Toward a better understanding of crowdfunding, openness and the consequences for innovation

Crowdfunding is now a commonly used tool for innovating entrepreneurs, yet many unresolved questions surrounding crowdfunding’s effect on innovation remain. Often, crowdfunding backers play an active role in the innovation conversation. Thus, crowdfunding can be viewed as one form of open search (actively seeking out ideas from outsiders). Beyond open search, backers also generate word of mouth awareness for the crowdfunded product. Crowdfunding backers can be thought of as the earliest possible adopters, who may be even more valuable than traditional early adopting consumers. In this study, data pertaining to crowdfunded products from the Kickstarter platform is coupled with survey data from the respective innovating entrepreneurs to better understand the effects of elements of crowdfunding on the subsequent market success of the crowdfunded product as well as the innovation focus of the crowdfunding organization. Results indicate that the amount of funding raised during a crowdfunding campaign does not significantly impact the later market performance of the crowdfunded product, while the number of backers attracted to the campaign does. Open search depth (drawing intensely from external sources) enhances product market performance, while open search breadth (drawing from many external sources) induces a radical innovation focus. Interestingly, adverse effects from over-relying on external knowledge sources are not observed. The small size of the crowdfunding organizations in this study is seen as a boundary condition to previous findings of inverse U-shaped performance effects. Finally, the portion of product development complete when crowdfunding impacts the entrepreneurs’ subsequent focus on radical innovation.