Tag Archives: democracy

The Winners and Losers of Reward-based Crowdfunding

By Kristian Roed Nielsen.

Proponents of reward-based crowdfunding have touted its emergence as an alternative source of innovation finance as an exciting and democratizing event. This democratization is enabled via the unique blend of crowdsourcing (Poetz and Schreier 2012) and micro-financing (Morduch 1999). Fundraising is enabled by a widely dispersed community of users, whose interactions are facilitated by one or more platforms (e.g., IndieGoGo, Kickstarter, Kiva), trading “a small group of sophisticated investors” for “large audiences (the ‘crowd’)” (Belleflamme, Lambert, and Schwienbacher 2014:2). But how does the change in investors really change who is rewarded – basically who are the winners and losers of reward-based crowdfunding? It was with this question in mind that Caleb Gallemore, Kristjan Jespersen and I set out to follow the money and identify exactly where and who benefits from this new source of finance by analyzing data from the large US-based reward-based platform IndieGoGo.

Where does the (crowd) money go and why?
Firstly, and perhaps not surprisingly, it appears that it is the already affluent regions that benefit the most from crowdfunding activities, while less well-off areas still receive the short end of the stick. Clearly while crowdfunding may offer an extra opportunity for achieving financing, this does not offset other factors that play an important role in entrepreneurial success e.g. background, education and social network that favour areas already affluent.

More surprisingly we also found that increased competition – i.e. more campaigns – actually increase the likelihood of funding success. For each percentage increase in the number of campaigns in the same neighborhood, we estimate a decrease of about 11% in the odds that each of those campaigns will receive no funding pledges. Indicating the increased competition actually results in a net positive outcome where campaigns rather than leeching of one another, generate momentum for further success. This may be because of increased levels of visibility of crowdfunding activities as a whole at the local level. In other words, people living in areas with more crowdfunding activities might be more aware of the practice, increasing the pool of potential investors. Another possibility is that areas with high levels of crowdfunding activities might generate local communities that can share knowledge and advice about the process, improving the quality of local ventures.

Finally, and still undergoing analysis, we increasingly find that certain people are – naturally – more successful then others at achieving crowdfunding success. Witnessing that for each successful campaign launched by an individual or group the likelihood for future success increases dramatically – hence after five successful campaigns launched by a given person or group they have a near 100 pct. chance of future success. We are perhaps witnessing the birth of the professional crowdfunder.

Crowdfunding as the democratizing agent of innovation?
As money seems to coalesce around certain regions and individuals we have to wonder whether this trend will continue. Will we increasingly see certain regions and individuals benefitting while other less well-off or professional lose out? And what does this mean for crowdfunding as the democratizing agent of innovation? It offers opportunity for you and I to drive innovation, but that innovation process itself perhaps unsurprisingly still seems to cluster around certain regions and persons. While this is by no means the final word – this is still early day research of only one sample – these observations nevertheless complicate the idea of relying on crowdfunding as a new mechanism for economic development, poverty reduction, or social action. While crowdfunding certainly provides a new way to access capital, it may not provide such access equitably.

Kristian is Assistant Professor at the Department of Management, Society and Communication and Visiting Researcher at Mistra Center for Sustainable Markets – Stockholm School of Economics. His research explores the potential role that “the crowd” could play in enabling sustainable entrepreneurship and innovation. Follow him on Twitter @RoedNielsen.

Pic by olgavisavi, via Fotolia.

The Dark Side of Transparency

By Lars Thøger Christensen.

Transparency is essentially about creating insight into organizational and institutional practices in order to allow for critique, stimulate improvement and hold politicians and decision makers accountable. As such, transparency is an essential dimension of a rational, open and democratic society. Without transparency, there is great potential for manipulation, negligence and fraud. Yet, transparency may itself be manipulative. Even when the intention is to disclose and stimulate insight, the results may be less benign. Whenever something is illuminated and pulled out for further inspection, something else remains in the dark.

Any serious pursuit of transparency needs to consider what the pursuit itself is doing to public insight, what it “hides” so to speak and what remains out of view.

Part of this problem resides in the way we understand transparency. While openness and insight may be the ultimate goals, it is commonplace to define transparency in more prosaic terms, for example as information provision. With oceans of information available at our fingertips, the world certainly appears far more transparent than ever before. Yet, accurate information about complex issues, such as sustainability or social responsibility, is usually not easy to digest. Most information about such matters, thus, is often accessible only to experts. And whenever it is made accessible to lay people, it has been subjected to multiple processes of editing and simplification.

No information speaks for itself and attempts to make it “speak” hide as much as it disclose.

Another problem concerns the organizational behavior we hope to see and understand better through practices of transparency. If we think that organizations and decision makers continue to conduct business as usual when subjected to increased transparency, we are utterly wrong. Transparency is not a neutral tool that simply illuminates a preexisting world. When people in organizations know that their talk, decisions and actions are publicly accessible, they are less inclined to experiment, take chances, share ideas, or talk freely about their accomplishments, ideals, assessments and aspirations. This is the case in numerous organizational processes, including meetings, bargaining games, conflict resolutions, idea generation, etc. where the need to withhold some information and protect identities or strategic positions are often important concerns. In such cases, the willingness to share complete and accurate information may be limited and replaced by a desire to “send the right signals” or make the right impressions.

Transparency may cause organizational members to hold back or otherwise adjust behavior.

As a result, we may see less than we think. Even when transparency is enforced by rules and regulations, like for example social responsibility reporting in some countries, participants have a tendency to alter and edit their behaviours in ways that conform to social norms and expectations (i.e. by creating a “front”). Organizational behaviour is certainly not unaffected by increased transparency demands. Thus, we know that organisations carefully select, simplify, and summarize data before they are revealed, that they selectively disclose or leak information, for example through competitive signalling and they shrewdly manage the timing of disclosure, sometimes with the intention of deflecting critique or handling potential issues. Moreover, producers and custodians of data often shift the medium, the classification scheme, or the level of comparisons when forced to share information that used to be confidential.

Demands for more transparency are likely to be handled strategically by organizations.

None of this is to suggest that transparency should be avoided or reduced. Quite the contrary. But it is a reminder that transparency ideals and practices are shaping organizations in dramatic ways and that our desire for more transparency needs to include a desire to know its limitations.

Lars Thøger Christensen is Professor of Communication and Organization at the Department of Intercultural Communication and Management at Copenhagen Business School.

Pics by Roland Molnár and I Want a Poster, Flickr