Researchers from Durham University found that successful crowdfunding campaigns tend to be based on clear financials; realistic targets; concise, readable messaging; authentic storytelling and clean, professional visuals. Zhibin Lin, Xue Chena, Jinjuan Yanga, Yan Zengb and Jiayuan Xinc used machine learning to compare 144 successful crowdfunding campaigns on Dreammove, a Chinese platform. Taboos include over-enhanced founder experience and inflated funding requests.
The study is available here.
The authors said the use of Dreammove, where campaigns from 2014-2019 were assessed, provided a unique opportunity because the Chinese market was unregulated to begin before the government quickly cracked down. While there were 186 platforms before 2014 and 2015, that number dwindled to 23 in 2019.
“This boom-and-bust cycle offers a unique lens to study investor decision-making under heightened uncertainty and evolving institutional norms,” the report states.
Quantitative cues like team size and shareholder investment strongly correlate with a successful campaign. Readability and clarity are also important, with visual cues like facial features and image quality less significant. Investors evaluate cues interactively and not in isolation.
Signalling is extremely important in crowdfunding because of information asymmetry, which occurs because the project founders have more knowledge about the project than potential investors do. This highlights the importance of accurate signals to reduce risk. Such signals can include patents, founder credentials, endorsements, and project updates. Costly and hard-to-fake signals are perceived more credibly.
“Effective signals create a ‘separating equilibrium,’ where only high-quality ventures can afford to emit credible, costly signals, enabling investors to make more informed decisions (Bergh et al., 2014),” the report notes. “Dynamic signaling, such as regular updates about partnerships or product advancements, has been shown to build trust and increase investor engagement (Block et al., 2018). Successful past crowdfunding rounds also serve as quality signals, indicating a venture’s ability to attract continued support and secure additional financing (Coakley et al., 2022).
“Follow-up funding further reinforces a positive perception of the venture’s long-term viability, reducing perceived risks (Hornuf et al., 2018). Additionally, institutional signals, like those provided by investor protection measures such as the ‘Small Investor Protection Act’, offer added assurance to backers by mitigating potential risks (Goethner et al., 2021a).”