Faculty of law blogs / UNIVERSITY OF OXFORD

Democratizing Entrepreneurship: New Evidence from Kickstarter


Time to read

4 Minutes


Thomas Lambert
Assistant Professor of Finance at the Rotterdam School of Management
Aleksandrina Ralcheva
Assistant Professor of Finance, Delft University of Technology, Netherlands
Peter Roosenboom
Professor of Finance at the Rotterdam School of Management

By opening a new market for raising outside funds for individuals and businesses, crowdfunding has the potential to boost entrepreneurship and contribute to growth. Policy support for crowdfunding in various jurisdictions is based on this assumption. The vital role of small businesses and high-growth entrepreneurs in growing the economy is what is usually put forth by legislators alike, from the implementation of Reg CF in May 2016 as part of the Jumpstart Our Business Startups (JOBS) Act to the EU Regulation on European Crowdfunding Service Providers (ECSP) entered into application in November 2021. But to what extent is this what we observe in the data? What is the key channel through which crowdfunding affects entrepreneurship? In a new paper, we address these questions by examining the rise of reward-based crowdfunding in the United States.

Funding new ideas and projects on Kickstarter

Reward-based crowdfunding emerged in the United States with the inception of Kickstarter, a global platform focused on arts and creativity, in 2009. The aim of Kickstarter is to tap into online communities to fund new ideas and projects (not invest in companies). These ideas and projects can be in a wide range of categories, from the arts to technology. Individuals running a Kickstarter campaign are expected to give a non-monetary reward, such as an acknowledgment, a small token of appreciation, or a product in return, but they are not expected to pay anything back. Therefore, reward-based crowdfunding happens to be an accessible way for entrepreneurs to get attention and promote their ideas and projects prior to a potential business startup.

Kickstarter has rapidly become the dominant platform in the United States, funding as of today over 250,000 ideas and projects totaling around $8 billion. The average amount successfully raised on Kickstarter is about $28,000, while more than 20 percent of projects in the technology category raise over $100,000. These amounts are in keeping with what angel investors and groups are typically able to invest.

Is Kickstarter activity associated with entrepreneurship?

Our results highlight the role of reward-based crowdfunding for entrepreneurs not only to start their business but also to nurture their first years of development.

First, Kickstarter activity at county and industry levels is positively associated with new business creation between 2009 and 2018. A doubling in the number of Kickstarter projects in a county increases the number of new establishments by about 1 percent on average. For the average county, a doubling means moving from having nine projects listed per year to having eighteen projects listed per year. This estimate implies that doubling the total number of Kickstarter projects in the average county would stimulate the entry of 2.4 establishments—that is, one new business created for every four projects launched on Kickstarter. Although this result primarily speaks on a direct effect of crowdfunding on new business creation, we cannot exclude that indirect effects add to this direct effect. Crowdfunded entrepreneurs may indeed encourage others to start a business by generating knowledge spillovers or improving general access to funding.

Second, Kickstarter activity is positively associated with the further development of young businesses. Consistent with the idea that Kickstarter can help businesses to grow further, we observe a positive effect of Kickstarter activity on the average employee count per establishment. A doubling in the number of Kickstarter projects in a county implies 0.3 percent increase in the establishment size. This effect suggests that the response to Kickstarter activity likely combines specific benefits from crowdfunding with more general economic development (eg, higher demand for additional business services) that indirectly stimulates business development.

How does Kickstarter help support entrepreneurship?

We present evidence that reducing socio-demographic disparities prevalent in offline sources of funding is one important channel behind the Kickstarter effect on entrepreneurship.

Prior research has shown that early-stage investment is subject to socio-demographic bias in terms of gender, race, ethnicity, and education. Crowdfunding is no exception. However, the very concept of crowdfunding makes it less costly and more open and accessible for entrepreneurs as compared to other funding sources. Crowdfunding has thus the potential to also mitigate socio-demographic barriers by improving diversity in the pool of entrepreneurs.

Using quarterly data on the composition of startup employment (that is, businesses of age zero to one), our results indicate that Kickstarter primarily boosts the share of startup employees belonging to underserved groups (women and minorities). These findings imply that Kickstarter activity promotes the ‘democratization’ of entrepreneurship by enabling entrepreneurs from these underrepresented groups to receive funding to start and expand their businesses.

What do we learn?

The reward-based crowdfunding model became, over the years, a prime source of funding for entrepreneurs. And it matters for entrepreneurs especially from underrepresented groups to receive funding to launch and develop their businesses in a wide range of sectors and areas. Our findings have important policy implications as they challenge the conventional wisdom that crowdfunding, like venture capital and angel funding, is an early-stage source of funding only relevant for high-growth young businesses in technology sectors. We show that ideas and projects from all Kickstarter categories (including arts) may turn into actual businesses and also highlight that all projects (successful and failed) boost entrepreneurial activity within US counties. Our findings thus support the informational value of reward-based crowdfunding for entrepreneurial endeavors.

Moreover, prior research has shown that venture capital promotes the ‘elitisation’ of entry by enabling the emergence of large and successful (superstar) businesses. Our paper adds to this research line by providing new evidence that crowdfunding promotes instead the ‘democratisation’ of entry by allowing newer (small) businesses to enter.

Finally, and importantly, our findings lend support for various policy initiatives, such as the JOBS Act and the ECSP Regulation, that aim to stimulate entrepreneurship by encouraging the development of crowdfunding as an alternative funding source.

The authors’ complete article can be accessed here.


Thomas Lambert is an Associate Professor of Finance at Rotterdam School of Management, Netherlands.

Aleksandrina Ralcheva is an Assistant Professor of Finance at Delft University of Technology, Netherlands.

Peter Roosenboom is a Professor of Entrepreneurial Finance and Private Equity at Rotterdam School of Management, Netherlands.


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