CROWDFUNDING AS MUTUAL GIVING

Arthur Gautier

Kevin André

Part 1 of a feature article looks at new research by ESSEC Business School’s Arthur Gautier and Kevin André that focuses on how reward-based crowdfunding platforms are shaking-up the self-Interest vs. altruism dichotomy.

From the paper “Beyond the Opposition Between Altruism and Self-Interest: Reciprocal Giving in Reward-Based Crowdfunding”, published in the Journal of Business Ethics.

Crowdfunding is big business. As of 2015, hopeful entrepreneurs have raised over $34 billion on platforms like Kickstarter, Indiegogo, KissKissBankBank, and Ulule. And by 2025, that sum will likely surpass $300 billion (CFX Alternative Investing Crowdfunding Statistics).

From an entrepreneur’s perspective, it’s fairly easy to explain the popularity: unlike many traditional financing options, reward-based crowdfunding lets entrepreneurs raise money to develop their projects without generating debt or relinquishing some control to a shareholder. But perhaps best of all, reward-based crowdfunding helps founders validate their business ideas by getting feedback on prototypes and pricing directly from their future consumers or patrons. But, why do people give to crowdfunding campaigns?

Crowdfunding: a hybrid phenomenon

The opposition between self-interest and altruism in human behaviour – in other words, the extent to which the relationships between members of a society are driven by selfish or selfless motives – is a cornerstone of the ethics debate. However, we can escape this dichotomy through the theory of reciprocal giving developed by the French sociologist Marcel Mauss.

According to his famous essay The Gift, “the idea that inspires all economic acts […] is neither a purely free and gratuitous provision nor a purely interested, utilitarian notion of production and exchange, but a sort of hybrid.”

Many of today’s phenomena are hybrid. On the one hand, for-profit corporations are multiplying their philanthropic and socially responsible activities in order to create shared value. On the other hand, philanthropy is increasingly influenced by values and methods drawn from venture capital. Donors and foundations develop systematic processes to solve social problems, by evaluating the social impact of their donations – sometimes quantifying a “social return on investment”. Meanwhile, hybrid organizations like social enterprises, for example, skillfully combine commercial and social welfare logics.

Crowdfunding is also a hybrid phenomenon, allowing entrepreneurs and founders of a wide array of projects to directly raise relatively small contributions from a large number of individuals. Reward-based crowdfunding platforms like Kickstarter, Indiegogo, and Ulule, accept both nonprofit and for-profit projects, leaving ambiguity around the nature of projects and the underlying intention of their founders. Even the vocabulary used on crowdfunding platforms reflect this ambiguity: users neither “buy” products nor “give” money; they “back” projects and receive “rewards”.

Indeed, our analysis of more than 3,000 projects funded on the Ulule platform shows that “hybrid” crowdfunding projects, neither purely commercial nor purely altruistic, are the most successful. In essence, the more contributions exceeding the value of the proposed reward (the “return on investment”), the more likely that project is to achieve and even exceed its fundraising goals.

Part 2 of the article will be published on Thursday 21st December.

Useful links:

With special thanks to ESSEC Knowledge

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One response to “CROWDFUNDING AS MUTUAL GIVING

  1. Pingback: Crowdfunding: The Get What You Give Dimension | The Council Community: A global alliance of leading schools of business and management·

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