Why 3 out of 4 crowdfunding projects fail

Published: 5 September 2016 at 15:00

Headshot of Emanuele Giovannetti

New research to be presented at International Telecommunication Society conference

Topics ranging from why only one in four crowdfunding campaigns succeed to the trade-off between free online services and privacy will be discussed this week (7-9 September) at the 27th European Conference of the International Telecommunication Society.

The conference, taking place at Anglia Ruskin University in Cambridge, includes an opening session featuring Dr Bill Lehr of the Computer Science and Artificial Intelligence Laboratory at MIT, Dr Eun-Ju Kim, Chief of Innovation and Partnership Department at the Telecommunication Development Bureau at ITU, and John Souter, CEO of LINX, the London Internet Exchange.

The conference is co-chaired by Emanuele Giovannetti, Professor of Economics at Anglia Ruskin University, who will present his new research into modelling and predicting the success of crowdfunding campaigns using the Kickstarter website.

Crowdfunding, which bypasses traditional institutions and instead raises funds amongst a large number of individuals via an online platform, provided over $16.2 billion of funding worldwide in 2014.  

Of the 9,652 Kickstarter projects examined by Professor Giovannetti (pictured above) and his co-author William Davies between November 2015 and March 2016, 2,530 (26%) were successful while 7,122 (74%) failed in their objectives. 

They studied the main causes of their success or failure and have produced a model which delivers an 87% chance of correctly predicting the outcome of a crowdfunding campaign.

The academics discovered that there are six key factors that drive the success of a campaign:
1 Reputation.  The number of previous crowdfunding campaigns increases the chances of success.  Reputation helps to build trust, which is necessary in an information asymmetric environment such as the finance of innovation. 
2 Reciprocity.  A project is more likely to succeed if the person behind it has backed projects created by other people.  
3 Timing.  Early funding is a good predictor of success with other backers likely to jump on the bandwagon, while slow initial progress has negative implications. 
4 Social networks.  External social capital, such as Facebook connections on a project page, has a positive, albeit small, impact on success.
5 Ambition.  The amount of funds the campaign must reach to be successful has a negative effect on the probability of success.  Given the reward structure of Kickstarter, it might reflect a perception of ambition as an antisocial feature not suitable in online crowdfunding.  
6 Impatience.  The longer the duration of the campaign, the less likely the project is to succeed.  This reveals a positive aspect of being impatient. 

Professor Giovannetti, Deputy Director of the Institute of International Management Practice at Anglia Ruskin University, said: 

“Our model accurately predicted the outcome of 87% of Kickstarter campaigns, including predicting 96% of the projects that failed.

“What is particularly interesting is that certain attributes such as ambition and patience, traditionally seen as positive traits, appear to have a negative impact on the success of a project.”  

Further details on the 27th European Conference of the International Telecommunication Society are available by visiting http://www.itseurope.org/2016/ and the full conference programme can be downloaded here.

This year’s conference will see increasing cooperation between the International Telecommunication Society and industry, with the conference attendees visiting Microsoft Research in Cambridge.  Principal researcher Manuel Costa will speak on “Research at Microsoft: cybersecurity, privacy, machine-learning and new methods of human interaction”.