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Crowdfunding models: Keep‐It‐All vs. All‐Or‐Nothing

Crowdfunding models: Keep‐It‐All vs. All‐Or‐Nothing Reward‐based crowdfunding campaigns are commonly offered in one of two models via fundraising goals set by an entrepreneur: “Keep‐It‐All” (KIA), where the entrepreneur keeps the entire amount raised regardless of achieving the goal, and “All‐Or‐Nothing” (AON), where the entrepreneur keeps nothing unless the goal is achieved. We hypothesize that AON forces the entrepreneur to bear greater risk and encourages crowdfunders to pledge more capital enabling entrepreneurs to set larger goals. We further hypothesize that AON is a costly signal of commitment for entrepreneurs yielding a separate equilibrium with higher quality and more innovative projects with greater success rates. Empirical tests support both hypotheses. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Financial Management Wiley

Crowdfunding models: Keep‐It‐All vs. All‐Or‐Nothing

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References (35)

Publisher
Wiley
Copyright
© 2020 Financial Management Association International
ISSN
0046-3892
eISSN
1755-053X
DOI
10.1111/fima.12262
Publisher site
See Article on Publisher Site

Abstract

Reward‐based crowdfunding campaigns are commonly offered in one of two models via fundraising goals set by an entrepreneur: “Keep‐It‐All” (KIA), where the entrepreneur keeps the entire amount raised regardless of achieving the goal, and “All‐Or‐Nothing” (AON), where the entrepreneur keeps nothing unless the goal is achieved. We hypothesize that AON forces the entrepreneur to bear greater risk and encourages crowdfunders to pledge more capital enabling entrepreneurs to set larger goals. We further hypothesize that AON is a costly signal of commitment for entrepreneurs yielding a separate equilibrium with higher quality and more innovative projects with greater success rates. Empirical tests support both hypotheses.

Journal

Financial ManagementWiley

Published: Jun 1, 2020

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