Reaping Value-Added Benefits from Crowdfunders – What Can We Learn from

Relationship Marketing?

Main message of the paper

Fund-seeking entrepreneurs, who are interested in reaping value-added

benefits from their crowdfunders, can actively influence their funders’

willingness to provide such added value through the use of relationship

marketing and trust-building techniques.

Author

Stephanie A. Macht

Newcastle Business School, Northumbria University, City Campus East,

Newcastle upon Tyne, NE1 8ST, United Kingdom

Telephone: +441912437658

Fax: +441912273083

E-mail: s.macht@northumbria.ac.uk

J.E.L. Classification Code

G23; G24; G29; M31

E.F.M. Classification Codes

800; 810

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Key Points

1. Fund-seeking entrepreneurs can benefit from crowdfunders, if these add

value (through involvement, the provision of contacts and the facilitation

of further finance) beyond their initial financial pledge.

2. Entrepreneurs can actively influence crowdfunders’ willingness to provide

such benefits by engaging them in long-term, co-operative relationships,

which are maintained through continued trust.

3. Trust is built and preserved particularly through frequent and honest

communication with backers, as well as by relying upon endorsements

from existing funders and authorities.

4. Shared values between funder and fund-seeker, a limited amount of

information asymmetry and addressing of security and privacy concerns

also affect the development and preservation of trust.

5. Relationship marketing theories and techniques provide useful insights

into and recommendations for researchers and crowdfunding-seeking

businesses.

Introduction

The fact that young, entrepreneurial businesses are important drivers of

economic growth is widely accepted (Carree and Thurik, 2010; Matejovsky et

al., 2014), as is the fact that they require financial resources in order to fulfil this

crucial role (Cassar, 2004). A variety of funding sources, including 3F investors

(family, friends and fools), business angels, venture capitalists and lending

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institutions like banks, are available to such businesses. However, since many

entrepreneurs still face difficulties in raising sufficient capital, innovative ways of

fundraising are welcome to overcome such ‘funding gaps’ (Cressy, 2012;

Department for Business, Innovation and Skills, 2012). In recent years

therefore, the process of ‘crowdfunding,’ especially through the internet, has

emerged as a novel way of raising capital for entrepreneurial ventures. It is this

novel funding mechanism that this article focuses on.

Crowdfunding is an open call, nowadays primarily on the internet, which

allows fund-seekers to raise capital from a large number of unrelated individuals

(the ‘crowd’), whereby each individual only invests/pledges a very small amount

of money (Lambert and Schwienbacher, 2010). Mollick (2014, p. 2) provided a

detailed yet all-encompassing definition, upon which this article draws:

“Crowdfunding refers to the efforts by entrepreneurial individuals and

groups – cultural, social, and for-profit – to fund their ventures by

drawing on relatively small contributions from a relatively large number

of individuals using the internet, without standard financial

intermediaries.”

Pioneered by Sellaband, online crowdfunding has only been in existence

since 2006, but it was initially conceived as a means for artists to gain financial

support for the production of CDs (Kappel, 2009; Sellaband, 2012). More

recently, a variety of platforms emerged, which facilitate the financing of other

artistic products, as well as business ventures (Ordanini et al., 2011). The

application of the crowdfunding process to the business realm is reflected by

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extensive media coverage, as well as recent legislative changes, such as the

JOBs act in the United States (Farrell, 2012).

Nevertheless, a recent review of crowdfunding literature by Macht and

Weatherston (2014, p. 2) showed that the development of knowledge in this

field – both in academic and practitioner terms – is still in its infancy:

“to date, academic literature in this emerging field is virtually non-

existent, consisting of only a very small number of published articles

and working papers. Owing to the newness of this funding source, little

is known about it and entrepreneurs, who are thinking about using

crowdfunding, have only a very limited amount of literature at their

disposal on which to base their decisions.”

It is on this basis that this article builds upon Macht and Weatherston’s

(2014) work, in order to add to the small but growing knowledge base about

crowdfunding: they explored the benefits of crowdfunding for fund-seeking

business ventures by combining a review of the crowdfunding literature with a

framework of investor benefits, which had been established for business angels

(Macht and Robinson, 2009). They identified five benefits, three of which add

value beyond the funder’s financial investment, and concluded that, on the

whole, the framework is suitable to study the benefits of crowdfunding. In this

article, I aim to explore these three value-adding benefits1 further, by utilising

the same approach as Macht and Weatherston (2014): I also combine current

1 I apply the term ‘value added’ as it is commonly used in business angel research, where it refers to any value that an investor brings to the investee business in addition to the initial financial investment (Macht, 2011a; b). Accordingly, the term relates to non-financial benefits that investors bring to their investee companies, for instance, providing advice or introducing contacts (Politis, 2008).

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crowdfunding literature with an existing and proven framework from a different

discipline.

While an extensive body of research investigates the value added of

business angels (for instance, Politis, 2008), this is the first published article to

specifically explore value added of crowdfunders. Research in the business

angel field has shown that not all fund-seekers want or need value added from

their investors (Macht, 2011a) and the same may be true in crowdfunding as it

is likely that some fund-seekers consider it to be a one-off fundraising process,

providing nothing but the financial capital. However, as the below overview of

crowdfunding literature will evidence, many authors and actual fund-seekers

argue that the crowd are often relied upon for purposes other than the mere

financial investment. Therefore, although there is not yet any statistical

evidence for this, it seems that many, if not a majority of, fund-seekers can see

the worth of crowdfunders’ value added support – it is these fund-seekers that

this article focuses on.

According to the business angel literature, fund-seekers who wish to reap

such value added have to build a trusting relationship with their investors, as

opposed to considering the investment as a discrete, one-off transaction (Steier

and Greenwood, 1999). Some of Gerber and Hui’s (2013) interviews, as well as

the following quotes from entrepreneurial individuals, who have successfully

raised capital through Kickstarter (one of the world’s premier crowdfunding

platforms) suggest that it is the same in the case of crowdfunding:

The backers of this current project “will be brought in to my new

projects with even more enthusiasm [...]. Like seeing what an old friend

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is up to.” (Michael North of Atomic Island Studios, quoted in Berlinger,

2011)

“Relationships are everything, so take care of them.” (Nathaniel

Hansen, 2011)

“In fact, many of your earlier backers will even increase their original

pledge as you get close to the goal.” (Gary M. Sarli, 2011)

“When people back your project, they are not only giving you money,

but they’re giving you permission to talk to them about your ideas and

future projects [...], you now have a way to talk directly to people who

want to hear from you.” (de Witt, 2012, p. 17)

Based on that assumption, I chose a theory from the relationship marketing

field as that essentially refers to the intention of building long-term relationships

between businesses and other parties (Morgan and Hunt, 1994). As such, the

purpose of this article is to explore the value-adding benefits of crowdfunding

through a relationship marketing lens, with the intention of serving two

audiences:

1) Academics/researchers: I add to the work of Macht and Weatherston

(2014) by exploring the value-adding benefits of crowdfunding further.

Although they are a key aspect of this funding source, they have to date

not been investigated in published research. Moreover, I follow Macht

and Weatherston’s (2014) approach in attempting to establish the

usefulness and value of extant theories in the crowdfunding area.

However, while their work has used a framework from the rather closely

related field of business angel investments, I widen the field from which

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the underlying theory is taken. The reason for this is to show that even

less related disciplines can offer useful frameworks, which can produce

new knowledge and add to the theoretical sophistication of the newly

emerging field of crowdfunding.

2) Practitioners, especially fund-seeking entrepreneurs who wish to rely on

their backers for more than the mere financial investment: By showing

the relevance of relationship marketing for crowdfunding, I aim to provide

entrepreneurs with insights into how they can use their pre-existing

knowledge and skills in marketing in order to reap the value-adding

benefits that crowdfunders can provide. The suggestions may be useful

for fund-seekers to generate effective fundraising pitches, marketing

campaigns and especially ongoing relationships with their crowdfunders.

More marginally, this article might even help to educate those fund-

seekers, who do not (yet) consider the value that crowdfunders can add.

The remainder of this article proceeds as follows: next, I present a brief

overview of the current literature on crowdfunding, with a specific focus upon

the benefits framework, upon which this article builds. This is followed by an

outline of relationship marketing, especially the Commitment-Trust-Theory

(CTT), which includes an explanation of the rationale for choosing this theory.

Subsequently, I explore the theory’s relevance for crowdfunding by drawing

upon the extant crowdfunding literature, as well as illustrative examples from

Kickstarter. The article closes with a conclusion that specifically focuses on

lessons, which crowdfunding researchers and practitioners can learn if they

consider relationship marketing theory in the context of crowdfunding.

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Crowdfunding: An overview

As previously mentioned, crowdfunding is one option for individuals and

groups to obtain financial capital from a ‘crowd,’ that is, a large number of

people, whereby each individual only pledges very small amounts, typically

starting from as little as $1 per person (Kimball, 2012). This section presents a

brief overview of the crowdfunding literature, with particular emphasis on:

the emergence of crowdfunding;

the fundraising process;

the profile of typical funders and fund-seekers; and

the benefits of crowdfunding for fund-seekers.

This article focuses on reward-based (as opposed to equity-, donation- or

loan-based) crowdfunding, but it is not limited to any one particular fund-seeker.

Thus, it includes entrepreneurial individuals, artists and businesses (Collins and

Pierrakis, 2012; Macht and Weatherston, 2014). Due to the prevalence of

Kickstarter as an online crowdfunding platform, I use examples from Kickstarter

projects, many of which were initially only one-off projects but have since

developed into ongoing business ventures (Mollick, 2014).

The emergence of crowdfunding

Crowdfunding is one form of the wider concept of ‘crowdsourcing,’ whereby

individuals or companies use large crowds of people in order to carry out tasks

such as: asking stakeholders for feedback; asking customers to contribute to

the design of new products/services; or customer-to-customer support

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(Aitamurto, 2011; Kleemann et al., 2008). In the case of crowdfunding, the task

is the funding of the venture or project.

Crowdfunding, in its offline version, has existed for centuries, as for instance,

the Statue of Liberty was crowdfunded (Harrison, 2013). Given the dominance

of the internet these days, however, it is no surprise that also crowdfunding

found its way into the World Wide Web: currently, there are hundreds of online

platforms, which facilitate interaction between fund-seekers and crowds of

people (Avery, 2012). The development of Web 2.0 is one of the key reasons

for the emergence of online crowdfunding as it enables anyone to create

content and to interact with a wide network of people (Schwienbacher and

Larralde, 2012).

The fundraising process

The process of raising capital through crowdfunding first requires

entrepreneurs to choose a platform, to which they sign up. Most platforms carry

out some form of vetting before allowing entrepreneurs to publicise their

investment opportunity (Collins and Pierrakis, 2012). Once accepted onto the

platform, entrepreneurs publish a ‘pitch,’ which details information about: the

entrepreneurs themselves; their business (or the specific project), for which they

require funding; the target amount to be raised; a deadline for fundraising; and

the rewards that backers can expect if they decide to fund the entrepreneur.

While words and pictures are used in the pitch, some platforms, like Kickstarter,

specifically recommend video pitches (Mollick, 2014).

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Once the investment opportunity is visible online, investors – the so-called

‘crowdfunders’ or ‘backers’ – visit the website and choose

entrepreneur(s)/project(s), in which they want to invest. With the crowdfunding

platform as an intermediary, backers pledge as much or as little money as they

wish. This amount can be as little as $1 per backer, but investments typically

range from $6 to $50 (Van Wingerden and Ryan, 2011). Given that the average

target amount sought by fund-seekers on Kickstarter is just over $8,500

(Kuppuswamy and Bayus, 2013), achieving this fundraising goal may require a

rather large amount of individual backers.

It is important, however, to reach this goal as most crowdfunding platforms

operate on an ‘all or nothing’ basis, meaning that entrepreneurs, who do not

reach their specified target, will not obtain any amounts already invested, as

these are returned to the backers (Kappel, 2009). According to Mollick (2014),

this happens to 51.9% of fund-seekers. In the case of successful fundraisers,

on the other hand, it seems that most pledges arrive at the beginning and end

of the fundraising period, with little activity in between (Kuppuswamy and

Bayus, 2013).

Those entrepreneurs who achieve their target amounts receive the entire

amount raised at the end of the fundraising period – some platforms even allow

entrepreneurs to raise more than their target amount, potentially resulting in

‘overfunding’. At some point after the fundraising period, entrepreneurs are

expected to deliver the rewards they had promised to their backers, but only a

minority of fund-seekers manage to do so on time (Mollick, 2014).

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In comparison to offline crowdfunding, Web 2.0 reduces transaction costs for

fund-seekers, not only because an open call through the internet can efficiently

reach many investors (Lambert and Schwienbacher, 2010), but also because

the financial transaction is carried out via the platform, which charges a fixed

fee2, independent from the amount of backers. This figure would likely be much

larger without the intermediary as fund-seekers would have to deal with costs

for each small investor (for instance, contracting and negotiation costs).

Crowdfunders and fund-seekers: A profile

As crowdfunders are private individuals who pledge small amounts, it is

conceivable that anyone could be a potential crowdfunder (Belleflamme et al.,

2013; Hurley, 2012). The profile of a typical crowdfunder has not yet been

researched in detail, but some basic characteristics can be found in current

literature. Van Wingerden and Ryan (2011) showed that crowdfunders come

from all age groups and are not serial investors. Since the ‘crowd’ consists of

members of the general public, it is possible for the entrepreneurs’ friends and

relatives to also back their respective projects on crowdfunding platforms.

According to Steinberger (2012, quoted in Kuppuswamy and Bayus, 2013),

pledges at the beginning of the fundraising period for Kickstarter projects tend

to come from friends and family, whereas the majority of pledges arrive from

strangers, closer to the fundraising deadline. When researching the geography

of crowdfunding, Agrawal and others (2011) concluded that crowdfunders have

no geographic limitations when choosing entrepreneurs to back: in fact, with the

2 In the case of Kickstarter, this fee consists of 5% of the funds raised, plus 3-5% credit card processing fee (Kickstarter, no date a).

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help of the various online platforms, crowdfunders can back projects anywhere

in the world.

Detailed studies of investment motivations have not yet been conducted but

some authors have suggested a diversity of motivational factors, including:

financial rewards, for example, repayment of loan with interest;

equity share in the business;

physical, but non-monetary rewards, for instance, a product sample,

the backer’s name associated with the business, or promotional

objects; and

non-material rewards, such as feelings of personal gain and belonging

to a community, or the desire to help others and support specific

causes (Gerber and Hui, 2013; Lambert and Schwienbacher, 2010).

Statistics from crowdfunding platforms (for example Kickstarter) suggest that

it can theoretically be used by any company, although some platforms place

limitations on the industries they allow. Lambert and Schwienbacher (2010), as

well as Schwienbacher and Larralde (2012) concurred but argued that the most

successful fund-seekers tend to be innovative or not-for-profit businesses,

which appeal to the general public.

According to Lambert and Schwienbacher (2010), entrepreneurs choose

crowdfunding predominantly because they want to: raise capital; increase public

awareness of the business; and test their product/service ideas prior to launch.

Gerber and Hui (2013) added further motivations: to form long-term

relationships with customers and other supporters; to maintain control over their

business; and to learn new fundraising skills. Due to the newness of the field,

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however, researchers have not yet considered fund-seekers’ motivations to

choose crowdfunding instead of other sources of capital. Only Macht and

Weatherston’s (2014) discussion of crowdfunding benefits, which compares

crowdfunding to business angels, implicitly suggests that each benefit could

constitute a reason for entrepreneurs to choose crowdfunding over business

angels.

The benefits of crowdfunding for fund-seekers

As Figure 1 shows, there are five key benefits:

1. Helping to overcome funding difficulties: Crowdfunding is likely to

overcome the funding gap between an entrepreneur’s own money and

more formal external investors like business angels, venture capitalists or

banks. Moreover, the large amount of online platforms available enable

fund-seekers to easily reach the huge pool of potential investors (after

all, anyone can be a crowdfunder), whose investment criteria are all-

encompassing and not geographically limited (Macht and Weatherston,

2014).

2. Provision of contacts: After having invested, crowdfunders are likely to

share their investment decision with personal contacts, for instance on

social networks. Large crowds of backers can therefore generate hype

around the business, which exposes it to personal contacts, the media

and thus the wider public. By providing contacts, crowdfunders can add

value to the business (Macht and Weatherston, 2014).

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3. Facilitation of further funding: Through sharing their investment decision

with other individuals, crowdfunders quasi-introduce the entrepreneur to

an even wider audience of potential backers. Since crowdfunders base

investment decisions partially on the decisions of other backers (Ward

and Ramachandran, 2010; Van Wingerden and Ryan, 2011), exposure

to the wider public may result in more pledges for the project, during this

or a later fundraising round. Moreover, the capital raised through

crowdfunding can enable entrepreneurial businesses to achieve

investment readiness, which in turn allows them to attract more formal,

external finance later on (Macht and Weatherston, 2014).

4. Involvement: Although most crowdfunders do not become actively

involved in the projects or businesses they back, crowdfunding can be

combined with other forms of crowdsourcing and as such enable

entrepreneurs to obtain involvement from their backers (Lambert and

Schwienbacher, 2010). For instance, entrepreneurs can benefit from the

“wisdom of crowds” (Collins and Pierrakis, 2012, p. 24) if they directly

ask backers for feedback. Such involvement adds value to the

entrepreneur, beyond the financial investment (Macht, 2011b; Macht and

Weatherston, 2014).

5. Limited/no loss of control and ownership: Entrepreneurs generally dislike

giving up ownership and control of their business to equity investors

(Mason and Harrison, 1996). Such entrepreneurs benefit from

crowdfunding as many backers donate money or happily accept non-

financial rewards, while equity investors tend to obtain only very small

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shares, owing to the small amounts invested, so that entrepreneurs can

retain the majority shareholding and control. Moreover, since typical

crowdfunders are not sophisticated investors, they most likely will not

require much information upfront and they tend to not negotiate detailed

contracts with extensive conditions (Schwienbacher and Larralde, 2012),

which reduces transaction costs and should be of benefit to

entrepreneurs unwilling to concede control to investors.

Since this article aims to explore the value-adding benefits, it focuses on the

provision of contacts, involvement and the facilitation of further funding. The

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article examines these benefits through a relationship marketing lens, which is

reviewed next.

Relationship marketing: An overview

The relevance of relationship marketing for crowdfunding

As the above overview showed, the value-adding benefits of crowdfunding go

beyond the one-off financial transaction as they require some form of activity

from the backers, during or even after the fundraising period. Some activities

may happen unasked, out of the backer’s own volition (for example, backers

share the investment decision with their own contacts on social media), while

others are requested from the fund-seekers themselves: for instance,

entrepreneurs ask crowdfunders for feedback; suggest they publish their

investment on social media; or invite backers to promote their project through

other means.

While it is conceivable that crowdfunders could receive some form of

remuneration in return for these activities (Naroditskiy et al., 2014), the fact that

the typical fund-seeker is short on cash, means that it is more likely that backers

carry out such activities as a non-remunerated favour towards the fund-seeker.

Not all entrepreneurs want or need added value (Macht, 2011a), but those who

wish to reap benefits from such value-adding activities should try to positively

affect their crowdfunders’ willingness to provide their time and effort to the

project, even after the fundraising period.

In order to achieve this, I stipulate that entrepreneurs should consider

crowdfunding to be more than just the provision of capital, which in itself is a

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discrete, one-off transaction. Instead, they need to realise that, should they wish

to draw upon backers’ resources again in future, they have to build and retain

long-term, ongoing relationships with their backers, thus enabling relational

exchange of resources in future transactions. As such, the provision of capital

becomes merely the beginning of a (potentially) long-term, ongoing relationship

between backers and fund-seekers, as opposed to a one-off, short-term

transaction.

It is this distinction between discrete transactions and relational exchanges

that lies at the heart of relationship marketing. To be more specific, relationship

marketing advocates the importance of ongoing, long-term relational exchanges

between businesses and other parties, as such relationships generate

cooperative behaviour and long-lasting willingness, so-called ‘behavioural

intent,’ to share and exchange resources (Morgan and Hunt, 1994). Hui and

others (2014, p. 7) have hinted at the importance of relational exchange for

crowdfunding as they suggested that fund-seekers can build, through the use of

marketing activities, long-term relationships with crowdfunders that last well

beyond the fundraising period:

“By regularly interacting with an online audience through marketing

efforts [...], creators3 are able to create a following that lasts throughout

their campaign4 and possibly for future projects.”

I go further by proposing that marketing – relationship marketing in particular

– is crucial for the field of crowdfunding. A further reason supporting my use of

relationship marketing theory refers to the proven applicability of relationship

3 Creators of crowdfunding opportunities, that is, fund-seekers4 The current fund-raising campaign

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marketing to another investor, the bank: relational exchanges between banks

and their clients, termed ‘relationship banking,’ have been researched

extensively and are widely acknowledged as crucial aspects of retail banking

activities (Mukherjee and Nath, 2003).

Relationship marketing: An overview

Shortly after its conception, relationship marketing merely referred to the

development and preservation of long-standing relationships between

companies and customers. As opposed to short-term or one-off interactions,

ongoing relationships with customers are deemed highly valuable for

businesses because they tend to incentivise customers to repeatedly

repurchase their products or services (Dagger and David, 2012). The

relationship marketing literature refers to long-term relationships as ‘relational

exchanges’ and to one-off interactions as ‘discrete transactions’ (Morgan and

Hunt, 1994).

Since neither of these terms relate exclusively to customer-business

interactions, the ideas underlying relationship marketing were also applied to

other parties typically interacting with a business or budding entrepreneur, such

as suppliers, employees (Sheth et al., 2012) or investors (Morgan and Hunt,

1994). This article draws upon the following definition from Morgan and Hunt’s

(1994, p. 22) seminal piece of work as it does not specify any particular parties,

with which businesses interact, and as such may well include crowdfunders:

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“Relationship marketing refers to all marketing activities directed

towards establishing, developing, and maintaining successful relational

exchanges.”

While the “ultimate form of relationship marketing” is to enter an actual

partnership with the other party, there are a variety of other levels of relationship

marketing, which require less interaction between the parties but still have an

effect on the development and maintenance of long-term relationships; it is

clear that higher levels of relationship marketing are more costly to implement

and sustain than lower levels (Kotler, 1992, p. 21).

Given the availability of such less interactive relationship levels, it is possible

for businesses to operate more basic relationship marketing activities with large

numbers of individual clients, without having to develop highly involved and

personalised relationships with each of them (Dibb and Meadows, 2001). This is

particularly relevant for crowdfunding as the multitude of funders would

otherwise result in an impossibly large amount of individual, personalised

relationships, which would carry unreasonably high transaction costs.

Following the development of the above definition, Morgan and Hunt (1994)

showed that trust and commitment are crucial for relationship marketing as they

are required in order to establish, develop and maintain long-term relational

exchanges. These authors developed the Commitment-Trust-Theory (CTT),

which is nowadays a widely cited theoretical framework in the relationship

marketing field (Mukherjee and Nath, 2007). The next section reviews this CTT

in more detail, before exploring its usefulness for crowdfunding.

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The Commitment-Trust-Theory

The basic premise of the CTT is that the existence of trust in a relationship

creates commitment, as well as cooperation and a long-term relational

exchange (Morgan and Hunt, 1994). According to the original CTT, which was

developed in the context of offline relationships, the following factors determine

the levels of trust: communication, opportunistic behaviour and shared values.

Communication can be defined as the sharing of information between the

relationship parties (Morgan and Hunt, 1994), whereby open, speedy and

high-quality provision of information increases trust (Mukherjee and Nath,

2003).

Opportunistic behaviour occurs if relationship parties attempt to achieve

their own goals by any means possible, even using guile and deception.

In particular information asymmetry can lead to opportunistic behaviour

as it may allow parties to withhold information and to benefit from this

informational advantage. Trust develops if parties believe that their

partners do not behave opportunistically (Morgan and Hunt, 1994; Saleh

et al., 2014).

Shared values refer to the extent, to which the parties share common

beliefs about what is wrong or right. A strong perception of shared values

leads to an increase in trust (Morgan and Hunt, 1994; Mukherjee and

Nath, 2003).

At a later stage, other researchers have tested the CTT framework in the

context of online relationships, for instance between retail banks and clients

(Mukherjee and Nath, 2003) or between online retailers and customers

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(Mukherjee and Nath, 2007). They confirmed the applicability of the model but

the online nature of the relationship required them to amend the CTT by adding

two further determinants of trust: security and privacy.

Security refers to the perceived safety of financial information, such as

credit card details, as entered into certain websites. Websites that are

deemed to be secure are also considered to be trustworthy.

Privacy concerns derive from the ability of websites to collect a diverse

range of information from users, as well as the issues around loss or

even misuse of this information. Websites, which clearly protect the

user’s details, are met with a high level of trust (Benlian and Hess, 2011;

Mukherjee and Nath, 2003; 2007).

While trust is at the centre of the CTT model, the notion of commitment also

plays an important role, as it is at the same time a consequence of trust and a

determinant of long-term cooperation (Morgan and Hunt, 1994). Commitment

refers to a lasting desire to maintain a relationship (Moorman et al., 1992).

Together, commitment and trust determine the parties’ co-operation and

behavioural intent. The latter refers to a willingness to continue the exchange of

resources as appropriate to the relationship (for example, to repeatedly

purchase products/services from the same seller) (Mukherjee and Nath, 2007).

Ideally, this willingness to continue the interaction eventually translates into

action, which can add value to one or both of the relationship parties, for

instance actual repeat purchase. Figure 2 displays the CTT graphically.

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The CTT, and relationship marketing more broadly, have not to date been

used in the context of crowdfunding, although it seems intuitively suitable:

crowdfunders provide money first, before experiencing the reward for their

pledge (Mollick, 2014), which requires them to trust the fund-seeker to deliver

on the promised reward at some point in the future. This is comparable to

service marketing, where customers require a certain level of trust in the service

provider before entering the initial transaction because they are often asked to

buy the service before experiencing it. Since relationship marketing has

successfully been applied to service marketing (Morgan and Hunt, 1994), the

above similarities with crowdfunding further suggest a potential suitability of the

theory also for this emerging field.

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Hence, there is a strong argument supporting the use of the CTT model for

crowdfunding. The following section addresses this by bringing together the

CTT and the current literature on crowdfunding. As such, the section explores

the usefulness and applicability of the model for the crowdfunding field.

Commitment-Trust-Theory in crowdfunding

When considering CTT in the context of crowdfunding, it seems intuitively

suitable because trust is crucial for funders to provide capital and added value

to fund-seekers (Gerber and Hui, 2013), whereby trust is relevant for backers,

who are already known to the fund-seeker, as well as for strangers. It is,

however, likely that the former already trust the fund-seeker, while the latter

need to first build their trust. Nevertheless, relationship marketing activities are

useful to retain the trust of all backers, like Nathaniel Hansen (2011), a

successful serial Kickstarter-user, recommended:

“Relationships are everything, so take care of them. [...] 1) never burn

a bridge and 2) do everything you can to nurture and feed your diverse

network of relationships.”

A further reason why the CTT has intuitive appeal in crowdfunding refers to

its similarity with other online interactions, for instance, online retailing, where

trust has previously been investigated: a customer, who trusts an online retailer,

makes an initial purchase and may ultimately enter a committed relational

exchange with the retailer. This results not only in repeat purchase, but also a

willingness to promote the retailer through word of mouth (Mukherjee and Nath,

2007). This willingness ultimately leads to actions that add value to the

23

relationship partner beyond the initial purchase (Liu et al., 2004). I propose that

this process can be translated to three distinct relationships in the context of

crowdfunding, all of which start with an initial transaction and can turn into long-

term, committed relationships that add value to the respective relationship

partner:

1) Crowdfunder-platform-relationship: Crowdfunders’ monetary pledge

through the platform (initial transaction) may be followed by further

pledges to different projects on the same platform (added value beyond

the initial transaction) (Van Wingerden and Ryan, 2011).

2) Entrepreneur-platform-relationship: Entrepreneurs use the platform to

raise crowdfunding (initial transaction) and may return to the same

platform to raise capital for additional, future projects (added value

beyond the initial transaction) (Gerber and Hui, 2013).

3) Crowdfunder-entrepreneur-relationship: After pledging money to the

project (initial transaction), crowdfunders may be willing to further support

the business, for instance, through providing contacts or becoming

involved (added value beyond the initial transaction) (Macht and

Weatherston, 2014).

Given this article’s aim to explore the value added of crowdfunders, it focuses

on the third relationship, specifically on the relational exchange between

crowdfunder and entrepreneur beyond the initial transaction. However, since

relational exchanges require ongoing trust, it is important to also acknowledge

that this trust originates from even before the initial transaction. As that occurs

through the crowdfunding platform, it is likely that the development of trust

24

between funder and fund-seeker is affected by the platform: funders have to

also trust the platform in order to make their initial pledge. This is comparable to

other online intermediaries, such as online communities or online traders,

whereby the users’ trust in the intermediary affects their trust in other users

(Benlian and Hess, 2011; Wang and Emurian, 2005). Therefore, this article

recognises the role of the platform in building initial trust, but given its focus on

the relationship (and therefore the trust) between funder and fund-seeker, the

following sections will merely touch upon the platform’s role, rather than

discussing it in detail.

The consequence of trust in crowdfunding: Reaping value-added benefits

As previously discussed, value added constitutes a key benefit of

crowdfunding for entrepreneurial projects or businesses (Macht and

Weatherston, 2014). Therefore, those entrepreneurs, who are interested in

reaping such benefits, should be concerned with the development of trust

amongst potential and actual backers because trust is one of the factors

affecting crowdfunders’ willingness to add value.

To date, no crowdfunding research has investigated the conjecture that

businesses can actively affect their investors’ willingness to add value by

facilitating the building and preservation of trust. Nevertheless, some authors

have hinted at such a relationship: Hui and others (2014) suggested that regular

communication between fund-seeker and backer increases the fund-seeker’s

reputation of being trustworthy and may ultimately motivate backers to support

the business, for instance through word of mouth, which often results in

25

increased interest from other people. As such, the backers add value to the

business, which benefits from free publicity and the resulting new contacts it

may bring (Macht and Weatherston, 2014). David MacKenzie, who successfully

raised crowdfunding on Kickstarter for his game ‘Alien Frontiers,’ recommended

that all fund-seekers connect with their backers as his experience showed him

that backers can promote the project to their own contacts (Berlinger, 2011).

While the above argument shows that the benefit ‘provision of contacts’ can

be facilitated through trust, it is equally plausible that the other value-added

benefits, as explored in Macht and Weatherston’s (2014) framework, may also

derive from a trusting relationship between funder and fund-seeker, as they all

rely on the funders’ willingness to interact with and support the fund-seeker. For

instance, in terms of the ‘facilitation of further funding,’ the backers have to be

willing to promote the business to potential other funders in their own network of

contacts or even to pledge more own money. Gary M. Sarli (2011), who raised

capital for e20System through Kickstarter, claimed that many backers will

increase their original pledge as the fundraising period comes to an end. With

regards to ‘involvement,’ backers need to display willingness to give up their

time to support the business. An example from Kickstarter is ‘Alien Frontiers,’

whose backers proofread the game rules and provided advice and even own

artwork for free (Berlinger, 2011).

While the focus of the CTT is the effect of trust upon value-adding benefits, it

needs to be stressed here that there are other factors, which may influence

crowdfunders’ willingness to add value. For instance, Naroditskiy and others

(2014) identified a strong correlation between incentives and crowdfunders’

26

willingness to refer the fund-seeking project to friends and acquaintances.

However, since the typical fund-seeker cannot afford to offer incentives, this

factor seems less relevant than trust in the context of crowdfunding.

In order to explore how fund-seekers can influence the building and

preservation of trust in the relationship with their backers, I refer to the

determinants of trust according to the CTT as amended for online relationships

by Mukherjee and Nath (2003; 2007): communication, opportunistic behaviour,

shared values, security, and privacy. The next section considers each of these

factors in light of the current crowdfunding literature.

The determinants of trust in crowdfunding

According to the CTT literature, the five determinants of trust can be

influenced or even managed by the relationship parties (Morgan and Hunt,

1994; Mukherjee and Nath, 2007). This suggests that the actions of

entrepreneurs affect the extent to which they may be able to draw upon their

crowdfunders for support beyond the initially pledged amount of money. It is

these determinants, and the ways in which entrepreneurs can influence them,

that this section focuses on.

Communication

The CTT literature contends that open, speedy and high-quality provision of

information increases trust (Mukherjee and Nath, 2003). In the context of

crowdfunding, this notion appears to be true, as some researchers have

27

commented on the importance of communication, both during and after the

fundraising period.

One way of communicating with potential backers during the fundraising

process is the investment pitch, published on the chosen crowdfunding

platform. By studying video pitches on Kickstarter, Fernandes (2013) concluded

that the more trustworthy a fundraising pitch appears to be, the more likely the

project will be successful in raising its target amount. In this case,

trustworthiness in the pitch was evaluated according to fund-seekers’

credentials and the tone of their video. This conclusion shows not only that trust

plays a key role in the initial decision to invest, but also that entrepreneurs can

influence the development of trust by carefully considering the content and tone

of their pitch. After a successful Kickstarter campaign for ‘pixelstick – Light

painting evolved,’ a technology project, the fund-seeker Steve McGuigan

advocated the importance of the written and the video pitch: “You are asking

people to put their trust in you, the least you can do is present your idea well”

(Ung, 2014).

Another way of communicating with potential and actual backers throughout

the fundraising process is the provision of updates, which was explored by

Kuppuswamy and Bayus (2013). They demonstrated that entrepreneurs, who

successfully raised their target amounts, communicated more with the

crowdfunder community than fund-seekers, who ultimately failed to achieve

their goals. After having raised funds for his film ‘Identifying Nelson,’ de Witt

(2012, p. 63) presented a lesson regarding the value of updates for ongoing

28

interaction with backers: updates are “a great way to keep your backers

involved and enlist their additional support.”

Communication during the fundraising period mostly takes place through the

crowdfunding platform as that is where the fundraising pitch and updates are

published. Given this intermediary role of the platform, it is likely that factors like

ease of use or website design affect funders’ trust in the platform, which in turn

affects their trust in the fund-seeker (Benlian and Hess, 2011). Although fund-

seekers cannot control the platform’s usability, they may be able to affect trust-

building by choosing to raise capital on a platform that possesses trustworthy

communication tools.

The above has so far only established that communication facilitates the

building of sufficient trust early on in the relationship, so that crowdfunders carry

out their initial investment. However, the focus of this article is the value-added

benefits, which backers generally provide after their initial investment, that is,

after they have demonstrated enough trust to pledge their money. Therefore, it

is important to now consider how ongoing communication facilitates the

preservation of trust after the initial pledge. In the generic trust literature,

ongoing communication is a key determinant for continued trust within a

relationship (De Clerq and Sapienza, 2001). This notion seems to be relevant in

the context of crowdfunding too:

“By addressing questions and by posting regular updates, creators

maintain supporter relations and uphold a reputation of being

responsible and trustworthy.” (Hui et al., 2014, p. 6)

29

Ridiculo.us (a business producing ridiculous things) were not only highly

successful in raising crowdfunding for their project (they raised $10,000

although their target amount was only $600), they also attributed the success of

a second project to ‘overcommunication:’ due to supplier delays, they launched

their second project before having delivered the rewards of their first project.

Not only were the backers very sympathetic, but a large number of them even

immediately backed also the second project because the business kept them

highly informed about the delay and its reasons (Ridiculo.us, 2012). As such,

the business benefitted from added value, in the form of further financing,

resulting from substantial communication with their backers. Since this type of

communication happens after the fundraising period, the crowdfunding platform

does not play a part in trust preservation anymore.

Opportunistic behaviour

CTT argues that trust develops if relationship parties believe that their partner

does not act opportunistically. Since opportunistic behaviour often derives from

asymmetric information, the above discussed importance of communication is

further increased: entrepreneurs who continuously and transparently share

information with their backers lessen the information asymmetry (Parola and

Ellis, 2013). This reduces the perceived chances for opportunistic behaviour,

which in turn may result in increased trustworthiness. Ingram (2013) stressed

the importance of transparency in building and maintaining trust between fund-

seekers and backers on Kickstarter by referring to the example of a young girl,

who raised $20,000 to attend a game design course. Later, however, she

30

received substantial criticism when it emerged that her mother was a

multimillionaire, who would have been able to fund the course attendance

herself, but who wanted her daughter to learn to independently make money for

her own desires. This public outcry could probably have been avoided had the

fundraising pitch transparently referred to the mother’s reasons for not financing

the course herself.

Despite any attempts at reducing information asymmetry, crowdfunders will

always face some asymmetric information because:

a) they make an investment, which by nature contains some information

asymmetry as the investee possesses more knowledge about itself than

the investor (Belleflamme et al., 2013);

b) they carry out an online transaction, through an intermediary platform,

which is characterised by a physical separation between funder and

fund-seeker (Mukherjee and Nath, 2007). This means that backers

generally have to rely only on information publicly available (on the

crowdfunding platform, the venture’s/project’s website and information in

public media), as opposed to their own personal interaction with the

entrepreneur; and

c) they are private individuals, who invest very small sums and generally do

not have much investment experience. Sophisticated investors, such as

business angels, use in-depth due diligence and detailed contracts in an

attempt to reduce and manage information asymmetries (Van

Osnabrugge, 2000). Crowdfunders, however, typically do not go to such

31

lengths to reduce asymmetric information (Macht and Weatherston,

2014).

Since the basic premise of opportunistic behaviour refers to deliberately

deceptive actions, the existence of asymmetric information can potentially

attract con artists, who fraudulently raise crowdfunding for their personal

enrichment and thus obviously never deliver any rewards they have promised to

backers (Mollick, 2014). According to Mollick’s (2014) study, fraudulent activity

is extremely rare in online crowdfunding, but many backers are suspicious

nevertheless (Gerber and Hui, 2013), so that the need to build trust prior to any

pledges may become even more significant in future, at least for backers who

do not know the fund-seeker yet.

As such, entrepreneurs may need to pay more attention to signalling

genuineness, legitimacy and high quality to potential backers, for instance

through emphasising own credentials (Fernandes, 2013) or evidencing awards

received (Ahlers et al., 2012). Serial fund-seeker de Witt (2012, p. 51)

explained: “The more previous experience you can demonstrate, the more

people will trust you.” Direct communication, in addition to indirect signalling, is

another means for entrepreneurs to manage the development of trust as

communication of information reduces opportunistic tendencies (Saleh et al.,

2014). Kickstarter (no date b) itself argued that updates positively affect

crowdfunders’ perception of the venture’s trustworthiness: “The more

information you share, the more you will earn your backers’ trust.”

Although fraudulent non-delivery of rewards is rare, genuine miscalculation of

costs, time or abilities and the related delays in delivery are very common in

32

successful fund-seekers (Wortham, 2012; Mollick, 2014). While any kind of

unfulfilled obligations can affect trustworthiness (Mukherjee and Nath, 2007),

communication is again key to minimising any negative effects: Wortham (2012)

stated that crowdfunders generally appreciate that such delays can happen and

they look favourably upon the businesses, but only if they are being kept

informed.

A further aspect of opportunistic behaviour refers to the regulatory

environment surrounding the process of crowdfunding. Mukherjee and Nath

(2003) argued that there is a rather high risk of opportunistic behaviour if

processes are not (yet) well regulated and possess limited control mechanisms.

In the case of crowdfunding, this is highly relevant as there is substantial debate

in practice and policy regarding the regulation of the crowdfunding platforms, for

instance with regards to the protection of equity crowdfunders (Collins and

Pierrakis, 2012). Nevertheless, the field is still far from being well regulated and

recent attempts at reducing this legal minefield (Farrell, 2012; Marsden, 2011)

raised additional concerns and demands for further changes to legislation

(Schroter, 2014). This may somewhat negatively affect the trustworthiness of

the system itself, but seems to therefore reinforce my conjecture that

businesses should attempt to actively improve their own trustworthiness.

Crowdfunding platforms themselves can reduce the risk of opportunistic

behaviour and as such increase their own and, by extension, their fund-seekers’

trustworthiness, by implementing their own control and fraud-detection

mechanisms. If entrepreneurs wish to affect the building of trust, they have to

33

deliberately choose platforms that implement control mechanisms, like project

vetting (Collins and Pierrakis, 2012).

Shared values

According to the CTT framework, a strong perception of shared values, that

is, a common outlook on what is right and what is wrong, between parties

increases trust within a relationship.

The information asymmetries prevalent in any investment decision, combined

with the impersonal nature of online transactions through intermediary

platforms, mean that assessing the values of a business is difficult for

crowdfunders. In an attempt to learn about the values, crowdfunders have to

rely on information provided by the fund-seeker him-/herself, which relates back

to the importance of communication as a means to build trust: entrepreneurs

can affect the development of trust by providing speedy, open and honest

communication (Mukherjee and Nath, 2003).

It is further plausible that businesses can influence the development and

preservation of trust by clearly stating their organisational values, so as to

attract crowdfunders who share these. Given that not-for-profit businesses,

which often have strong moral or ethical values, are amongst the most

successful fund-seekers (Lambert and Schwienbacher, 2010), this notion

appears suitable for crowdfunding. Although not a non-profit business, the

socially focused ‘Hip Chick Farms’ successfully raised crowdfunding and clearly

stated its values on their own website and in their Kickstarter pitch (Paladech,

2012). Gerber and Hui’s (2013) interviews, as well as de Witt’s (2012)

34

experience of two successful fundraising campaigns, further corroborate this

argument: the more a project resonates with prospective funders’ beliefs, the

more they will like and ultimately support it.

Security

The amended CTT includes perceived security, in terms of the safety of

financial information during online transactions, as a key determinant for trust in

web-based relationships. Since crowdfunders make pledges of their own money

through an online channel, the existence of security concerns is to be expected.

However, in the case of crowdfunding, the intermediary platforms usually

specify how the financial transactions are to be conducted (Ordanini et al.,

2011), for instance Kickstarter payments are processed through Amazon

Payments (Kickstarter, no date c). As such, the fund-seeker cannot actively

influence the perceived security of the funding transaction – the safety of

backers’ financial information depends upon the platform and its underlying

technology (cf. Mukherjee and Nath, 2003), which means that the funder has to

trust the platform, as well as the fund-seeker, when making the financial pledge

(Wang and Emurian, 2005). Although fund-seekers cannot influence the

perceived security of crowdfunding platforms, I argue that they are still able to

affect the building of trust by consciously selecting a crowdfunding platform that

is perceived as secure, for instance because it utilises the latest security

technology. On Kickstarter, for instance, the Frequently Asked Questions

address aspects of security, like two-factor-authentication and passwords

(Kickstarter, no date d).

35

Privacy

According to the amended CTT, websites are considered trustworthy if they

protect the user’s personal information. Same as most other websites,

crowdfunding platforms can also collect personal information from backers, thus

making privacy concerns a potential issue (Gerber and Hui, 2013).

During the fundraising period, it is the platform, which collects the backers’

personal details, unless backers reveal their identity and contact details by

approaching the fund-seekers. Therefore, the fund-seekers have limited ability

to directly manage the initial building of trust prior to the pledges, other than to

choose a platform, which adopts and implements appropriate privacy policies,

such as the inclusion of disclaimers and asking crowdfunders’ consent before

utilising or forwarding their details (Bart et al., 2005). Kickstarter, for instance,

consider privacy a very high priority as they enable private communication

between parties, do not collect demographics from backers, and do not publicly

display pledged amounts (Kickstarter, no date d; Kuppuswamy and Bayus,

2013).

However, after successful fundraising, the fund-seeker obtains the backers’

details, which they require in order to deliver the rewards. From that moment

onwards, fund-seekers can actively manage their approach to privacy and thus

to preserving trust, by also complying with privacy law and clearly stating their

privacy policy. Nathaniel Hansen (2011), a serial fund-seeker for film projects,

explicitly offered backers the opportunity to opt out of email updates and used

Blind Carbon Copy (BCC) when emailing the entire crowd.

36

Additional determinant of trust in crowdfunding: Recommendation

Through the review of the crowdfunding literature, a further factor emerged,

which can potentially have an effect on the development and preservation of

trust between backers and fund-seekers: recommendation through trusted

parties. This additional factor has not featured in the original CTT (Morgan and

Hunt, 1994), but it was mentioned as a suggestion in the amended CTT of

Mukherjee and Nath (2003). Prior research in other fields concluded that

endorsements through trusted authorities, such as celebrities (Mukherjee and

Nath, 2007), and recommendations through trusted individuals (Macht and

Robinson, 2009) can have positive effects on confidence and perceived

trustworthiness: people tend to place their trust into the recommended products,

services, individuals or businesses, as a consequence of the recommendation

from a trusted source.

In the context of crowdfunding, this additional factor may prove relevant given

that crowdfunders take into account the decisions and actions of other investors

in the same and related/similar ventures to the one they are considering (Ward

and Ramachandran, 2010; Van Wingerden and Ryan, 2011). While neither of

these authors specifically refer to trust to explain this bandwagon effect,

Kuppuswamy and Bayus (2013) showed that people trust in the ‘popularity’ of

fund-seekers as particularly businesses, which have been featured as ‘Most

Popular’ on the crowdfunding platform, reach their funding targets. However,

there is also evidence to the contrary: Kuppuswamy and Bayus (2013) found

that crowdfunders are less likely to invest in projects, which have already

37

received much support, because they assume that someone else will provide

the remaining funding to achieve the target. Nevertheless, Kickstarter statistics

show that 90% of projects, which raise 30% of their target amount, succeed to

raise the full amount by the given deadline (Strickler, 2011).

Lu and others (2014) studied the impact of social media promotion of

crowdfunding projects, be it through the fund-seekers themselves or through

current backers, and concluded that there is a strong positive correlation

between the amount and quality of social media promotion and the fund-

seeker’s success in raising the target amount. These authors proposed a

reason for this: if projects are persuading people to write about them on social

media, they tend to be more attractive to investors than others. In this article, I

propose an alternative plausible reason as I suggest that this may also be

related to the notion of trust: the more people talk about the fund-seeking

business, the more confidence other potential backers have in the success of

the project. This proposed reason can also be supported by one of Mollick’s

(2014) findings: entrepreneurs with many personal contacts on Facebook (all of

whom could be encouraged to endorse the business) are highly likely to obtain

their funding goal. Tim Ferriss (2012) attributed his fundraising success to a

large extent to social media activities, such as identifying bloggers who would

not only include the project in their blog but also post it on their Facebook sites,

or repeatedly asking current backers to promote the project on Facebook.

Trustworthiness can also be increased by relating to authorities, which

crowdfunders associate with confidence and trustworthiness. The gaming

project ‘Level 99 Games’ raised $250,284, partially because the project creators

38

“were able to leverage the reputation of well-known members of the gaming

community,” whose reputation and recommendation supported the fundraising

efforts (Berlinger, 2011).

In the context of online retailing, for instance, Mukherjee and Nath (2003)

argued that association with celebrities can increase the perceived

trustworthiness of sellers. No research into celebrity endorsement in

crowdfunding has happened to date, but it may possibly be of relevance here as

well, given that endorsement from other authorities has been found to increase

trustworthiness: Kuppuswamy and Bayus (2013) showed that crowdfunders

have more confidence in those fund-seekers, who are explicitly endorsed

through the crowdfunding platform (for example, businesses featured in the

Kickstarter blog). An actual example from Kickstarter is the pitch video of the

‘Glif,’ an iPhone accessory, which features an individual well known to Apple

fans (Gerhardt and Provost, 2011).

The location of the fund-seeker may also be considered a trust-enhancing

authority, as Mollick (2014) tentatively identified that the fund-seeker’s location

may affect their ability to raise funds. This seems to be the case where certain

locations are specifically associated with the talents required by the fund-seeker

(for example, film projects in the Hollywood region in the United States). I

suggest that trust may again play a role here, given that crowdfunders may be

more confident in businesses that are located in suitable areas for them to carry

out their operations.

Figure 3 depicts a graphical representation of the CTT in the context of

crowdfunding as developed from the above exploration. It highlights the

39

additional determinant of trust and indicates that value added follows from the

willingness to add value.

As the above exploration of trust and its determinants has shown, it appears

that the CTT can present useful insights into crowdfunding, as well as

recommendations for fund-seekers and researchers. The following section

considers these by presenting implications for practice and research, while also

considering the limitations of this article.

Conclusions, implications and limitations

This article aimed to explore the value-adding benefits of crowdfunding

(provision of contacts, involvement and facilitation of further funding) through a

relationship marketing lens. The latter argues that long-term, cooperative

relationships in business are superior to discrete, one-off transactions. One of

the key frameworks of relationship marketing is the Commitment-Trust-Theory

40

(CTT), which states that trust within a relationship breeds commitment, as well

as the parties’ willingness to cooperate, continue their interaction and share

resources in the future. The CTT presents five factors determining the

development of trust: communication, opportunistic behaviour, shared values,

security, and privacy.

In this article, I explored the suitability of the CTT model in the context of

crowdfunding: I postulate that the fostering of long-term relationships between

funders and fund-seekers may allow the latter to reap value-added benefits

from their funders, above and beyond their financial pledges. Trust is a key

factor required to develop and maintain such a relationship, whereby fund-

seekers have the ability to actively manage the development and preservation

of trust by influencing its determinants. I identified an additional determinant of

trust: recommendation.

By bringing together the fields of crowdfunding and relationship marketing,

this article contributes to two main audiences:

1. Academics/researchers: This article shows that theories from the field of

marketing can find applicability in crowdfunding. Moreover, it is the first

article to explore the value-adding benefits of crowdfunding and as such,

adds new knowledge to the crowdfunding literature. This specifically

refers to the understanding that fund-seekers can reap value-added

benefits by actively influencing funders’ willingness to provide such

added value. Additionally, this article tentatively adds to the CTT as it

identified an additional factor, which seems to determine the

41

development of trust: it appears that crowdfunders trust businesses,

which are being endorsed by trusted friends or authorities.

2. Practitioners, especially fund-seeking entrepreneurs: Above all, this

article demonstrates to entrepreneurs that there are substantial benefits

to be had if they consider crowdfunding to be the beginning of a long-

term relationship, as opposed to a one-off transaction. If they want to

reap these benefits, they can actively influence their crowdfunders’

willingness to add value beyond their financial pledge. Entrepreneurs can

achieve this by managing the development and preservation of trust in

the relationship, for which they can utilise the marketing skills and

knowledge that they gained from marketing their products/services to

customers. Activities, such as communicating with customers, fulfilling

promises on time, emphasising shared values, signalling high quality and

honesty, and attempts at associating with other trustworthy parties, can

be directly applied from an entrepreneur’s marketing activities to the

process of crowdfunding. Moreover, fund-seekers can positively affect

the building of trust by consciously choosing a trustworthy and easy-to-

use crowdfunding platform, which carefully vets fund-seekers,

implements privacy policies and utilises internet security technology.

However, one word of caution needs to be raised here: managing

relationships with large numbers of people tends to be time-consuming

and may distract from the actual operations of the business (Hui et al.,

2014). Therefore, entrepreneurs need to: manage their funders’

expectations (for instance, in relation to how much interaction is

42

reasonable); develop effectiveness in backer-interactions; efficiently use

low-involvement relationship marketing activities (e.g. group emails) in

order to minimise transaction costs, rather than developing high-

involvement, personalised relationships with each backer; and possibly

consider raising follow-on finance from existing backers, in order to not

further increase the number of relationships to be managed.

Given the exploratory nature of this article, a number of limitations, which can

be seen as opportunities for further research, need to be discussed: first and

foremost, there is no empirical data underlying this article as it is based on

published literature and examples of real crowdfunded projects. This approach

is valuable since its arguments are backed up by extant literature (which itself

derived from empirical data) and illustrative examples from practice, but future

primary research efforts should nevertheless address this limitation: qualitative

data should be collected to explore relationship marketing in crowdfunding from

an empirical point of view, while quantitative data should statistically test the

CTT framework to produce generalisable recommendations.

The exploratory nature of this article also means that various aspects of the

value-adding benefits and the relationship marketing theory have not been

considered here. Since the amount of potential topics for future research is vast,

the following are only a small selection of potential research questions, which

require further exploration: does trust form differently in reward-, equity-,

lending- and donation-based crowdfunding? In addition to trust and

commitment, what other factors (such as amount pledged; type/value of reward;

or crowdfunding experience) influence crowdfunders’ willingness to add value?

43

What role does culture play in the development of trust in crowdfunding? Does

value added affect the performance of the fund-seeking business?

Finally, the notion of trust is a very complex, multidimensional construct,

which can be researched from various angles (Wang and Emurian, 2004). In

this article, I explored the crowdfunders’ trust towards the fund-seeker by relying

upon the CTT according to Mukherjee and Nath (2003; 2007). However, trust

features also in the relationship between funder and platform (which this article

marginally touched upon) and in the relationship between fund-seeker and

platform and it is likely that trust in each of these relationships possesses

different determinants and consequences. Therefore, further research should

consider trust and the CTT in both of these relationships and also explore

further aspects of the crowdfunder-entrepreneur relationship, amongst others:

crowdfunders’ propensity to trust in general (Benlian and Hess, 2011); types of

value-adding activities (Macht, 2011b); and entrepreneurs’ willingness to seek

and accept added value (Macht, 2011a).

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Biography

Stephanie Macht received her PhD in the topic of business angels’ post-

investment involvement from the Newcastle Business School at Northumbria

University. Dr. Macht is currently Principal Lecturer in Strategic Management

and International Business. She publishes in the areas of entrepreneurial

finance and entrepreneurship education.

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