The Signal Value of Crowdfunded Products

Abstract

Crowdfunding has emerged as an alternative means of financing new ventures by utilizing the financial support of a large group of individual investors. This research asks a novel question: Does being crowdfunded carry any signal value for the broader market of observing consumers? Seven studies reveal a consumer preference for crowdfunded products, even after controlling for a product’s objective product characteristics. The authors identify two inferences that help explain this effect: (1) consumers perceive crowdfunded products to be of higher quality, and (2) they believe that supporting crowdfunding reduces inequality in the marketplace. The authors further document an important boundary condition of the first inference: the identified effect reverses in high-risk domains (e.g., products that involve high physical risk) due to consumer perceptions that the crowdfunding model lacks sufficient professionalism to mitigate risk. With regard to the second inference, the authors find that the positive crowdfunding effect is particularly strong among consumers who value social equality. Taken together, this work sheds new light on consumer perceptions of crowdfunding, elucidates why and when consumers prefer crowdfunded products, and offers actionable implications for managers.