The Downside of Crowdfunding

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New research indicates that business projects that market themselves as both innovative and useful have a higher risk of failure on crowdfunding platforms.

Crowdfunding has become a popular approach to business financing in recent years, with the advent of Kickstarter and similar platforms. However, a new study by INSEAD business school, the University of Technology Sydney (UTS), HEC Paris and Singapore Management University shows that when projects marketed themselves as being both “novel” and “useful”, funding dropped by 26%.

“Prior research has shown that products that are novel and useful typically succeed in the marketplace. But when projects make both claims, backers either assume a product’s benefits are inflated, that it carries a high risk of failure or that it divides the crowd between believers and skeptics, making it hard for backers to pick a side,” says Professor Amitava Chattopadhyay of INSEAD, who co-authored the study

Read the entire article here.

This suggests a troubling trend for entrepreneurs seeking financing through crowdfunding, where audiences may be fickle.

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