The dark side of crowdfunding platforms
Susan Young and Birton Cowden
Coles Working Paper Series, SPRING19-03, March 2019
Overview Crowdfunding platforms, such as Kickstarter, provide a way for new entrepreneurs to fund their projects. By 2025, such platforms are predicted to account for over $300 billion in cumulative transactions. Researchers and practitioners alike generally find these platforms to be beneficial for new ventures. However, anyone with an internet connection can view these early projects, particularly third parties in countries with different laws and different levels of regulatory enforcement, which can result in idea stealing. We argue that the threat of opportunistic copycats means the startup must rethink its financing, marketing, and especially its research and design practices. We provide an in-depth case of a U.S. startup that used Kickstarter to raise nearly $1.9 million in 2018 for a reusable drinking straw. The venture, FinalStraw, demonstrates the downside of a successful campaign on an open platform where economic actors in other institutional environments can capitalize on an idea with few consequences. Using institutional economics theory, we examine the costs copycats can impose on the venture, despite its apparent success.
32 | Working Papers
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