"The long-term effects of self pledging in reward crowdfunding"

Tobias Regner and Paolo Crosetto

Crowdfunding recently emerged as an alternative funding channel for start-ups, creative artists and social endeavors. While it succeeded in establishing itself as a major player in entrepreneurial finance, its rather informal setup sparked concerns about its resilience to exploitative behavior by project creators. In this paper we explore one form of such opportunistic behavior: self pledging and its potential effect on the post-campaign development of crowdfunded projects. If project creators use own funds to reach the funding target in order to collect the crowd’s funds, they end up with less fresh capital than needed, and might hence face problems in delivering on the promises made. Most reward crowdfunding platforms explicitly prohibit self pledges. Startnext, the biggest German platform, allows them. We exploit Startnext data to shed light on effects of self funding on post-campaign performance. We single out 140 substantially self-funded projects, and, by propensity score matching, a corresponding sample of 140 projects that did not receive any self pledges. For each of these projects we collect information about the project development three or more years after their campaigns ended. Projects may have failed to deliver, have run into severe delays, have delivered but then disappeared, or might have given rise to recurring events or led to the founding of a company/organization. Results indicate no structural long-term impact of substantial self funding.