Understanding funder’s risk perceptions in reward-based crowdfunding : formation, impact, and cure.

Abstract

Reward-based crowdfunding is rapidly shaping up to be a revolutionary avenue for companies, especially start-ups, to broadcast their businesses and solicit capital through digital platforms. The platformized micro-investment mechanism in crowdfunding creates an unprecedented digital market that ensures a more fluid and granular distribution of financial resources. The Information Systems (IS) community has endeavored to shed light on this growing market by studying the decisive factors that motivate funders’ contributions and lead to crowdfunding success. Yet, despite its risky nature, no study thus far systematically investigates how risk perceptions emerge and impact funders’ investment behavior in reward-based crowdfunding and what companies can do to address funders’ risk concerns. To bridge these gaps, this thesis synthesizes contemporary knowledge on the contextual characteristics of crowdfunding and risks around diverse transactional environments to arrive at a typology of the risks encountered by funders when participating in reward-based crowdfunding. Drawing on the indispensable link between trust and risk, a holistic research model is constructed to: (1) postulate the impact of funders’ risk perceptions on their willingness to invest using a reward-based crowdfunding platform, (2) discern how different types of crowdfunding risks can be mitigated by enhancing the assessability of fundraiser’s trustworthiness, and (3) explore the optimum trust-building mechanisms that can facilitate funders’ assessments of fundraiser’s trustworthiness. Three experimental studies are conducted to validate the advanced research model empirically. The findings from the three studies yield theoretical insights on crowdfunding risks and mechanisms to diminish funders’ risk perceptions via trust-building. The results also yield actionable design principles that platform providers can adopt to help funders assess risk and improve their financing experience in this emerging market.