The Role of Customer Investor Involvement in Crowdfunding Success

Entrepreneurs increasingly use reward-based crowdfunding to finance innovation projects through a large number of customer investments. The existing academic literature has predominantly studied the process and the efficiency of these crowd investments. However, we argue that the involvement of customers goes beyond the provision of capital. As investors, customers enter a principal-agent relationship with project creators. As a result, project creators are often confronted with a crowd of customer investors who try to influence the development of product ideas. We show that project creators can actually benefit from this influence, as customer investors partly substitute for the support usually received from conventional investors. Greater involvement of customer investors thus increases the likelihood of funding success. This holds when we control for creator ability and project quality. However, the positive effect of involvement is lower for teams, because customers face lower agency costs when they invest in team projects. We also link the involvement of customer investors during crowdfunding to the crowdsourcing literature and show that its positive effect can be attributed to the elicitation of external information through distant search.