Are the life and death of an early‐stage venture indeed in the power of the tongue? Lessons from online crowdfunding pitches

• Date: 01 March 2019
• Author: Dan Marom,Hadar Gafni,Orly Sade
• Published date: 01 March 2019
• DOI: http://doi.org/10.1002/sej.1293

RESEARCH ARTICLE

Are the life and death of an early-stage venture

indeed in the power of the tongue? Lessons from

online crowdfunding pitches

Hadar Gafni

1

| Dan Marom

2

| Orly Sade

2

1

Department of Innovation and Organizational

Economics (INO), Copenhagen Business

School, Copenhagen, Denmark

2

Jerusalem School of Business, The Hebrew

University of Jerusalem, Jerusalem, Israel

Correspondence

Orly Sade, Jerusalem School of Business, The

Hebrew University of Jerusalem, Jerusalem,

Israel.

Email: orlysade@mscc.huji.ac.il

Funding information

Asper Center; Coller Institute of Venture’s

(CIV) senior research award; Israel Science

Foundation, Grant/Award Number: (ISF

430/14); Kruger center at the Hebrew

university

Research Summary:While presenting initiatives to potential

backers, entrepreneurs can choose the extent to which they pre-

sents themselves, versus presenting the idea. We investigate this

decision and its effect on the success of fund-raising on a leading

crowdfunding platform (Kickstarter). We employ a textual quantifi-

cation method validated by robustness tests. Our dataset was col-

lected using custom software and includes more than 20,000

online business pitches and their results. We find that in Kickstarter

fund-raising, entrepreneurs’descriptions matter—projects (espe-

cially art related) that frequently mentioned entrepreneurs’names

experienced higher rates of success, controlling for relevant

variables.

Managerial Summary:Many entrepreneurs are interested in learn-

ing how to deliver successful fund-raising pitches on crowdfunding

platforms. We investigate the decision to mention frequently the

entrepreneur’s name and its effect on the success of fund-raising

on a leading crowdfunding platform (Kickstarter). We collected

information about 20,000 online business pitches and their results.

We find that in Kickstarter fund-raising, entrepreneurs' descriptions

matter—projects (especially art related) that frequently mentioned

entrepreneurs' names experienced higher rates of success. We con-

ducted an experiment that indicated that projects whose entrepre-

neurs mentioned themselves more substantially were associated

with higher levels of trust and higher levels of perceived knowledge

of the entrepreneurs.

KEYWORDS

crowdfunding, entrepreneurship, Kickstarter, pitches, pre-seed

financing

Received: 22 February 2016 Revised: 12 February 2018 Accepted: 13 February 2018

DOI: 10.1002/sej.1293

Copyright © 2018 Strategic Management Society

Strategic Entrepreneurship Journal. 2019;13:3–23. wileyonlinelibrary.com/journal/sej 3

1|INTRODUCTION

Are contributors to projects in a reward-based crowdfunding platform being influenced by the entrepreneurs'

descriptions? Should entrepreneurs focus their business pitches on themselves?

When pitching an initiative to potential backers,

1

the entrepreneur attempts to optimize his/her ability to raise

the needed amount and, thus, may employ various methods to convince backers to support the project. The entre-

preneur may decide to emphasize the business idea in the pitch or, alternatively, the entrepreneur may center the

presentation on his/her personage, calling upon his/her name or past accomplishments. Given the limited time span

(“elevator pitch”), this is a clear trade-off.

2

Crowdfunding is a fund-raising effort from an undefined large number of participants; each contributes a rela-

tively small amount, through the internet and social networks. Recently, the use of crowdfunding to finance different

aims has increased dramatically. According to the Massolution Industry Report (2015), finance via crowdfunding was

valued at more than $34 billion in 2015. Our research focuses on Kickstarter, a leading crowdfunding platform. We

used custom software to collect the investigated data. Our database consists of 16,111 successful projects, 4,113

failed projects, 18,496 entrepreneurs, 984,344 backers, and contributions that sum to more than $120 million. The

period investigated in this project is from the inception of Kickstarter in April 2009 until March 2012.

Researching the fund-raising process through Kickstarter offers us a number of advantages:

1. We have the full pitch that was presented to the potential backers, which non-crowdfunding entrepreneurs

typically keep classified.

2. We can focus on early-stage financing, usually the stage least exposed to outsiders.

3. It enables us to have a very clear definition of success—the entrepreneur sets a goal and must reach it, other-

wise the entrepreneur receives no funding.

4. We have a substantial number of ventures over a relatively short period of time.

To quantify the focus on the entrepreneur in the pitch, we use a technique that enables us to deal with large

numbers of business pitches. Specifically, we count any mention of the entrepreneur's name. We examine this on

three levels: (a) a mention of the entrepreneur's name in the “About”section of the project (a section that essentially

serves as the business plan presented to potential backers); (b) a mention of the entrepreneur's name in the first

100 words of this section; and (c) a mention of the entrepreneur's name in the title of the project. We use these mea-

sures to answer several questions concerning the entrepreneurs' strategies and the campaign's success. Do entrepre-

neurs in different categories of projects present themselves differently in the pitch? Is the likelihood of financing

success greater when additional information is provided on the relevant human capital? Does the success of a financ-

ing campaign depend on the type of project, on the amount of money sought, or on the entrepreneur's previous suc-

cess? Obviously, in equilibrium, one would expect to find that entrepreneurs understand the factors that are

important to the backers and adapt the pitch accordingly.

The word-counting technique allows us to analyze thousands of entrepreneurial pitches. Nonetheless, several

major arguments may be voiced against our counting mechanism:

1. The entrepreneur may highlight him/herself by using pronouns such as “I,”“we,”first or last name only, or any

form that is not identical to the entry given as the entrepreneur's name on the site—we identified only exact

matches.

2. The entrepreneur could highlight him/herself during the business pitch but use his/her name only a limited

amount of times. For example, writing a few paragraphs about oneself while only mentioning his/her own

name once.

3. Self-mentioning does not necessarily imply that the project idea is not also thoroughly described.

1

The term “backers”refers to financial contributors to reward-based crowdfunding projects.

2

According to Kahneman (1973), attention is a scarce cognitive resource.

4GAFNI ET AL.