hooghe, Stolle, & Maheo, 2011). Digital media allows for a more specific customer

target in addition to a higher likelihood a person will donate money to the online

campaign if they are interested in the project when compared to traditional types of

off-line media coverage.

Research Questions and Hypotheses

There exists a solid base and a clear understanding of crowdfunding and how

social media plays a role in the campaign process. And while there has been plenty

of research into the traditional media’s role in mobilizing people for other

initiatives, online and offline, as well as social media’s effect on crowdfunding

 Covering the crowd 10

efforts, there has been no significant research done on what effects mass media,

specifically online outlets in both trades and general publications, has on the success

or failure of crowdfunding projects. There is a need for study to determine which

promotional tool project creators should target when launching their crowdfunding

campaigns: social media or traditional forms of media. Based off the review of the

crowdfunding model and the media’s role in mobilization for causes, our primary

hypothesis for study is:

H1: Crowdfunding campaigns that receive media coverage are more likely to be

successfully funded than those campaigns that do not receive any coverage

during their funding period.

Based off the work done by Mollick (2013) with regards to the success of

different categories receiving funding (art and music being the most likely to be

funded and fashion, publishing and technology being the least likely), a secondary

question to research could be a link between the amounts of coverage in the media

each category receives with the amount of success it finds. This leads to the

question:

RQ1: Which crowdfunding categories receive the most amount of coverage in the

press and which receive the least?

To study these, we will use an analysis of search engine results for articles in

the digital media on chosen, random campaigns in different categories while they

were active and still soliciting for backers.

Methodology
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Because it is the largest and most popular crowdfunding platform, we

decided to collect all of our data using Kickstarter projects. Collecting data straight

from the Kickstarter website presents certain difficulties, as the site does not offer

any sort of easy access to archive or filtered data beyond a single level like projects

ending soon in all categories, staff picks, most popular and other metrics that make

it hard to group into specific categories for sampling. Because we needed to easily

collect a number of samples from each funding category to measure if certain

categories receive more media coverage than others, on average, we turned to

Kickspy, a website dedicated to Kickstarter projects that offers the ability to filter on

two different levels, like projects in the Art category that are ending soon. With the

ability to filter on two levels, it became easier to collect our samples for each

category. Utilizing Kickspy also granted us the ability to see archived, day-by-day

funding for each campaign sampled, allowing us to get a better sense of what

immediate impact any media might have on the campaign with the number of

backers and any average funding level changes.

The variables we were most interested in covering were the success or lack

thereof individual projects, each project’s funding category, the amount of money

each project raised, the number of backers supporting each project, the number of

days each project was active, the amount of mass media coverage each project

received during its funding period and if media coverage had any impact on average

funding per day over the length of the project.

A media hit is counted if it appears in the search parameters below and does

not come from Kickstarter or the creators of the project.

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Using Kickspy as a tool, over 10 days, we filtered Kickstarter projects by

those ending soon and by their specific category: Art, Comics, Dance, Design,

Fashion, Film, Food, Games, Music, Photography, Publishing, Technology and

Theater. Our goal was to check each category once per day and collect roughly 30

projects in each to try and keep the spread between them even. Spreading the

samples across all categories not only gives an answer to RQ1, but also helps to

provide a better picture of Kickstarter coverage and success as a whole.

From these filtered projects, we randomly selected one out of every third

project in each category for sampling. Because the projects are in the “Ending Soon”

filter, we marked when the project would be completed and returned when it had

finished its funding period. When the project had completed its funding period, we

were then able to start collecting the necessary data, giving each project an

identification starting with its coded category number.

Funding level was recorded on a scale from one to five, with one and two

representing generally lower funded projects, $0 - $10,000, three, the projects with

a medium amount of funding, defined as $10,001 - $50,000 and four and five,

representing the upper echelon of funded projects, defined by us as a campaign that

raised between $50,001 - $100,000 +. We thought these funding levels were

adequate to explain the general level of funding for projects receiving or not

receiving coverage in the media. The number of backers for each project was

categorized in a similar fashion, with 0 – 250 backers listed as a one or two, 251 –

500 backers listed as a three and 501 – 1000 + project backers recorded as a four or
 Covering the crowd 13

five on the scale. The number of days the project was active was simply recorded

from the Kickspy page listing the dates of the funding period.

Tracking media hits was the most important part of researching the effects

on crowdfunding campaigns. To count the number of media hits for each project, we

used Google News to track the project after they had completed actively seeking

backers. After going to Google News, we limited the date range for results from the

first day the project was active until the day it completed its funding period. We

then used the title of the Kickstarter project as our search term. After searching, we

counted all results with mentions of the individual Kickstarter, not including the

Kickstarter page itself or any press releases from the founders of the campaign. We

paid no attention to the tone of any of the stories, positive or negative, just the fact

that it was mentioned. The number counted became the number of media hits for

that individual project.

In order to establish whether media hits had an effect on day-to-day funding,

we also marked the dates of each story. Using Kickspy, we then found the average

funding of all the days stories were published on and compared that average to the

overall average funding per day of the project, marking whether it increased,

decreased or remained the same on days where coverage took place compared to

days where there was no coverage. If there was no coverage for a particular project,

obviously we could not make this comparison and did not use it as a variable for

those projects.

Results
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Results of media coverage

H1 stated that there would be a positive relationship between projects that

received coverage in the media during the funding period and projects that were

successfully funded by the end of their campaigns. Using our methodology, we

surveyed 423 projects across all of the categories. Of those projects in our sample,

165 (39 percent) received media coverage during their funding period.

For the projects that were successfully funded, 47 percent had media

coverage before the campaign had finished. For the projects that were not

successfully funded, only 29 percent had any media coverage while the project was

still active. Projects that received media coverage earned more on average, as well.

Campaigns that did not earn any coverage raised an average between $1,000 and

$10,000 on our scoring metric while campaigns that did earn coverage earned an

average between $10,000 and $50,000.

Table 1 shows that there is a statistically significant difference in the funding

status between projects that received media coverage and those that did not in our

sample.

ANOVA
Funding status
Sum of Mean
Squares df Square F Sig.
Between
8.745 22 .397 1.649 .034
Groups
Within Groups 96.437 400 .241
Total 105.182 422

Table 1
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With these results, H1 is supported that a project with media coverage is

more likely to be funded than a project that does not receive any during its funding

period.

While this seems to be the obvious result, more exposure giving way to more

potential backers, there exists a possibility for more people to see the flaws in the

potential product and to create a negative view, as well, possibly turning away

backers and hindering the attempt to reach the funding goal.

Coverage by category

RQ1 asked which categories of products received the most media coverage

and which categories received the least. Overall, we recorded 993 media hits across

all of the samples in all of the categories we collected, leading to an average of 2.35

stories per Kickstarter campaign.

Of the samples collected, publishing, fashion and film were the most covered

categories by a fair amount with 332, 197 and 191 stories respectively. Music, dance

and comics were the categories that received the least amount of media coverage

with zero, one and four stories recorded respectively. Photography and art both had

less than 10 stories across the samples, also.

The result of RQ1 is almost the exact opposite of what could be expected

from the study done by Mollick (2013) were art and music were the most likely

categories to be funded while fashion, publishing and technology were the least

likely to be funded. This is especially true given that our previous result seems to

implicate media coverage increases the chances of successful funding. One possible

explanation would be a higher number of smaller publications cover these

 Covering the crowd 16

categories. These niche publications would increase the number of coverage for a

campaign but limit exposure to an increased number of potential backers. Another

possible explanation is these categories could inspire debate or interest among

those that work in the media but fail to inspire others to donate money.

Future Research

We believe our look into crowdfunding and the media’s influence of

individual projects provides a solid base of understanding for future study on the

topic and medium of financing. Due to time limitations, we only studied every third

project over a ten-day period, leaving our data vulnerable to unknown spikes or

valleys in quality projects or media coverage over that period of time. Mollick

(2013) used archive data to study thousands of projects that had already concluded

over the course of multiple years to form a more comprehensive picture of the

media’s effect on the Kickstarter funding platform and further studies should take

this approach barring any similar limitations on time or money.

While Kickstarter is the most popular crowdfunding platform, it is far from

the only one available to entrepreneurs looking to launch their products. Similar

websites like Indie Go Go and Go Fund Me offer comparable services with minor

changes. The former offers creators the chance to receive partial funding if their

entire goal is not achieved by the end of the funding period. The latter allows the

funding of life projects, such as raising money to go on a trip or to buy a piece of

musical equipment, which is strictly forbidden by Kickstarter. Each of these services

has their own purposes and audiences that could vary greatly from Kickstarter and

alter the significance of media coverage for projects on their platform. Furthermore,
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some European crowdfunding services that have the advantage of different financial

laws function more as a traditional investing platforms, awarding backers monetary

stakes in the product’s success and partial ownership rather than the rewards

offered through Kickstarter and other American services. This increased complexity

and value could attract different types of products to the platforms and promote

different forms of coverage in the media.

Finally, we only examined the amount of media coverage each project

received, we did not measure the quality of that coverage. Further research is

needed to identify where the highest valued media coverage comes from and how

high and low quality coverage differently effects the outcome of a campaign.
 Covering the crowd 18

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