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Reaping Value-Added Benefits from Crowdfunders – What Can We Learn from
Relationship Marketing?
Main message of the paper
Fund-seeking entrepreneurs, who are interested in reaping value-added
benefits from their crowdfunders, can actively influence their funders’
willingness to provide such added value through the use of relationship
marketing and trust-building techniques.
Author
Stephanie A. Macht
Newcastle Business School, Northumbria University, City Campus East,
Newcastle upon Tyne, NE1 8ST, United Kingdom
Telephone: +441912437658
Fax: +441912273083
E-mail: s.macht@northumbria.ac.uk
J.E.L. Classification Code
G23; G24; G29; M31
E.F.M. Classification Codes
800; 810
1
Key Points
1. Fund-seeking entrepreneurs can benefit from crowdfunders, if these add
value (through involvement, the provision of contacts and the facilitation
of further finance) beyond their initial financial pledge.
2. Entrepreneurs can actively influence crowdfunders’ willingness to provide
such benefits by engaging them in long-term, co-operative relationships,
which are maintained through continued trust.
3. Trust is built and preserved particularly through frequent and honest
communication with backers, as well as by relying upon endorsements
from existing funders and authorities.
4. Shared values between funder and fund-seeker, a limited amount of
information asymmetry and addressing of security and privacy concerns
also affect the development and preservation of trust.
5. Relationship marketing theories and techniques provide useful insights
into and recommendations for researchers and crowdfunding-seeking
businesses.
Introduction
The fact that young, entrepreneurial businesses are important drivers of
economic growth is widely accepted (Carree and Thurik, 2010; Matejovsky et
al., 2014), as is the fact that they require financial resources in order to fulfil this
crucial role (Cassar, 2004). A variety of funding sources, including 3F investors
(family, friends and fools), business angels, venture capitalists and lending
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institutions like banks, are available to such businesses. However, since many
entrepreneurs still face difficulties in raising sufficient capital, innovative ways of
fundraising are welcome to overcome such ‘funding gaps’ (Cressy, 2012;
Department for Business, Innovation and Skills, 2012). In recent years
therefore, the process of ‘crowdfunding,’ especially through the internet, has
emerged as a novel way of raising capital for entrepreneurial ventures. It is this
novel funding mechanism that this article focuses on.
Crowdfunding is an open call, nowadays primarily on the internet, which
allows fund-seekers to raise capital from a large number of unrelated individuals
(the ‘crowd’), whereby each individual only invests/pledges a very small amount
of money (Lambert and Schwienbacher, 2010). Mollick (2014, p. 2) provided a
detailed yet all-encompassing definition, upon which this article draws:
“Crowdfunding refers to the efforts by entrepreneurial individuals and
groups – cultural, social, and for-profit – to fund their ventures by
drawing on relatively small contributions from a relatively large number
of individuals using the internet, without standard financial
intermediaries.”
Pioneered by Sellaband, online crowdfunding has only been in existence
since 2006, but it was initially conceived as a means for artists to gain financial
support for the production of CDs (Kappel, 2009; Sellaband, 2012). More
recently, a variety of platforms emerged, which facilitate the financing of other
artistic products, as well as business ventures (Ordanini et al., 2011). The
application of the crowdfunding process to the business realm is reflected by
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extensive media coverage, as well as recent legislative changes, such as the
JOBs act in the United States (Farrell, 2012).
Nevertheless, a recent review of crowdfunding literature by Macht and
Weatherston (2014, p. 2) showed that the development of knowledge in this
field – both in academic and practitioner terms – is still in its infancy:
“to date, academic literature in this emerging field is virtually non-
existent, consisting of only a very small number of published articles
and working papers. Owing to the newness of this funding source, little
is known about it and entrepreneurs, who are thinking about using
crowdfunding, have only a very limited amount of literature at their
disposal on which to base their decisions.”
It is on this basis that this article builds upon Macht and Weatherston’s
(2014) work, in order to add to the small but growing knowledge base about
crowdfunding: they explored the benefits of crowdfunding for fund-seeking
business ventures by combining a review of the crowdfunding literature with a
framework of investor benefits, which had been established for business angels
(Macht and Robinson, 2009). They identified five benefits, three of which add
value beyond the funder’s financial investment, and concluded that, on the
whole, the framework is suitable to study the benefits of crowdfunding. In this
article, I aim to explore these three value-adding benefits1 further, by utilising
the same approach as Macht and Weatherston (2014): I also combine current
1 I apply the term ‘value added’ as it is commonly used in business angel research, where it refers to any value that an investor brings to the investee business in addition to the initial financial investment (Macht, 2011a; b). Accordingly, the term relates to non-financial benefits that investors bring to their investee companies, for instance, providing advice or introducing contacts (Politis, 2008).
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crowdfunding literature with an existing and proven framework from a different
discipline.
While an extensive body of research investigates the value added of
business angels (for instance, Politis, 2008), this is the first published article to
specifically explore value added of crowdfunders. Research in the business
angel field has shown that not all fund-seekers want or need value added from
their investors (Macht, 2011a) and the same may be true in crowdfunding as it
is likely that some fund-seekers consider it to be a one-off fundraising process,
providing nothing but the financial capital. However, as the below overview of
crowdfunding literature will evidence, many authors and actual fund-seekers
argue that the crowd are often relied upon for purposes other than the mere
financial investment. Therefore, although there is not yet any statistical
evidence for this, it seems that many, if not a majority of, fund-seekers can see
the worth of crowdfunders’ value added support – it is these fund-seekers that
this article focuses on.
According to the business angel literature, fund-seekers who wish to reap
such value added have to build a trusting relationship with their investors, as
opposed to considering the investment as a discrete, one-off transaction (Steier
and Greenwood, 1999). Some of Gerber and Hui’s (2013) interviews, as well as
the following quotes from entrepreneurial individuals, who have successfully
raised capital through Kickstarter (one of the world’s premier crowdfunding
platforms) suggest that it is the same in the case of crowdfunding:
The backers of this current project “will be brought in to my new
projects with even more enthusiasm [...]. Like seeing what an old friend
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is up to.” (Michael North of Atomic Island Studios, quoted in Berlinger,
2011)
“Relationships are everything, so take care of them.” (Nathaniel
Hansen, 2011)
“In fact, many of your earlier backers will even increase their original
pledge as you get close to the goal.” (Gary M. Sarli, 2011)
“When people back your project, they are not only giving you money,
but they’re giving you permission to talk to them about your ideas and
future projects [...], you now have a way to talk directly to people who
want to hear from you.” (de Witt, 2012, p. 17)
Based on that assumption, I chose a theory from the relationship marketing
field as that essentially refers to the intention of building long-term relationships
between businesses and other parties (Morgan and Hunt, 1994). As such, the
purpose of this article is to explore the value-adding benefits of crowdfunding
through a relationship marketing lens, with the intention of serving two
audiences:
1) Academics/researchers: I add to the work of Macht and Weatherston
(2014) by exploring the value-adding benefits of crowdfunding further.
Although they are a key aspect of this funding source, they have to date
not been investigated in published research. Moreover, I follow Macht
and Weatherston’s (2014) approach in attempting to establish the
usefulness and value of extant theories in the crowdfunding area.
However, while their work has used a framework from the rather closely
related field of business angel investments, I widen the field from which
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the underlying theory is taken. The reason for this is to show that even
less related disciplines can offer useful frameworks, which can produce
new knowledge and add to the theoretical sophistication of the newly
emerging field of crowdfunding.
2) Practitioners, especially fund-seeking entrepreneurs who wish to rely on
their backers for more than the mere financial investment: By showing
the relevance of relationship marketing for crowdfunding, I aim to provide
entrepreneurs with insights into how they can use their pre-existing
knowledge and skills in marketing in order to reap the value-adding
benefits that crowdfunders can provide. The suggestions may be useful
for fund-seekers to generate effective fundraising pitches, marketing
campaigns and especially ongoing relationships with their crowdfunders.
More marginally, this article might even help to educate those fund-
seekers, who do not (yet) consider the value that crowdfunders can add.
The remainder of this article proceeds as follows: next, I present a brief
overview of the current literature on crowdfunding, with a specific focus upon
the benefits framework, upon which this article builds. This is followed by an
outline of relationship marketing, especially the Commitment-Trust-Theory
(CTT), which includes an explanation of the rationale for choosing this theory.
Subsequently, I explore the theory’s relevance for crowdfunding by drawing
upon the extant crowdfunding literature, as well as illustrative examples from
Kickstarter. The article closes with a conclusion that specifically focuses on
lessons, which crowdfunding researchers and practitioners can learn if they
consider relationship marketing theory in the context of crowdfunding.
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Crowdfunding: An overview
As previously mentioned, crowdfunding is one option for individuals and
groups to obtain financial capital from a ‘crowd,’ that is, a large number of
people, whereby each individual only pledges very small amounts, typically
starting from as little as $1 per person (Kimball, 2012). This section presents a
brief overview of the crowdfunding literature, with particular emphasis on:
the emergence of crowdfunding;
the fundraising process;
the profile of typical funders and fund-seekers; and
the benefits of crowdfunding for fund-seekers.
This article focuses on reward-based (as opposed to equity-, donation- or
loan-based) crowdfunding, but it is not limited to any one particular fund-seeker.
Thus, it includes entrepreneurial individuals, artists and businesses (Collins and
Pierrakis, 2012; Macht and Weatherston, 2014). Due to the prevalence of
Kickstarter as an online crowdfunding platform, I use examples from Kickstarter
projects, many of which were initially only one-off projects but have since
developed into ongoing business ventures (Mollick, 2014).
The emergence of crowdfunding
Crowdfunding is one form of the wider concept of ‘crowdsourcing,’ whereby
individuals or companies use large crowds of people in order to carry out tasks
such as: asking stakeholders for feedback; asking customers to contribute to
the design of new products/services; or customer-to-customer support
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(Aitamurto, 2011; Kleemann et al., 2008). In the case of crowdfunding, the task
is the funding of the venture or project.
Crowdfunding, in its offline version, has existed for centuries, as for instance,
the Statue of Liberty was crowdfunded (Harrison, 2013). Given the dominance
of the internet these days, however, it is no surprise that also crowdfunding
found its way into the World Wide Web: currently, there are hundreds of online
platforms, which facilitate interaction between fund-seekers and crowds of
people (Avery, 2012). The development of Web 2.0 is one of the key reasons
for the emergence of online crowdfunding as it enables anyone to create
content and to interact with a wide network of people (Schwienbacher and
Larralde, 2012).
The fundraising process
The process of raising capital through crowdfunding first requires
entrepreneurs to choose a platform, to which they sign up. Most platforms carry
out some form of vetting before allowing entrepreneurs to publicise their
investment opportunity (Collins and Pierrakis, 2012). Once accepted onto the
platform, entrepreneurs publish a ‘pitch,’ which details information about: the
entrepreneurs themselves; their business (or the specific project), for which they
require funding; the target amount to be raised; a deadline for fundraising; and
the rewards that backers can expect if they decide to fund the entrepreneur.
While words and pictures are used in the pitch, some platforms, like Kickstarter,
specifically recommend video pitches (Mollick, 2014).
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Once the investment opportunity is visible online, investors – the so-called
‘crowdfunders’ or ‘backers’ – visit the website and choose
entrepreneur(s)/project(s), in which they want to invest. With the crowdfunding
platform as an intermediary, backers pledge as much or as little money as they
wish. This amount can be as little as $1 per backer, but investments typically
range from $6 to $50 (Van Wingerden and Ryan, 2011). Given that the average
target amount sought by fund-seekers on Kickstarter is just over $8,500
(Kuppuswamy and Bayus, 2013), achieving this fundraising goal may require a
rather large amount of individual backers.
It is important, however, to reach this goal as most crowdfunding platforms
operate on an ‘all or nothing’ basis, meaning that entrepreneurs, who do not
reach their specified target, will not obtain any amounts already invested, as
these are returned to the backers (Kappel, 2009). According to Mollick (2014),
this happens to 51.9% of fund-seekers. In the case of successful fundraisers,
on the other hand, it seems that most pledges arrive at the beginning and end
of the fundraising period, with little activity in between (Kuppuswamy and
Bayus, 2013).
Those entrepreneurs who achieve their target amounts receive the entire
amount raised at the end of the fundraising period – some platforms even allow
entrepreneurs to raise more than their target amount, potentially resulting in
‘overfunding’. At some point after the fundraising period, entrepreneurs are
expected to deliver the rewards they had promised to their backers, but only a
minority of fund-seekers manage to do so on time (Mollick, 2014).
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In comparison to offline crowdfunding, Web 2.0 reduces transaction costs for
fund-seekers, not only because an open call through the internet can efficiently
reach many investors (Lambert and Schwienbacher, 2010), but also because
the financial transaction is carried out via the platform, which charges a fixed
fee2, independent from the amount of backers. This figure would likely be much
larger without the intermediary as fund-seekers would have to deal with costs
for each small investor (for instance, contracting and negotiation costs).
Crowdfunders and fund-seekers: A profile
As crowdfunders are private individuals who pledge small amounts, it is
conceivable that anyone could be a potential crowdfunder (Belleflamme et al.,
2013; Hurley, 2012). The profile of a typical crowdfunder has not yet been
researched in detail, but some basic characteristics can be found in current
literature. Van Wingerden and Ryan (2011) showed that crowdfunders come
from all age groups and are not serial investors. Since the ‘crowd’ consists of
members of the general public, it is possible for the entrepreneurs’ friends and
relatives to also back their respective projects on crowdfunding platforms.
According to Steinberger (2012, quoted in Kuppuswamy and Bayus, 2013),
pledges at the beginning of the fundraising period for Kickstarter projects tend
to come from friends and family, whereas the majority of pledges arrive from
strangers, closer to the fundraising deadline. When researching the geography
of crowdfunding, Agrawal and others (2011) concluded that crowdfunders have
no geographic limitations when choosing entrepreneurs to back: in fact, with the
2 In the case of Kickstarter, this fee consists of 5% of the funds raised, plus 3-5% credit card processing fee (Kickstarter, no date a).
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help of the various online platforms, crowdfunders can back projects anywhere
in the world.
Detailed studies of investment motivations have not yet been conducted but
some authors have suggested a diversity of motivational factors, including:
financial rewards, for example, repayment of loan with interest;
equity share in the business;
physical, but non-monetary rewards, for instance, a product sample,
the backer’s name associated with the business, or promotional
objects; and
non-material rewards, such as feelings of personal gain and belonging
to a community, or the desire to help others and support specific
causes (Gerber and Hui, 2013; Lambert and Schwienbacher, 2010).
Statistics from crowdfunding platforms (for example Kickstarter) suggest that
it can theoretically be used by any company, although some platforms place
limitations on the industries they allow. Lambert and Schwienbacher (2010), as
well as Schwienbacher and Larralde (2012) concurred but argued that the most
successful fund-seekers tend to be innovative or not-for-profit businesses,
which appeal to the general public.
According to Lambert and Schwienbacher (2010), entrepreneurs choose
crowdfunding predominantly because they want to: raise capital; increase public
awareness of the business; and test their product/service ideas prior to launch.
Gerber and Hui (2013) added further motivations: to form long-term
relationships with customers and other supporters; to maintain control over their
business; and to learn new fundraising skills. Due to the newness of the field,
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however, researchers have not yet considered fund-seekers’ motivations to
choose crowdfunding instead of other sources of capital. Only Macht and
Weatherston’s (2014) discussion of crowdfunding benefits, which compares
crowdfunding to business angels, implicitly suggests that each benefit could
constitute a reason for entrepreneurs to choose crowdfunding over business
angels.
The benefits of crowdfunding for fund-seekers
As Figure 1 shows, there are five key benefits:
1. Helping to overcome funding difficulties: Crowdfunding is likely to
overcome the funding gap between an entrepreneur’s own money and
more formal external investors like business angels, venture capitalists or
banks. Moreover, the large amount of online platforms available enable
fund-seekers to easily reach the huge pool of potential investors (after
all, anyone can be a crowdfunder), whose investment criteria are all-
encompassing and not geographically limited (Macht and Weatherston,
2014).
2. Provision of contacts: After having invested, crowdfunders are likely to
share their investment decision with personal contacts, for instance on
social networks. Large crowds of backers can therefore generate hype
around the business, which exposes it to personal contacts, the media
and thus the wider public. By providing contacts, crowdfunders can add
value to the business (Macht and Weatherston, 2014).
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3. Facilitation of further funding: Through sharing their investment decision
with other individuals, crowdfunders quasi-introduce the entrepreneur to
an even wider audience of potential backers. Since crowdfunders base
investment decisions partially on the decisions of other backers (Ward
and Ramachandran, 2010; Van Wingerden and Ryan, 2011), exposure
to the wider public may result in more pledges for the project, during this
or a later fundraising round. Moreover, the capital raised through
crowdfunding can enable entrepreneurial businesses to achieve
investment readiness, which in turn allows them to attract more formal,
external finance later on (Macht and Weatherston, 2014).
4. Involvement: Although most crowdfunders do not become actively
involved in the projects or businesses they back, crowdfunding can be
combined with other forms of crowdsourcing and as such enable
entrepreneurs to obtain involvement from their backers (Lambert and
Schwienbacher, 2010). For instance, entrepreneurs can benefit from the
“wisdom of crowds” (Collins and Pierrakis, 2012, p. 24) if they directly
ask backers for feedback. Such involvement adds value to the
entrepreneur, beyond the financial investment (Macht, 2011b; Macht and
Weatherston, 2014).
5. Limited/no loss of control and ownership: Entrepreneurs generally dislike
giving up ownership and control of their business to equity investors
(Mason and Harrison, 1996). Such entrepreneurs benefit from
crowdfunding as many backers donate money or happily accept non-
financial rewards, while equity investors tend to obtain only very small
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shares, owing to the small amounts invested, so that entrepreneurs can
retain the majority shareholding and control. Moreover, since typical
crowdfunders are not sophisticated investors, they most likely will not
require much information upfront and they tend to not negotiate detailed
contracts with extensive conditions (Schwienbacher and Larralde, 2012),
which reduces transaction costs and should be of benefit to
entrepreneurs unwilling to concede control to investors.
Since this article aims to explore the value-adding benefits, it focuses on the
provision of contacts, involvement and the facilitation of further funding. The
15
article examines these benefits through a relationship marketing lens, which is
reviewed next.
Relationship marketing: An overview
The relevance of relationship marketing for crowdfunding
As the above overview showed, the value-adding benefits of crowdfunding go
beyond the one-off financial transaction as they require some form of activity
from the backers, during or even after the fundraising period. Some activities
may happen unasked, out of the backer’s own volition (for example, backers
share the investment decision with their own contacts on social media), while
others are requested from the fund-seekers themselves: for instance,
entrepreneurs ask crowdfunders for feedback; suggest they publish their
investment on social media; or invite backers to promote their project through
other means.
While it is conceivable that crowdfunders could receive some form of
remuneration in return for these activities (Naroditskiy et al., 2014), the fact that
the typical fund-seeker is short on cash, means that it is more likely that backers
carry out such activities as a non-remunerated favour towards the fund-seeker.
Not all entrepreneurs want or need added value (Macht, 2011a), but those who
wish to reap benefits from such value-adding activities should try to positively
affect their crowdfunders’ willingness to provide their time and effort to the
project, even after the fundraising period.
In order to achieve this, I stipulate that entrepreneurs should consider
crowdfunding to be more than just the provision of capital, which in itself is a
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discrete, one-off transaction. Instead, they need to realise that, should they wish
to draw upon backers’ resources again in future, they have to build and retain
long-term, ongoing relationships with their backers, thus enabling relational
exchange of resources in future transactions. As such, the provision of capital
becomes merely the beginning of a (potentially) long-term, ongoing relationship
between backers and fund-seekers, as opposed to a one-off, short-term
transaction.
It is this distinction between discrete transactions and relational exchanges
that lies at the heart of relationship marketing. To be more specific, relationship
marketing advocates the importance of ongoing, long-term relational exchanges
between businesses and other parties, as such relationships generate
cooperative behaviour and long-lasting willingness, so-called ‘behavioural
intent,’ to share and exchange resources (Morgan and Hunt, 1994). Hui and
others (2014, p. 7) have hinted at the importance of relational exchange for
crowdfunding as they suggested that fund-seekers can build, through the use of
marketing activities, long-term relationships with crowdfunders that last well
beyond the fundraising period:
“By regularly interacting with an online audience through marketing
efforts [...], creators3 are able to create a following that lasts throughout
their campaign4 and possibly for future projects.”
I go further by proposing that marketing – relationship marketing in particular
– is crucial for the field of crowdfunding. A further reason supporting my use of
relationship marketing theory refers to the proven applicability of relationship
3 Creators of crowdfunding opportunities, that is, fund-seekers4 The current fund-raising campaign
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marketing to another investor, the bank: relational exchanges between banks
and their clients, termed ‘relationship banking,’ have been researched
extensively and are widely acknowledged as crucial aspects of retail banking
activities (Mukherjee and Nath, 2003).
Relationship marketing: An overview
Shortly after its conception, relationship marketing merely referred to the
development and preservation of long-standing relationships between
companies and customers. As opposed to short-term or one-off interactions,
ongoing relationships with customers are deemed highly valuable for
businesses because they tend to incentivise customers to repeatedly
repurchase their products or services (Dagger and David, 2012). The
relationship marketing literature refers to long-term relationships as ‘relational
exchanges’ and to one-off interactions as ‘discrete transactions’ (Morgan and
Hunt, 1994).
Since neither of these terms relate exclusively to customer-business
interactions, the ideas underlying relationship marketing were also applied to
other parties typically interacting with a business or budding entrepreneur, such
as suppliers, employees (Sheth et al., 2012) or investors (Morgan and Hunt,
1994). This article draws upon the following definition from Morgan and Hunt’s
(1994, p. 22) seminal piece of work as it does not specify any particular parties,
with which businesses interact, and as such may well include crowdfunders:
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“Relationship marketing refers to all marketing activities directed
towards establishing, developing, and maintaining successful relational
exchanges.”
While the “ultimate form of relationship marketing” is to enter an actual
partnership with the other party, there are a variety of other levels of relationship
marketing, which require less interaction between the parties but still have an
effect on the development and maintenance of long-term relationships; it is
clear that higher levels of relationship marketing are more costly to implement
and sustain than lower levels (Kotler, 1992, p. 21).
Given the availability of such less interactive relationship levels, it is possible
for businesses to operate more basic relationship marketing activities with large
numbers of individual clients, without having to develop highly involved and
personalised relationships with each of them (Dibb and Meadows, 2001). This is
particularly relevant for crowdfunding as the multitude of funders would
otherwise result in an impossibly large amount of individual, personalised
relationships, which would carry unreasonably high transaction costs.
Following the development of the above definition, Morgan and Hunt (1994)
showed that trust and commitment are crucial for relationship marketing as they
are required in order to establish, develop and maintain long-term relational
exchanges. These authors developed the Commitment-Trust-Theory (CTT),
which is nowadays a widely cited theoretical framework in the relationship
marketing field (Mukherjee and Nath, 2007). The next section reviews this CTT
in more detail, before exploring its usefulness for crowdfunding.
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The Commitment-Trust-Theory
The basic premise of the CTT is that the existence of trust in a relationship
creates commitment, as well as cooperation and a long-term relational
exchange (Morgan and Hunt, 1994). According to the original CTT, which was
developed in the context of offline relationships, the following factors determine
the levels of trust: communication, opportunistic behaviour and shared values.
Communication can be defined as the sharing of information between the
relationship parties (Morgan and Hunt, 1994), whereby open, speedy and
high-quality provision of information increases trust (Mukherjee and Nath,
2003).
Opportunistic behaviour occurs if relationship parties attempt to achieve
their own goals by any means possible, even using guile and deception.
In particular information asymmetry can lead to opportunistic behaviour
as it may allow parties to withhold information and to benefit from this
informational advantage. Trust develops if parties believe that their
partners do not behave opportunistically (Morgan and Hunt, 1994; Saleh
et al., 2014).
Shared values refer to the extent, to which the parties share common
beliefs about what is wrong or right. A strong perception of shared values
leads to an increase in trust (Morgan and Hunt, 1994; Mukherjee and
Nath, 2003).
At a later stage, other researchers have tested the CTT framework in the
context of online relationships, for instance between retail banks and clients
(Mukherjee and Nath, 2003) or between online retailers and customers
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(Mukherjee and Nath, 2007). They confirmed the applicability of the model but
the online nature of the relationship required them to amend the CTT by adding
two further determinants of trust: security and privacy.
Security refers to the perceived safety of financial information, such as
credit card details, as entered into certain websites. Websites that are
deemed to be secure are also considered to be trustworthy.
Privacy concerns derive from the ability of websites to collect a diverse
range of information from users, as well as the issues around loss or
even misuse of this information. Websites, which clearly protect the
user’s details, are met with a high level of trust (Benlian and Hess, 2011;
Mukherjee and Nath, 2003; 2007).
While trust is at the centre of the CTT model, the notion of commitment also
plays an important role, as it is at the same time a consequence of trust and a
determinant of long-term cooperation (Morgan and Hunt, 1994). Commitment
refers to a lasting desire to maintain a relationship (Moorman et al., 1992).
Together, commitment and trust determine the parties’ co-operation and
behavioural intent. The latter refers to a willingness to continue the exchange of
resources as appropriate to the relationship (for example, to repeatedly
purchase products/services from the same seller) (Mukherjee and Nath, 2007).
Ideally, this willingness to continue the interaction eventually translates into
action, which can add value to one or both of the relationship parties, for
instance actual repeat purchase. Figure 2 displays the CTT graphically.
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The CTT, and relationship marketing more broadly, have not to date been
used in the context of crowdfunding, although it seems intuitively suitable:
crowdfunders provide money first, before experiencing the reward for their
pledge (Mollick, 2014), which requires them to trust the fund-seeker to deliver
on the promised reward at some point in the future. This is comparable to
service marketing, where customers require a certain level of trust in the service
provider before entering the initial transaction because they are often asked to
buy the service before experiencing it. Since relationship marketing has
successfully been applied to service marketing (Morgan and Hunt, 1994), the
above similarities with crowdfunding further suggest a potential suitability of the
theory also for this emerging field.
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Hence, there is a strong argument supporting the use of the CTT model for
crowdfunding. The following section addresses this by bringing together the
CTT and the current literature on crowdfunding. As such, the section explores
the usefulness and applicability of the model for the crowdfunding field.
Commitment-Trust-Theory in crowdfunding
When considering CTT in the context of crowdfunding, it seems intuitively
suitable because trust is crucial for funders to provide capital and added value
to fund-seekers (Gerber and Hui, 2013), whereby trust is relevant for backers,
who are already known to the fund-seeker, as well as for strangers. It is,
however, likely that the former already trust the fund-seeker, while the latter
need to first build their trust. Nevertheless, relationship marketing activities are
useful to retain the trust of all backers, like Nathaniel Hansen (2011), a
successful serial Kickstarter-user, recommended:
“Relationships are everything, so take care of them. [...] 1) never burn
a bridge and 2) do everything you can to nurture and feed your diverse
network of relationships.”
A further reason why the CTT has intuitive appeal in crowdfunding refers to
its similarity with other online interactions, for instance, online retailing, where
trust has previously been investigated: a customer, who trusts an online retailer,
makes an initial purchase and may ultimately enter a committed relational
exchange with the retailer. This results not only in repeat purchase, but also a
willingness to promote the retailer through word of mouth (Mukherjee and Nath,
2007). This willingness ultimately leads to actions that add value to the
23
relationship partner beyond the initial purchase (Liu et al., 2004). I propose that
this process can be translated to three distinct relationships in the context of
crowdfunding, all of which start with an initial transaction and can turn into long-
term, committed relationships that add value to the respective relationship
partner:
1) Crowdfunder-platform-relationship: Crowdfunders’ monetary pledge
through the platform (initial transaction) may be followed by further
pledges to different projects on the same platform (added value beyond
the initial transaction) (Van Wingerden and Ryan, 2011).
2) Entrepreneur-platform-relationship: Entrepreneurs use the platform to
raise crowdfunding (initial transaction) and may return to the same
platform to raise capital for additional, future projects (added value
beyond the initial transaction) (Gerber and Hui, 2013).
3) Crowdfunder-entrepreneur-relationship: After pledging money to the
project (initial transaction), crowdfunders may be willing to further support
the business, for instance, through providing contacts or becoming
involved (added value beyond the initial transaction) (Macht and
Weatherston, 2014).
Given this article’s aim to explore the value added of crowdfunders, it focuses
on the third relationship, specifically on the relational exchange between
crowdfunder and entrepreneur beyond the initial transaction. However, since
relational exchanges require ongoing trust, it is important to also acknowledge
that this trust originates from even before the initial transaction. As that occurs
through the crowdfunding platform, it is likely that the development of trust
24
between funder and fund-seeker is affected by the platform: funders have to
also trust the platform in order to make their initial pledge. This is comparable to
other online intermediaries, such as online communities or online traders,
whereby the users’ trust in the intermediary affects their trust in other users
(Benlian and Hess, 2011; Wang and Emurian, 2005). Therefore, this article
recognises the role of the platform in building initial trust, but given its focus on
the relationship (and therefore the trust) between funder and fund-seeker, the
following sections will merely touch upon the platform’s role, rather than
discussing it in detail.
The consequence of trust in crowdfunding: Reaping value-added benefits
As previously discussed, value added constitutes a key benefit of
crowdfunding for entrepreneurial projects or businesses (Macht and
Weatherston, 2014). Therefore, those entrepreneurs, who are interested in
reaping such benefits, should be concerned with the development of trust
amongst potential and actual backers because trust is one of the factors
affecting crowdfunders’ willingness to add value.
To date, no crowdfunding research has investigated the conjecture that
businesses can actively affect their investors’ willingness to add value by
facilitating the building and preservation of trust. Nevertheless, some authors
have hinted at such a relationship: Hui and others (2014) suggested that regular
communication between fund-seeker and backer increases the fund-seeker’s
reputation of being trustworthy and may ultimately motivate backers to support
the business, for instance through word of mouth, which often results in
25
increased interest from other people. As such, the backers add value to the
business, which benefits from free publicity and the resulting new contacts it
may bring (Macht and Weatherston, 2014). David MacKenzie, who successfully
raised crowdfunding on Kickstarter for his game ‘Alien Frontiers,’ recommended
that all fund-seekers connect with their backers as his experience showed him
that backers can promote the project to their own contacts (Berlinger, 2011).
While the above argument shows that the benefit ‘provision of contacts’ can
be facilitated through trust, it is equally plausible that the other value-added
benefits, as explored in Macht and Weatherston’s (2014) framework, may also
derive from a trusting relationship between funder and fund-seeker, as they all
rely on the funders’ willingness to interact with and support the fund-seeker. For
instance, in terms of the ‘facilitation of further funding,’ the backers have to be
willing to promote the business to potential other funders in their own network of
contacts or even to pledge more own money. Gary M. Sarli (2011), who raised
capital for e20System through Kickstarter, claimed that many backers will
increase their original pledge as the fundraising period comes to an end. With
regards to ‘involvement,’ backers need to display willingness to give up their
time to support the business. An example from Kickstarter is ‘Alien Frontiers,’
whose backers proofread the game rules and provided advice and even own
artwork for free (Berlinger, 2011).
While the focus of the CTT is the effect of trust upon value-adding benefits, it
needs to be stressed here that there are other factors, which may influence
crowdfunders’ willingness to add value. For instance, Naroditskiy and others
(2014) identified a strong correlation between incentives and crowdfunders’
26
willingness to refer the fund-seeking project to friends and acquaintances.
However, since the typical fund-seeker cannot afford to offer incentives, this
factor seems less relevant than trust in the context of crowdfunding.
In order to explore how fund-seekers can influence the building and
preservation of trust in the relationship with their backers, I refer to the
determinants of trust according to the CTT as amended for online relationships
by Mukherjee and Nath (2003; 2007): communication, opportunistic behaviour,
shared values, security, and privacy. The next section considers each of these
factors in light of the current crowdfunding literature.
The determinants of trust in crowdfunding
According to the CTT literature, the five determinants of trust can be
influenced or even managed by the relationship parties (Morgan and Hunt,
1994; Mukherjee and Nath, 2007). This suggests that the actions of
entrepreneurs affect the extent to which they may be able to draw upon their
crowdfunders for support beyond the initially pledged amount of money. It is
these determinants, and the ways in which entrepreneurs can influence them,
that this section focuses on.
Communication
The CTT literature contends that open, speedy and high-quality provision of
information increases trust (Mukherjee and Nath, 2003). In the context of
crowdfunding, this notion appears to be true, as some researchers have
27
commented on the importance of communication, both during and after the
fundraising period.
One way of communicating with potential backers during the fundraising
process is the investment pitch, published on the chosen crowdfunding
platform. By studying video pitches on Kickstarter, Fernandes (2013) concluded
that the more trustworthy a fundraising pitch appears to be, the more likely the
project will be successful in raising its target amount. In this case,
trustworthiness in the pitch was evaluated according to fund-seekers’
credentials and the tone of their video. This conclusion shows not only that trust
plays a key role in the initial decision to invest, but also that entrepreneurs can
influence the development of trust by carefully considering the content and tone
of their pitch. After a successful Kickstarter campaign for ‘pixelstick – Light
painting evolved,’ a technology project, the fund-seeker Steve McGuigan
advocated the importance of the written and the video pitch: “You are asking
people to put their trust in you, the least you can do is present your idea well”
(Ung, 2014).
Another way of communicating with potential and actual backers throughout
the fundraising process is the provision of updates, which was explored by
Kuppuswamy and Bayus (2013). They demonstrated that entrepreneurs, who
successfully raised their target amounts, communicated more with the
crowdfunder community than fund-seekers, who ultimately failed to achieve
their goals. After having raised funds for his film ‘Identifying Nelson,’ de Witt
(2012, p. 63) presented a lesson regarding the value of updates for ongoing
28
interaction with backers: updates are “a great way to keep your backers
involved and enlist their additional support.”
Communication during the fundraising period mostly takes place through the
crowdfunding platform as that is where the fundraising pitch and updates are
published. Given this intermediary role of the platform, it is likely that factors like
ease of use or website design affect funders’ trust in the platform, which in turn
affects their trust in the fund-seeker (Benlian and Hess, 2011). Although fund-
seekers cannot control the platform’s usability, they may be able to affect trust-
building by choosing to raise capital on a platform that possesses trustworthy
communication tools.
The above has so far only established that communication facilitates the
building of sufficient trust early on in the relationship, so that crowdfunders carry
out their initial investment. However, the focus of this article is the value-added
benefits, which backers generally provide after their initial investment, that is,
after they have demonstrated enough trust to pledge their money. Therefore, it
is important to now consider how ongoing communication facilitates the
preservation of trust after the initial pledge. In the generic trust literature,
ongoing communication is a key determinant for continued trust within a
relationship (De Clerq and Sapienza, 2001). This notion seems to be relevant in
the context of crowdfunding too:
“By addressing questions and by posting regular updates, creators
maintain supporter relations and uphold a reputation of being
responsible and trustworthy.” (Hui et al., 2014, p. 6)
29
Ridiculo.us (a business producing ridiculous things) were not only highly
successful in raising crowdfunding for their project (they raised $10,000
although their target amount was only $600), they also attributed the success of
a second project to ‘overcommunication:’ due to supplier delays, they launched
their second project before having delivered the rewards of their first project.
Not only were the backers very sympathetic, but a large number of them even
immediately backed also the second project because the business kept them
highly informed about the delay and its reasons (Ridiculo.us, 2012). As such,
the business benefitted from added value, in the form of further financing,
resulting from substantial communication with their backers. Since this type of
communication happens after the fundraising period, the crowdfunding platform
does not play a part in trust preservation anymore.
Opportunistic behaviour
CTT argues that trust develops if relationship parties believe that their partner
does not act opportunistically. Since opportunistic behaviour often derives from
asymmetric information, the above discussed importance of communication is
further increased: entrepreneurs who continuously and transparently share
information with their backers lessen the information asymmetry (Parola and
Ellis, 2013). This reduces the perceived chances for opportunistic behaviour,
which in turn may result in increased trustworthiness. Ingram (2013) stressed
the importance of transparency in building and maintaining trust between fund-
seekers and backers on Kickstarter by referring to the example of a young girl,
who raised $20,000 to attend a game design course. Later, however, she
30
received substantial criticism when it emerged that her mother was a
multimillionaire, who would have been able to fund the course attendance
herself, but who wanted her daughter to learn to independently make money for
her own desires. This public outcry could probably have been avoided had the
fundraising pitch transparently referred to the mother’s reasons for not financing
the course herself.
Despite any attempts at reducing information asymmetry, crowdfunders will
always face some asymmetric information because:
a) they make an investment, which by nature contains some information
asymmetry as the investee possesses more knowledge about itself than
the investor (Belleflamme et al., 2013);
b) they carry out an online transaction, through an intermediary platform,
which is characterised by a physical separation between funder and
fund-seeker (Mukherjee and Nath, 2007). This means that backers
generally have to rely only on information publicly available (on the
crowdfunding platform, the venture’s/project’s website and information in
public media), as opposed to their own personal interaction with the
entrepreneur; and
c) they are private individuals, who invest very small sums and generally do
not have much investment experience. Sophisticated investors, such as
business angels, use in-depth due diligence and detailed contracts in an
attempt to reduce and manage information asymmetries (Van
Osnabrugge, 2000). Crowdfunders, however, typically do not go to such
31
lengths to reduce asymmetric information (Macht and Weatherston,
2014).
Since the basic premise of opportunistic behaviour refers to deliberately
deceptive actions, the existence of asymmetric information can potentially
attract con artists, who fraudulently raise crowdfunding for their personal
enrichment and thus obviously never deliver any rewards they have promised to
backers (Mollick, 2014). According to Mollick’s (2014) study, fraudulent activity
is extremely rare in online crowdfunding, but many backers are suspicious
nevertheless (Gerber and Hui, 2013), so that the need to build trust prior to any
pledges may become even more significant in future, at least for backers who
do not know the fund-seeker yet.
As such, entrepreneurs may need to pay more attention to signalling
genuineness, legitimacy and high quality to potential backers, for instance
through emphasising own credentials (Fernandes, 2013) or evidencing awards
received (Ahlers et al., 2012). Serial fund-seeker de Witt (2012, p. 51)
explained: “The more previous experience you can demonstrate, the more
people will trust you.” Direct communication, in addition to indirect signalling, is
another means for entrepreneurs to manage the development of trust as
communication of information reduces opportunistic tendencies (Saleh et al.,
2014). Kickstarter (no date b) itself argued that updates positively affect
crowdfunders’ perception of the venture’s trustworthiness: “The more
information you share, the more you will earn your backers’ trust.”
Although fraudulent non-delivery of rewards is rare, genuine miscalculation of
costs, time or abilities and the related delays in delivery are very common in
32
successful fund-seekers (Wortham, 2012; Mollick, 2014). While any kind of
unfulfilled obligations can affect trustworthiness (Mukherjee and Nath, 2007),
communication is again key to minimising any negative effects: Wortham (2012)
stated that crowdfunders generally appreciate that such delays can happen and
they look favourably upon the businesses, but only if they are being kept
informed.
A further aspect of opportunistic behaviour refers to the regulatory
environment surrounding the process of crowdfunding. Mukherjee and Nath
(2003) argued that there is a rather high risk of opportunistic behaviour if
processes are not (yet) well regulated and possess limited control mechanisms.
In the case of crowdfunding, this is highly relevant as there is substantial debate
in practice and policy regarding the regulation of the crowdfunding platforms, for
instance with regards to the protection of equity crowdfunders (Collins and
Pierrakis, 2012). Nevertheless, the field is still far from being well regulated and
recent attempts at reducing this legal minefield (Farrell, 2012; Marsden, 2011)
raised additional concerns and demands for further changes to legislation
(Schroter, 2014). This may somewhat negatively affect the trustworthiness of
the system itself, but seems to therefore reinforce my conjecture that
businesses should attempt to actively improve their own trustworthiness.
Crowdfunding platforms themselves can reduce the risk of opportunistic
behaviour and as such increase their own and, by extension, their fund-seekers’
trustworthiness, by implementing their own control and fraud-detection
mechanisms. If entrepreneurs wish to affect the building of trust, they have to
33
deliberately choose platforms that implement control mechanisms, like project
vetting (Collins and Pierrakis, 2012).
Shared values
According to the CTT framework, a strong perception of shared values, that
is, a common outlook on what is right and what is wrong, between parties
increases trust within a relationship.
The information asymmetries prevalent in any investment decision, combined
with the impersonal nature of online transactions through intermediary
platforms, mean that assessing the values of a business is difficult for
crowdfunders. In an attempt to learn about the values, crowdfunders have to
rely on information provided by the fund-seeker him-/herself, which relates back
to the importance of communication as a means to build trust: entrepreneurs
can affect the development of trust by providing speedy, open and honest
communication (Mukherjee and Nath, 2003).
It is further plausible that businesses can influence the development and
preservation of trust by clearly stating their organisational values, so as to
attract crowdfunders who share these. Given that not-for-profit businesses,
which often have strong moral or ethical values, are amongst the most
successful fund-seekers (Lambert and Schwienbacher, 2010), this notion
appears suitable for crowdfunding. Although not a non-profit business, the
socially focused ‘Hip Chick Farms’ successfully raised crowdfunding and clearly
stated its values on their own website and in their Kickstarter pitch (Paladech,
2012). Gerber and Hui’s (2013) interviews, as well as de Witt’s (2012)
34
experience of two successful fundraising campaigns, further corroborate this
argument: the more a project resonates with prospective funders’ beliefs, the
more they will like and ultimately support it.
Security
The amended CTT includes perceived security, in terms of the safety of
financial information during online transactions, as a key determinant for trust in
web-based relationships. Since crowdfunders make pledges of their own money
through an online channel, the existence of security concerns is to be expected.
However, in the case of crowdfunding, the intermediary platforms usually
specify how the financial transactions are to be conducted (Ordanini et al.,
2011), for instance Kickstarter payments are processed through Amazon
Payments (Kickstarter, no date c). As such, the fund-seeker cannot actively
influence the perceived security of the funding transaction – the safety of
backers’ financial information depends upon the platform and its underlying
technology (cf. Mukherjee and Nath, 2003), which means that the funder has to
trust the platform, as well as the fund-seeker, when making the financial pledge
(Wang and Emurian, 2005). Although fund-seekers cannot influence the
perceived security of crowdfunding platforms, I argue that they are still able to
affect the building of trust by consciously selecting a crowdfunding platform that
is perceived as secure, for instance because it utilises the latest security
technology. On Kickstarter, for instance, the Frequently Asked Questions
address aspects of security, like two-factor-authentication and passwords
(Kickstarter, no date d).
35
Privacy
According to the amended CTT, websites are considered trustworthy if they
protect the user’s personal information. Same as most other websites,
crowdfunding platforms can also collect personal information from backers, thus
making privacy concerns a potential issue (Gerber and Hui, 2013).
During the fundraising period, it is the platform, which collects the backers’
personal details, unless backers reveal their identity and contact details by
approaching the fund-seekers. Therefore, the fund-seekers have limited ability
to directly manage the initial building of trust prior to the pledges, other than to
choose a platform, which adopts and implements appropriate privacy policies,
such as the inclusion of disclaimers and asking crowdfunders’ consent before
utilising or forwarding their details (Bart et al., 2005). Kickstarter, for instance,
consider privacy a very high priority as they enable private communication
between parties, do not collect demographics from backers, and do not publicly
display pledged amounts (Kickstarter, no date d; Kuppuswamy and Bayus,
2013).
However, after successful fundraising, the fund-seeker obtains the backers’
details, which they require in order to deliver the rewards. From that moment
onwards, fund-seekers can actively manage their approach to privacy and thus
to preserving trust, by also complying with privacy law and clearly stating their
privacy policy. Nathaniel Hansen (2011), a serial fund-seeker for film projects,
explicitly offered backers the opportunity to opt out of email updates and used
Blind Carbon Copy (BCC) when emailing the entire crowd.
36
Additional determinant of trust in crowdfunding: Recommendation
Through the review of the crowdfunding literature, a further factor emerged,
which can potentially have an effect on the development and preservation of
trust between backers and fund-seekers: recommendation through trusted
parties. This additional factor has not featured in the original CTT (Morgan and
Hunt, 1994), but it was mentioned as a suggestion in the amended CTT of
Mukherjee and Nath (2003). Prior research in other fields concluded that
endorsements through trusted authorities, such as celebrities (Mukherjee and
Nath, 2007), and recommendations through trusted individuals (Macht and
Robinson, 2009) can have positive effects on confidence and perceived
trustworthiness: people tend to place their trust into the recommended products,
services, individuals or businesses, as a consequence of the recommendation
from a trusted source.
In the context of crowdfunding, this additional factor may prove relevant given
that crowdfunders take into account the decisions and actions of other investors
in the same and related/similar ventures to the one they are considering (Ward
and Ramachandran, 2010; Van Wingerden and Ryan, 2011). While neither of
these authors specifically refer to trust to explain this bandwagon effect,
Kuppuswamy and Bayus (2013) showed that people trust in the ‘popularity’ of
fund-seekers as particularly businesses, which have been featured as ‘Most
Popular’ on the crowdfunding platform, reach their funding targets. However,
there is also evidence to the contrary: Kuppuswamy and Bayus (2013) found
that crowdfunders are less likely to invest in projects, which have already
37
received much support, because they assume that someone else will provide
the remaining funding to achieve the target. Nevertheless, Kickstarter statistics
show that 90% of projects, which raise 30% of their target amount, succeed to
raise the full amount by the given deadline (Strickler, 2011).
Lu and others (2014) studied the impact of social media promotion of
crowdfunding projects, be it through the fund-seekers themselves or through
current backers, and concluded that there is a strong positive correlation
between the amount and quality of social media promotion and the fund-
seeker’s success in raising the target amount. These authors proposed a
reason for this: if projects are persuading people to write about them on social
media, they tend to be more attractive to investors than others. In this article, I
propose an alternative plausible reason as I suggest that this may also be
related to the notion of trust: the more people talk about the fund-seeking
business, the more confidence other potential backers have in the success of
the project. This proposed reason can also be supported by one of Mollick’s
(2014) findings: entrepreneurs with many personal contacts on Facebook (all of
whom could be encouraged to endorse the business) are highly likely to obtain
their funding goal. Tim Ferriss (2012) attributed his fundraising success to a
large extent to social media activities, such as identifying bloggers who would
not only include the project in their blog but also post it on their Facebook sites,
or repeatedly asking current backers to promote the project on Facebook.
Trustworthiness can also be increased by relating to authorities, which
crowdfunders associate with confidence and trustworthiness. The gaming
project ‘Level 99 Games’ raised $250,284, partially because the project creators
38
“were able to leverage the reputation of well-known members of the gaming
community,” whose reputation and recommendation supported the fundraising
efforts (Berlinger, 2011).
In the context of online retailing, for instance, Mukherjee and Nath (2003)
argued that association with celebrities can increase the perceived
trustworthiness of sellers. No research into celebrity endorsement in
crowdfunding has happened to date, but it may possibly be of relevance here as
well, given that endorsement from other authorities has been found to increase
trustworthiness: Kuppuswamy and Bayus (2013) showed that crowdfunders
have more confidence in those fund-seekers, who are explicitly endorsed
through the crowdfunding platform (for example, businesses featured in the
Kickstarter blog). An actual example from Kickstarter is the pitch video of the
‘Glif,’ an iPhone accessory, which features an individual well known to Apple
fans (Gerhardt and Provost, 2011).
The location of the fund-seeker may also be considered a trust-enhancing
authority, as Mollick (2014) tentatively identified that the fund-seeker’s location
may affect their ability to raise funds. This seems to be the case where certain
locations are specifically associated with the talents required by the fund-seeker
(for example, film projects in the Hollywood region in the United States). I
suggest that trust may again play a role here, given that crowdfunders may be
more confident in businesses that are located in suitable areas for them to carry
out their operations.
Figure 3 depicts a graphical representation of the CTT in the context of
crowdfunding as developed from the above exploration. It highlights the
39
additional determinant of trust and indicates that value added follows from the
willingness to add value.
As the above exploration of trust and its determinants has shown, it appears
that the CTT can present useful insights into crowdfunding, as well as
recommendations for fund-seekers and researchers. The following section
considers these by presenting implications for practice and research, while also
considering the limitations of this article.
Conclusions, implications and limitations
This article aimed to explore the value-adding benefits of crowdfunding
(provision of contacts, involvement and facilitation of further funding) through a
relationship marketing lens. The latter argues that long-term, cooperative
relationships in business are superior to discrete, one-off transactions. One of
the key frameworks of relationship marketing is the Commitment-Trust-Theory
40
(CTT), which states that trust within a relationship breeds commitment, as well
as the parties’ willingness to cooperate, continue their interaction and share
resources in the future. The CTT presents five factors determining the
development of trust: communication, opportunistic behaviour, shared values,
security, and privacy.
In this article, I explored the suitability of the CTT model in the context of
crowdfunding: I postulate that the fostering of long-term relationships between
funders and fund-seekers may allow the latter to reap value-added benefits
from their funders, above and beyond their financial pledges. Trust is a key
factor required to develop and maintain such a relationship, whereby fund-
seekers have the ability to actively manage the development and preservation
of trust by influencing its determinants. I identified an additional determinant of
trust: recommendation.
By bringing together the fields of crowdfunding and relationship marketing,
this article contributes to two main audiences:
1. Academics/researchers: This article shows that theories from the field of
marketing can find applicability in crowdfunding. Moreover, it is the first
article to explore the value-adding benefits of crowdfunding and as such,
adds new knowledge to the crowdfunding literature. This specifically
refers to the understanding that fund-seekers can reap value-added
benefits by actively influencing funders’ willingness to provide such
added value. Additionally, this article tentatively adds to the CTT as it
identified an additional factor, which seems to determine the
41
development of trust: it appears that crowdfunders trust businesses,
which are being endorsed by trusted friends or authorities.
2. Practitioners, especially fund-seeking entrepreneurs: Above all, this
article demonstrates to entrepreneurs that there are substantial benefits
to be had if they consider crowdfunding to be the beginning of a long-
term relationship, as opposed to a one-off transaction. If they want to
reap these benefits, they can actively influence their crowdfunders’
willingness to add value beyond their financial pledge. Entrepreneurs can
achieve this by managing the development and preservation of trust in
the relationship, for which they can utilise the marketing skills and
knowledge that they gained from marketing their products/services to
customers. Activities, such as communicating with customers, fulfilling
promises on time, emphasising shared values, signalling high quality and
honesty, and attempts at associating with other trustworthy parties, can
be directly applied from an entrepreneur’s marketing activities to the
process of crowdfunding. Moreover, fund-seekers can positively affect
the building of trust by consciously choosing a trustworthy and easy-to-
use crowdfunding platform, which carefully vets fund-seekers,
implements privacy policies and utilises internet security technology.
However, one word of caution needs to be raised here: managing
relationships with large numbers of people tends to be time-consuming
and may distract from the actual operations of the business (Hui et al.,
2014). Therefore, entrepreneurs need to: manage their funders’
expectations (for instance, in relation to how much interaction is
42
reasonable); develop effectiveness in backer-interactions; efficiently use
low-involvement relationship marketing activities (e.g. group emails) in
order to minimise transaction costs, rather than developing high-
involvement, personalised relationships with each backer; and possibly
consider raising follow-on finance from existing backers, in order to not
further increase the number of relationships to be managed.
Given the exploratory nature of this article, a number of limitations, which can
be seen as opportunities for further research, need to be discussed: first and
foremost, there is no empirical data underlying this article as it is based on
published literature and examples of real crowdfunded projects. This approach
is valuable since its arguments are backed up by extant literature (which itself
derived from empirical data) and illustrative examples from practice, but future
primary research efforts should nevertheless address this limitation: qualitative
data should be collected to explore relationship marketing in crowdfunding from
an empirical point of view, while quantitative data should statistically test the
CTT framework to produce generalisable recommendations.
The exploratory nature of this article also means that various aspects of the
value-adding benefits and the relationship marketing theory have not been
considered here. Since the amount of potential topics for future research is vast,
the following are only a small selection of potential research questions, which
require further exploration: does trust form differently in reward-, equity-,
lending- and donation-based crowdfunding? In addition to trust and
commitment, what other factors (such as amount pledged; type/value of reward;
or crowdfunding experience) influence crowdfunders’ willingness to add value?
43
What role does culture play in the development of trust in crowdfunding? Does
value added affect the performance of the fund-seeking business?
Finally, the notion of trust is a very complex, multidimensional construct,
which can be researched from various angles (Wang and Emurian, 2004). In
this article, I explored the crowdfunders’ trust towards the fund-seeker by relying
upon the CTT according to Mukherjee and Nath (2003; 2007). However, trust
features also in the relationship between funder and platform (which this article
marginally touched upon) and in the relationship between fund-seeker and
platform and it is likely that trust in each of these relationships possesses
different determinants and consequences. Therefore, further research should
consider trust and the CTT in both of these relationships and also explore
further aspects of the crowdfunder-entrepreneur relationship, amongst others:
crowdfunders’ propensity to trust in general (Benlian and Hess, 2011); types of
value-adding activities (Macht, 2011b); and entrepreneurs’ willingness to seek
and accept added value (Macht, 2011a).
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Biography
Stephanie Macht received her PhD in the topic of business angels’ post-
investment involvement from the Newcastle Business School at Northumbria
University. Dr. Macht is currently Principal Lecturer in Strategic Management
and International Business. She publishes in the areas of entrepreneurial
finance and entrepreneurship education.
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