Serial Entrepreneurs in Crowdfunding

Serial entrepreneurs are founders, who have started at least two businesses compared to novice founders, who have no prior entrepreneurial experience as inheritor, purchaser or founder of a business (Westhead and Wright, 1998). Many researchers have found that there is a significant difference of performance between the startups run by serial entrepreneurs compared to novice founders. Moreover, they found that previously successful serial entrepreneurs are much more likely to succeed in future ventures compared to serial entrepreneurs, who failed in their first venture (Gompers et. al, 2010). This is due to a variety of factors such as industry experience (Agarwal, Echambadi, Franco & Sarkar, 2004), choosing the right year and industry to start the company, as well as performance perception, which causes suppliers to commit more labor, goods, capital and services to entrepreneurs with previously successful ventures because they believe that the entrepreneur is more likely to succeed based on his track record (Gompers et al., 2010). On the other hand, previously unsuccessful entrepreneurs are more likely to change their strategy such as the industry for their next venture and also perform lower at subsequent ventures than entrepreneurs, who succeed during their previous venture (Eggers and Song, 2015). Researchers believe that this is due to drawing improper references from business failure (Denrell & March, 2001) and changing external factors but not other aspects of their business such as managerial or strategic style before founding their next venture (Eggers and Song, 2015). While there has been a solid amount of literature on serial entrepreneurs in general, there has not been much research on serial entrepreneurs in a crowdfunding context. Crowdfunding entails raising small amounts of money from a large group of people, typically on an Internet platform (Prive, 2012). While crowdfunding has been around since the 18th century, it has only recently seen a rise in the last 20 years due to the innovation in technology and the widespread use of the Internet. In 2015, crowdfunding raised $34 billion compared to traditional Venture Capital, which only raises $30 billion on average yearly. The World Bank estimates that by 2020, crowdfunding will raise over $90 billion each year (Barnett, 2015). 4 Since crowdfunding is a comparatively new phenomenon, the related research and literature is limited. Some researchers have focused on the characteristics of successfully funded projects, and have found that project success is related to key factors such as individual quality signs, personal networks, divulging personal information about the entrepreneur, the number of rewards offered and activity on social media, among others. The largest crowdfunding platform is Kickstarter, which allows entrepreneurs to raise funds for their project within fifteen broad categories such as Technology and Games. These entrepreneurs (“creators”) create a webpage for their project on Kickstarter, which explains the purpose and deliverables, which they aim to produce with the collected funds. The webpage allows them to present their project in a positive light, by adding a detailed explanation, videos, pictures, project updates and the creator’s biography. Since crowdfunding has already surpassed Venture Capital in the yearly funds raised, it is important for serial entrepreneurs to know whether they can increase their chances of success for future campaigns by changing their strategy. It is also interesting for backers in order to determine which projects they should fund. The main aim of this Master Thesis is to explore whether success in prior crowdfunding campaigns is positively related to success in subsequent crowdfunding campaigns. It also investigates whether serial entrepreneurs are more likely to change their strategy if their first crowdfunding campaign fails, and whether this change is in a negative direction. The data for this study is compromised of campaign information from the crowdfunding platform Kickstarter between its inception in 2009 until 2015. The study focuses on projects, which were created by “serial entrepreneurs”, who in this case are defined as having created at least two crowdfunding campaigns on Kickstarter. The analysis is restricted to the first and last campaign of each creator, which narrows down the sample size to 2568 unique projects from 1284 creators. I selected “success” as the dependent variable, which is coded as 1 for success and 0 for failure. Since only projects, which were at least 100% funded count as “successful”, I have used the pledge percentage to determine which 5 projects were successful. I also selected nine key indicators, which are significant in influencing the success of a crowdfunding campaign as detailed by the literature review. I analyzed how many creators made changes to these key indicators from their first to last campaign, in order to determine whether previously unsuccessful creators are more likely to change their strategy and in which direction (positive or negative change). In addition, I have done a comparison analysis of all creators in my sample, who started more than 3 projects compared to those, who started only 2 projects, to see whether additional campaign experience leads to a higher change of success. I complemented this dataset with additional data, in order to create a comparison with novice entrepreneurs, who only had one project on Kickstarter in the ‘Technology’ category. This comparison group consists of 7636 novice entrepreneurs. This study provides evidence that previously successful creators are indeed more likely to succeed in their last campaign than previously unsuccessful creators. Further, the study shows that previously unsuccessful creators are overall more likely to change their strategy and also more likely to change in a positive direction. This research does raise the question whether “success breeding success” in a crowdfunding context is related to the same underlying factors that influence serial entrepreneurs outside of crowdfunding. I therefore recommend future research to identify the underlying reasons for continued success of serial entrepreneurs in a crowdfunding context.