Crowdfunding: The Get What You Give Dimension

Kevin André

Arthur Gautier

Part 2 of  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 question.

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 to forge relationships

Entrepreneurship is more than an economic process, it’s a practice involving many social ties. First and foremost, entrepreneurs rely on the empathy, feedback and support of their inner circle. Family and friends often help “bootstrap” their business ideas. Young entrepreneurs might use a spare room in their parent’s house as free office space, or borrow money to pay for a new laptop computer.

Crowdfunding helps entrepreneurs extend their inner circle and blend different kinds of relationships: personal acquaintances, social network connections, and commercial interactions. In fact, the results of our analysis show that crowdfunding fosters specific kinds of relationships relying on reciprocity.

We argue that reciprocity is not only based on relationships between users throughout different campaigns, but also within each project. Reciprocity on crowdfunding platforms implies that each campaign is also based on an internal process of giving and receiving, where backers give a pledge (the gift) to founders and receive a reward (the counter-gift).

Interestingly, we observed three forms of contributions in the crowdfunding space which echo the rationales Mauss described in The Gift a century earlier:

  • Transactions corresponds to pledges equalling the amount of the reward, which in fact constitutes a pre-order of a product or service.
  • Reciprocal giving corresponds to pledges exceeding the amount of the reward, where the backer voluntarily sends a ‘gift’ beyond the value of the reward.
  • Non-reciprocal giving corresponds to backers who “just want to help the project” by giving without anything in return (they refused any reward).

Following the sociologist Marcel Mauss’ insights, reciprocal giving is a way for members of a society to develop and maintain relationships, as giving obliges the recipient to engage in a reciprocal, cyclical relationship, i.e., giving, receiving, and giving back.

Reciprocal giving: the key to entrepreneurial success?

Many research projects underline that the most important drivers for success are related to the founder himself, and especially the founder’s ability to mobilize social capital early in a campaign. Even if close friends and family members are not sufficient to guarantee a successful campaign, they remain critical to initiate a virtuous circle of contributions as they offer a positive signal to the community. Bonds between community members matter.

Our finding show that the remarkable success of the reward-based crowdfunding platforms is based on strong reciprocal relations between contributors and project promoters, within one or more communities. In other words, contributors give, but they also receive something in return, even if that something is uncertain and not equivalent in value. The “return on investment” is often personalized, unique, and may even involve a face-to-face meeting with the entrepreneur. Even in a “virtual” universe, which goes beyond the first circle of family and friends, the link between people seems at least as important as the money or the objects in their hands.

In our analysis, we note that projects that are more clearly altruistic or commercial have a lower success rate than “ambiguous” projects, which more or less intentionally mix philanthropic and market logics.

What should we make of philanthropy’s hybrid nature? Should we condemn the cynicism or celebrate the ingenuity? Whatever the answer to that question may be, the evolution being played out on crowdfunding platforms is as exciting as it is complex.

Go to Part 1 of the article.

Useful links:

With special thanks to ESSEC Knowledge

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