Entrepreneurs and start-up businesses have been urged to consider crowdfunding websites to fund their new companies, rather than just relying on traditional investors or venture capitalists.
New research into crowdfunding from the UCL School of Management claims that listening to investors at the start of a new business ‘can make the difference between success and failure’.
Former PhD student Philipp Cornelius, who is now an assistant professor at Rotterdam School of Management, Erasmus University and associate professor Bilal Gokpinar from the UCL School of Management, found that entrepreneurs that used online crowdfunding to raise capital benefitted from the insight of their customer investors.
Cornelius said: “Entrepreneurs who use popular crowdfunding platforms to raise all or parts of their financing usually get investments from customer investors, who receive products instead of shares in return for their investment.
“The feedback of these investors on the products has a positive influence on product development for start-ups.”
Gokpinar said: “It is important to understand that some customers may actually know more about a certain product than the entrepreneur, especially if they own multiple businesses.
“However, in order for this to really work, entrepreneurs need to adapt their projects depending on the customer feedback.”
The findings come from over 20,000 businesses taken from the crowdfunding website Kickstarter, covering 13 business categories across 138 countries. The research is due to be published in Management Science.