Effective strategies to attract crowdfunding investment based on the novelty of business ideas.

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Date: May 2022
Publisher: Elsevier B.V.
Document Type: Report; Brief article
Length: 294 words

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Abstract :

Keywords Entrepreneurial finance; Crowdfunding; Investor attraction; Deep learning; Investor persuasion; Startup success factor Highlights * Study explores entrepreneurs' action strategies during reward-based crowdfunding using natural language processing models. * Results show that strategy effectiveness depends on the project's novelty level. * Information updates show non-linear quadratic relationships with fundraising performance. * Two-sided communication helps stimulate investors. Abstract Whether the novelty of an idea is a factor that directly influences crowdfunding success remains an area of ambiguity. We hypothesize that target funder diversification is effective with incremental ideas. However, focused business proposals are better suited to assert radical ideas. We also hypothesize the impact of two different strategic actions that founders can take during fundraising campaigns, agile information update and communication, on crowdfunding success. A deep-learning-based novelty detection model combined with statistical analysis is used to empirically test 7406 crowdfunding projects crawled from online platform. Our results support our hypotheses and reveal that information updates from startup founders show non-linear quadratic relationships with fundraising performance, whereas two-sided communication helps stimulate investors. We also revealed that novelty level can influence strategic choice, indicating that a project with a higher novelty should have a focused target. Our finding suggests a solution to the conflicting conclusions in previous studies on the direct impact of novelty level and target diversification, by explaining the process of novelty-dependent behavioral strategies based on signaling theory. Author Affiliation: (a) Technology Management Economics and Policy Program, Seoul National University, Seoul, Republic of Korea (b) Department of Media & Social Informatics, Hanyang University (ERICA Campus), 28-421 Hanyangdaehak-ro 55, Sangrok-gu, Ansan, Gyeonggi 15588, Republic of Korea * Corresponding author. Article History: Received 14 January 2021; Revised 28 November 2021; Accepted 3 February 2022 Byline: Eunjun Jung [ejjungid@snu.ac.kr] (a), Changjun Lee [changjunlee@hanyang.ac.kr] (b,*), Junseok Hwang [junhwang@snu.ac.kr] (a)

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Gale Document Number: GALE|A697070421