(Illustration by Adam McCauley)
Why do some crowdfunding projects take off and others languish? Even a good idea and strategy for implementation do not guarantee success. But if an entrepreneur makes an introductory video presentation that showcases his passion for the project, his crowdfunding effort has a better shot at reaching or exceeding its funding goal, according to research published in the Journal of Applied Psychology.
The crowdfunding phenomenon has evolved since Indiegogo’s launch in 2008. Now most projects have an online video presentation that dominates the introductory Web page, and the videos themselves have evolved, from amateurish attempts that resembled latenight used-car commercials to polished, professionally produced presentations.
Realistically, it takes more than a snazzy video to raise enough money to launch a startup. The idea behind the project should be innovative, the game plan for implementation well thought out, and it also helps if the creator has a large network. But in the competition for crowdfunding dollars, the effort could well go unnoticed if it lacks a video marketing the entrepreneur’s zeal.
Junchao (Jason) Li, an assistant management professor at Tulane University’s Freeman School of Business, and colleagues had already researched the importance of having a video, but they wanted to determine what made certain videos more effective than others. “We focused on tech and design projects exclusively because we are interested in crowdfunding’s ability to provide early seed capital for very-early-stage startups and help them grow,” Li says. The team is looking separately at social ventures, he adds.
The typical crowdfunding audience differs from professional investors. Before venture capitalists invest in a startup, they undertake rigorous due diligence and require a thorough business plan. By contrast, potential backers of a crowdfunding campaign are comparatively unsophisticated and their investment smaller but variable, so the nature of a would-be entrepreneur’s personal touch might be an especially important factor. Li and his coresearchers posited that the degree of enthusiasm and passion displayed by the project’s creator were at least as important as other elements of a crowdfunding presentation.
The researchers designed a series of studies to identify which elements made for the most persuasive videos. Participants viewed videos borrowed from the Indiegogo and Kickstarter platforms and also ersatz videos created by the researchers using actors promoting actual Kickstarter projects. They found that the more sophisticated an audience was—participants ranged from undergraduate students to more experienced MBA candidates—the more a project’s innovativeness mattered in relation to the passion evinced in the video. Nevertheless, displayed passion substantially boosted the amount that the viewers pledged. On the study’s scoring model, a one-point increase in displayed passion led to a 74 to 92 percent increase in funding amount.
Olav Sorenson, a management professor at the Yale School of Management, says, “It’s obvious that enthusiasm should matter, but this research shows that the effect, at least on the small projects studied, is huge.”
How much does entrepreneurial passion count when a project is particularly innovative? The researchers examined this question by re-creating two video pitches that had appeared on Kickstarter, one for a low-tech laptop stand and one for a more innovative, reusable paper notebook that automatically stored notes into the cloud. They hired a professional actor to pitch the products, either with animated facial expressions, body movements, and varied pitch and tones, or with more monotonous displays. A full-screen product demonstration followed, with the actorentrepreneur voicing over the description, and ended with his asking for financial support. The researchers tested not just the viewers’ reactions but also their propensity to share information about the product with others.
As much as innovativeness mattered, study participants were more willing to invest larger amounts in the project and to share their approval of it with others when it was promoted with passion. In fact, entrepreneurial zeal explained 3 to 5 percent of variance in outcomes beyond inventiveness, Li says.
“It’s clear that an entrepreneur’s enthusiasm gets donors emotionally excited about a project, and therefore they would be more likely to pay attention to the information being presented,” says Sorenson. It may even be the case, he adds, that although professional investors evaluate ideas far more rigorously, they may subconsciously see the displayed enthusiasm as a signal that the entrepreneur is likely to follow through.
The practical implications of the research are clear: Entrepreneurs launching crowdfunding campaigns should invest time and effort in developing a campaign video that clearly demonstrates their passion for their venture. By the same token, potential backers of crowdfunded campaigns should be wary of being swayed by the entrepreneur’s pitch without carefully considering the bona fides of the project.
Junchao (Jason) Li, Xiao-Ping Chen, Suresh Kotha, and Greg Fisher, “Catching Fire and Spreading It: A Glimpse Into Displayed Entrepreneurial Passion in Crowdfunding Campaigns,” Journal of Applied Psychology, 102, no. 7, 2017, pp. 1075-1080.
Read more stories by Marilyn Harris.