How do funders’ perception of product creativity & passion affect their reactions to crowdfunding pitches?
Research Paper Title:
“Funders’ positive affective reactions to entrepreneurs’ crowdfunding pitches: The influence of perceived product creativity and entrepreneurial passion”
Authors:
Blakley Davis (Department of Management, VCU)
Keith Hmieleski (Department of Management, Entrepreneurship, and Leadership, TCU)
Justin Webb (Department of Management, UNC at Charlotte)
Joseph Coombs (Department of Management, VCU)
Background:
Crowdfunding enables entrepreneurs to garner funds in support of a specific purpose, which often centers on the development or distribution of a new, unfinished, or unproven product. Since objective evidence of product quality/potential is often unavailable, funders must rely upon perceived elements of the pitch. Prior research has primarily focused on how pitch elements interpreted by individuals as predictors of success influence funding decisions. There is evidence, however, suggesting that by engendering affective reactions in funders, pitch elements may also influence funding decisions more directly via an emotional route. Even though a number of perceived pitch elements may be considered by prospective funders, one that has been consistently found to differentiate successful new products from failures is product creativity.
Methodology:
Sample: Students who were enrolled at two large public universities in the United States
Sample Size: 102 students (63 male and 39 female) (94 undergraduate and 8 graduate)
Analytical Approach: Students assessed ten different product pitches made by ten different entrepreneurs.
Hypotheses:
Product creativity will be positively related to crowdfunding performance.
Perceived product creativity will be positively related to the prospective funder's level of experienced positive affect.
Prospective funders' experienced positive affective reactions will be positively related to crowdfunding performance.
The positive relationship between perceived product creativity and crowdfunding performance is partially mediated by the prospective funder's level of experienced positive affect.
The indirect effect of perceived product creativity on crowdfunding performance will be larger when prospective funders perceive entrepreneurs as exhibiting higher levels of entrepreneurial passion.
Results:
Resource allocation decisions are positively influenced by perceived product creativity.
The influence of perceived product creativity is partially mediated by funders’ positive affective reactions.
Perceived product creativity’s indirect influence is heightened when funders perceive the lead entrepreneur as passionate.
Conclusion:
This study contributes to a growing body of evidence suggesting that resource allocation decisions are not only driven by funders' economic judgments, but may also be influenced by other individual-level attributes, such as funders' affective reactions to the pitch. By explicitly focusing on product creativity, the researchers extend the stream of literature concerning the influence of funders' perceptions in determining their capital allocation decisions. The study demonstrates how affective events theory can be used to predict the mechanisms through which the actions of organizational leaders may influence the reactions and behaviors of external stakeholders. The study integrates additive log-ratio transformation for the use of compositional data into the entrepreneurship literature. In doing so, the researchers provide an avenue through which scholars may obtain more nuanced measurements of ipsative decision contexts, such as resource allocation decisions made by entrepreneurs or investors alike.
Research Video: