The ways of reaching for financial sources are important in the context of new enterprises

The ways of reaching for financial sources are important in the context of new enterprises, known as start-ups, as they require resources to succeed (Gompers & Lerner, 2000; Manchanda & Muralidharan, 2014). These small, developing projects are facing difficulties as quite often banks are not offering loans to the newly established companies placing them under scrutiny (Gompers & Lerner, 2001). That is why many young businessmen started only with private savings and were looking for the three Fs: friends, family and fools – as potential capital sources (Berger & Udell, 1998; Short et. al, 2017). For those who were willing to gain more, usually, in exchange for equity, there were private investors, known as business angels and private equity organized in the form of venture capital (VC).
Upon ideas of crowdsourcing (Poetz & Schreier, 2012) and micro-finance (Bruton, Khavul, Siegel, & Wright, 2015) the concept of crowdfunding (CF) emerged, providing new financial opportunities towards entrepreneurs. Online mechanisms connecting fund-seekers with funders revolutionised the known methods of financing ventures. CF gained its momentum due to digital revolution and communities forming around the idea of collaborative investing (De Buysere, Gajda, Kleverlaan, & Marom, 2012). Blohm’s study from 2014 (Appendix 1), based on the opinion of 70 experts, concerning the development of crowdfunding application, forecasts the significant impact of CF in financing start-ups and creative projects by the end of the current decade. Crowdfunding becomes a real competition to traditional financing sources. The global fundraising volume in the crowdfunding industry in 2015 was equal $34 billion, for comparison in the year 2014 it was equal $16.2 billion (Massolution 2015). By remaining its growth rate crowdfunding will surpass venture capital and business angels’ investment capital within the current decade (Hoegen, Steininger & Veit, 2017).
Despite billions of dollars raised and millions of people willing to invest the majority of fund-seekers is not reaching their funding goal from potential investors (Appendix 2). As crowdfunding is constantly developing and its significance as a source of financing increases. The same increase is in the motivation of researchers to understand the success of certain campaigns and failure of the others. Each new finding might be not only a contribution to the scientific understanding of the phenomenon but also have its practical application to potential campaign creators. The scientists began to analyse the CF phenomenon under a multiplicity of contexts.
The similarity of crowdfunding investment to that of venture capital and business angels brought attention to the issue of potential backers being in the position of high uncertainty when it comes to investment. As professional investors during the screening of early-stage venture are facing the problem of lack of data, as similarly crowdfunding investors are facing the high uncertainty. Due to this, the decision-making process of this first group is influenced by factors like third parties acting as a certification communicating the higher quality of the venture or quality signals (Drover et. al, 2017). Given the certain level of similarity between VC investment and CF reality, the body of research on those fields is expanding quickly. Researchers are approaching the processes of investment decision-making from different perspectives, trying to distinguish the dynamics of crowdfunding in context of lack of data and decision-making factors. Scientist proved the existence of information asymmetry issue in crowdfunding investments. Consequently, the important role of venture certification and signalling on the investment decisions of potential backers was analysed (Drover, Wood, & Zacharakis, 2017). For example, a relationship between certain properties of the project such as campaign duration and funding goal on the funding success. (Mollick, 2014; Kuppuswamy and Bayus, 2015). Also, certification signals like a third-party endorsement, intellectual property protection or grants won, all these have been analysed and proved their influence on the “wisdom of a crowd” (Islam, Fremeth & Marcus, 2018; Ralcheva & Roosenboom, 2016; Vismara, 2016). Since the development of the signalling theory research on CF many project-level quality signals have been distinguished like the positive influence of persuasive project description and presence of images and films, overall preparedness or use of social media (Hong, Hu & Burtch, 2015; Mollick, 2014; Zhou, Lu, Fan, & Wang, 2016). As well as, research on individual-level quality signals like a founder’s skin colour, gender or social capital gathered (Colombo, Franzoni ; Rossi-Lamastra, 2015; Hoegen et al, 2017; Mollick, 2014).

Even though the spectrum of research focused on CF is getting significantly wider, the phenomenon is young enough to still offer many opportunities for studies. The relevance of backers’ empowerment in the process of the product creation is an example of a research area not yet studied in this field. Therefore, the goal of this paper is focused on discussing the influence of co-involvement opportunities on the success of the campaign. It will be studied by analyses of literature focused on co-creation and searching for links between current findings in this field and how they could refer to the CF reality. Moreover, the experiment will be performed to test whether this phenomenon influences potential backers’ decisions and if it does, to what extent it affects their will to invest and the way they perceive specific campaign. Given the existing research gap I find the exploration area that could be investigated by answering the question:
The research question of this thesis is relevant and important in the context of existing theoretical setup on that field and recent interest of the communities. Looking for more causal-effect relationships, the analyse started focusing on backer’s emotions. Apart from characteristics of a campaign and its founder, there is a connection between the type of organisation and chances of reaching funding goals analysed. It was proved that non-profit organisations are doing better on crowdfunding platforms than those focused on profits. Non-profit campaigns acquire more capital, have higher chances to be funded, and on average are achieving higher pledges than their for-profit counterparts (Bellaflame et. al, 2013; Pitschner & Pitschner-Finn, 2014). Where the focus on profits is on the second plan, the social contribution might create additional community benefits, viewed as a signal for a crowd to invest their money. The existence of certain preferences provides a new perspective on the investment decision-making which is based on people motivation. People are incentivized to support a specific cause for the variety of reasons. Some of which may be the fact that they expect the reward, but also because they feel a personal connection with the issue, want to help or become a part of a community (Gerber & Hui, 2013).
These varied backer incentives are divided into three groups. This is social belonging, altruism and consumption. The first group describes people who are in need of belonging, and crowdfunding offers them an opportunity for social exchange which might satisfy their needs (Gerber & Hui, 2013). When interested in the certain campaign, people ask questions and gather information what creates a sense of involvement and purpose (Ordanini, Miceli, Pizzetti, & Parasuraman, 2011). The second incentive comes from altruism. The participation in the financing of the creative project is perceived as a contribution to the cause. And as doing good is psychologically rewarding, the process of funding makes funders happy (Steigenberger, 2017). Apart from helping, in general, they quite often want to help specific people, like those who they know, or those who represent the idea which is related to the backer (Ordanini et al, 2011). The third category of stimulation is based on consumption. Backers for their contribution may expect some sort of reward, early access privilege for the investor, rare token, limited functionality or various ways of crediting them (Bellaflame et. al, 2014; Mollick, 2014). Those rewards are quite often for the discounted price as presented buy campaign creators, however, it is not the economic benefit that creates the main value of those rewards, but their rarity and originality creating a feeling of connection (Colombo et al, 2015). The more this material incentive is connected to backer the stronger is the feeling of belonging to it. This emotion expands when people have the ability to influence the characteristics of the product during its creation (Gerber & Hui, 2013). The co-creation in crowdfunding is applicable as platforms like Kickstarter offer communication channels between fund-seekers and funders. This allows for comments including questions, suggestions and criticism. Being in constant contact with backers offer creators an unprecedented opportunity of engaging its potential customers in the value creation process, also encouraging them to support the campaign financially.
As presented, there have been different factors that may influence the campaign success studied. But reviewing the most current literature on success factors and decision-making I found that the founder-funder relation in terms of co-creation being in the recent interest of the crowdfunding community. The research on this interpersonal dynamic on reward-based crowdfunding is quickly developing. However, it was offered less attention than the other factors of decision-making or backer acquisition. Therefore, it offers the opportunity to explore and occasion for questions. Whether the possibility of co-creation together with the founders may influence backers’ interest and willingness to back a product? How people perceive the possibility to influence the campaign and what they personally feel about such an opportunity? And whether there are other than financial aspects of backer’s behaviour that co-engagement stimulates? The first significant contributions to this field have been provided, creating a base for future development in understanding the meaning of backers’ engagement for the crowdfunding success. As for now, it has been supported that the crowd values the ability to influence the project development, similarly as it happens in marketing (Fuchs ; Schreier, 2011). The invitation of the community to the process of creation or actively responding to their suggestion might be perceived as a quality signal, reducing information asymmetry (Fuchs et al, 2011; Steigenberger, 2017). That asks for proves of backers’ engagement as a driving force of communities around CF projects. This has been deeply studied in the field of marketing, but as for crowdfunding, the engagement phenomenon has so far been not sufficiently examined (Lipusch, Bretschneider & Leimeister, 2016). Moreover, the current researchers on that field call for experimental studies of this decision-making under controlled conditions (Steigenberger, 2017). One of few types of research that were done on the co-creation as CF success determinant was performed on the cultural sector campaigns in Spain. It concluded that well-balanced co-involvement may lead to the creation of value-exchange ecosystems which are profitable for both agents. Moreover, it recommended to analyse the relation of backers towards co-creation opportunity, research the possible strategic potential for campaign creators and test co-creation on different types of campaigns then cultural (Quero, Ventura & Santoja, 2013). Within this, I want to focus on the co-creation influence on backers in the reward-based crowdfunding process. The research will be performed on the game industry campaigns on Kickstarter, as this branch is characterized by very active and engaged community (Banks & Potts, 2010; Kickstarter, 2018).
Apart from first examples of crowdfunding existing in the 17th century, the idea described on the purpose of this academic work is still quite a novel phenomenon which is strictly connected with the ubiquity of internet and development of online communities and emerging ideas like open-and crowdsource. By the definition stated by P. Belleflamme et. al (2010, p. 5) “Crowdfunding involves an open call, essentially through the Internet, for the provision of financial resources either in form of donation or in exchange for some form of reward and/or voting rights.”. Derived from the wider concept of open- and crowdsourcing, where was used mostly to raise funds for social or cultural ventures as charity or non-monetary rewards, CF became a viable tool for raising capital in the context of early-stage investments (Cholakova, & Clarysse, 2015).

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The increase in the fundraising capital is aligned with growing number of funders and development of crowdfunding communities. Those people are gathered on platforms, which are the communication bridges connecting founders and investors (Belleflamme, Lambert & Schwienbacher, 2014). The number of active crowdfunding platforms reached 1,250 in 2015 (Massolution 2015). The one having the biggest group of backers is the Kickstarter with its community of over 14 million people who pledged almost 44 million times. Raising the total amount of $3.5 billion for around 140 000 projects (Kickstarter 2018). Those platforms differ from each other in terms of kind of compensation offered to investors. As for now, one can distinguish four main types. First one is the donation-based crowdfunding. The investors donate monetary contribution in a charitable manner, as receiving no profit or intangible, usually symbolic reward. The second one, equity-based crowdfunding, turns donors into investors, as they are gaining equity stakes. The third one, the lending based where crowdfunds are offered as a loan. The last one is the reward-based crowdfunding. Backers for their contribution may expect some sort of reward, early access privilege for the investor, rare token, limited functionality or quite often discounts, or various ways of crediting them (Bellaflame et. al, 2014; Mollick, 2014).
The reward-based is certainly the biggest model in terms of a number of platforms and amounts raised (Massolution 2015). It also suits the purpose of this research accurately. This is because it is relevant in the context of co-creation as reward-based crowdfunding connects various motivations for financial backing (Gerber et al, 2013). People are incentivised to support a specific cause not only because they expect the reward, but also because they feel need to help the others, have a personal connection with the issue or want to become a part of a community (Gerber et al, 2013). Moreover, people want to support the idea if they feel that their action matters and is somewhat influential in the process (Kuppuswamy & Bayus, 2017). Services and products available on platforms like Kickstarter are quite often at the prototype, concept or under-development stage. It creates good conditions for application of funders suggestion into the project. There are examples of products struggling to raise the capital and achieving their funding goal right after deciding to introduce supporters’ idea into the final version (Smith, 2015). Potential backers are trying to make a contentious decision investing their private resources. Their judgement is usually based on information presented in the form of a short movie, images, infographics and text that aims to introduce the concept and opportunity it creates for those who will invest in it (Mollick, 2014). Finding themselves in a position of co-designing the product, the customer receives additional incentive to support it financially. The engagement of funders might be raising a lot of questions and provoke answers in the result of which the information asymmetry will decrease (Belleflamme et al., 2014). If backers will achieve the item produced as a reward, they are basically buying a certain product or service, usually, this is a onetime exchange of goods. But if backers will be engaged in the value creation of the product they will create the connection with it and might offer their support even after the campaign ends (Ordanini et al, 2011; Smith, 2015). The co-creation in terms of reward-base CF might be mutually beneficial for both parties. As creates an additional incentive for the funders to support fund-seekers and also creating for them solutions of higher utility (Lipusch et al, 2016). Therefore, what might be the interest of funder is to allow for that connection to be created by enhancing a certain level of co-creation what results in the shared value creation (Dijk, Antonides, ; Schillewaert, 2014; Nambisan ; Baron, 2009).
The gaming industry is constantly expanding. The spending of its users for the year 2017 is estimated at the level of $121.5 billion. According to the most recent forecasts for the current year, it will grow by 13.3 percent to the level of $137.9 billion, leaving behind the other media like music and movies which raised a revenue of 16 and 36 billion dollars respectively in the year 2016 (Newzoo, 2017). This still relatively young field can be proud of successes both as an industry in general and commercial accomplishment of particular companies and their products. The Rockstar Games company realised Grand Theft Auto V in the September 2013. The newest part of this action-adventure series earned $800 million on the day of the premiere. So far, was sold in more than 90 million copies. The revenue of $6 billion place it on the position of the most financially successful media of all time (Batchelor, 2018). Realised in May 2015, The Witcher 3 is the third sequel of the game published by the Polish developer CD Projekt Red. In the year 2013, after successful sales of the first two games of the series, the company was worth 1.6 billion PLN ($433 million). The sales of the last part of the trilogy made CD Projekt Red currently the 13th most valued company on the polish stock exchange market. At the level of 13 billion PLN ($3.5 billion) it outruns big companies form industries like banking, petroleum and telecommunication (Mazurek, 2018). The games developing companies are leading not only on markets but also on crowdfunding platforms. By the time of conducting this research “Games” category generated $837.61 million dollars on the Kickstarter. This is more than any other category on this reward-based CF site and this number covers the aggregate of pledges of categories like “Music”, “Film & Video”, “Comics” and “Fashion” combined (Appendix 3). Currently, there are 34 successful games that raised more than one million dollars. Top three most funded titles are Shenmue 3 ($6,333,295), Bloodstained: Ritual of the Night ($5,545,991) and Torment: Tides of Numenera ($4,188,927). Those record campaigns raised respectively 3 times, 11 times and 4.5 times more, than their initial funding goal (Kickstarter, 2018). The pace with which the industry is growing and the size of the phenomenon makes video games an interesting object of study. However, there are also other characteristics of this branch of business which make it a good fit for this research.

Crowdfunding campaigns of “Games” have lower success rates than most of the creative products including categories mentioned above (Appendix 4). Similar tendencies are characteristic for the whole scope of platforms, not only Kickstarter (Colombo et al, 2015). This could have been one of the main influences for the direction of the growing body of research over this phenomenon. As it is mostly limited to the secondary data based analyses of success factors, trying to provide understanding to campaigns difficulties based on statistical data (Cha, 2017). Whereas, providing additional insight from the backers’ perspective on such campaigns could enrich our understanding of motives in decision-making. It could be useful for game creators especially considering that at the time of this research there are 566 live campaigns on the Kickstarter in the “Games” category (Kickstarter, 2018). It makes it not only the most numerous group of currently ongoing projects but also an extremely competitive one. That leads studios to provide additional efforts in order to respond to market needs. Given the character of digital products, developers are trying to be exceptionally responsive to upcoming trends (Nucciarelli, Li, Fernandes, Goumagias, Cabras, Devlin, & Cowling, 2017).
Both scientific papers and business journals, are highlighting the importance of building the community around the game when it comes to description of success factors in game development. Fun-base has a significant impact on the product. Works as a legitimation of its quality, brings marketing buzz in digital media or in various cases enriches the game’s utility (Marchand ; Hennig-Thurau, 2013; Shankar ; Bayus, 2003). Therefore, games creators cannot afford not to invest heavily their time and focus on establishing right relationships with the end-customer and analyse their needs and opinions at the product development stages in order to build on product value (Wirtz, Schilke, ; Ullrich, 2010; Ahmad, Barakji, Shahada, ; Anabtawi, 2017).

Outdated value creation concepts were based on the company as a centre of the value chain. The company-centricity placed the consumer as not an integral part of the value building but only as an agent in the process of value exchange on the market (Kotler, 2002; Porter, 1980). While the market was shifting towards consumer-centricity this value creation model was no longer valid. The consumer was offered various possibilities and a wide range of products. Given the power of choice, they began to evaluate, analyse and decide (Kaplan, Yurt, Guneri ; Kurtulus, 2010). This shift changed the balance on the market giving more awareness, information and significance to the customer. Making him an active agent in the value chain (Ramaswamy ; Gouillart, 2010). Currently, companies are seeking ways to enhance the interaction with customers offering a unique environment in which customer can leverage his personal experience connected with the product (Prahalad ; Ramaswamy, 2004).
By its definition, a co-creation is the act of collaboration in the innovative process between two agents, namely, a company and its consumers (Roberts, Hughes ; Kertbo, 2014). By the means of this research, the nature of consumer will be rather treated as the community built around the product or games production studio. As when discussing players, especially with the additional context of crowdsourcing, the communities and fandoms are more accurate (Hartley, Potts, Flew, Cunningham, Keane ; Banks, 2012). Discussing the co-creation, academics are stressing the importance of active empowerment and participatory culture (Cook, 2008). The minor change of a product or minimal contribution of a user might be not enough to call an aware collaborative process. Similarly, designing a product solely to fit customer expectation or almost outsource certain duties to people does not fit the innovative consumer and company engagement standard (Czarnota, 2017). Therefore, it is of great importance for this process to be based on the balance between the act of sharing the value and its creation (Weber, 2011). The co-creation process is sometimes divided by scientists into components: co-ideation, co-valuation, co-design, co-test, co-launch, co-investment and co-consumption (Quero et al, 2013). In the context of this research, we can easily notice that crowdsourcing by its definition conveys the co-launch and co-investment performed by its community. Therefore, the idea of co-creation as an additional engagement of backers will be mostly focused on co-ideation, co-valuation, co-design and co-testing.

Crowdfunding is a promising area for the studies within the field of customers’ engagement, as around the campaigns the communities are forming. Those communities are engaging in communication with the campaign creators. It is possible due to the comments section on the project website. Using this communication channels people are asking questions, sharing their doubts, anticipations and beliefs in a certain idea (Li & Jarvenpaa, 2015). Apart from the benefit of networking and building the community, it is important maintaining contact with the audience, as a founder may use this communication to obtain feedback if given, and adjust it to the current concepts. This offers free data that allow for improving product match for potential customer needs (Dahan & Hauser 2002).
The examples of the product changes in the reward-based crowdfunding might be little like a change of colour of a product, to even fundamental changes like the implementation of a completely different business model (Smith, 2015). But this is only one of many benefits that entrepreneurs may gain from interactive backers. Co-creation has a significant strategical potential for crowdfunding use. It might increase backers interest in the campaign, establishing a deeper connection between customer or product. It may also create incentives that will result in financial support given and competitive advantage over the others (Ramaswamy et al, 2010).

The marketing studies proved that by empowering its customers, creating a community around the brand or product, the smaller companies can compete with those more developed and developing their products traditionally (Fuchs & Schreier 2011; Franke, Schreier & Kaiser, 2010). Active community proves product’s quality and increases game value as in various cases enriches the utility of a play (Marchand ; Hennig-Thurau, 2013; Shankar ; Bayus, 2003). The research proved that when it comes to idea creation the users are as good or even better than professionals (Poetz et al, 2012). But to increase game potential or support the idea creation, the community must be large and diverse. Small and heterogeneous groups have lower chances to find a solution for substantial problems. Whereas, a diversified and numerous set of people offer creative concept and efficient support to the project. It is an assumption of co-creation effectiveness in the crowdsourcing context (Weber, 2011).
There is more of potential benefits of co-creation for start-ups and scale-ups as the contribution of customers becomes for the company an asset in terms of free labour (Terranova, 2000). While being an asset to the one agent this empowerment is perceived by those actively engaged as a feeling of gratification and psychological satisfaction (Poor, 2013; Steigenberger, 2017). This emotional structures and bonds created by consumers are influencing the way the company, product or idea is perceived (Dijk et al, 2014; Kaplan et al, 2010).
To present the types of co-creation on crowdfunding campaigns I will use the examples from the platform and field which is the basis of the research, namely, game industry on Kickstarter. The co-creation is somewhat dogged in the relationship between game developers and gamers. The variety of examples of customers influence the product are starting with a suggestion about the storyline including chapters created by fans (Behrenshausen, 2013). Adding characters that are tributes to most distinctive gamers or other people. Placing so-called “easter-eggs” within the world of the game. Asking gamers’ communities for a feedback during the game development (Banks et al, 2010). Works as a legitimation of its quality brings marketing buzz in digital media or in various cases enriches the game’s utility (Marchand ; Hennig-Thurau, 2013; Shankar ; Bayus, 2003).

Active modification (modding) of existing product is the effect of two important forces that combined connected this industry with co-creation. Participatory culture and user-generated content. Those are much more applicable to the video games industry than to the other media like movies, books or music (Banks ; Humphreys, 2008). A decade ago, there was a trend in games development which was shifting the balance towards user empowerment. With the games like Little Big Planet and Spore realised in 2008. Both games became popular, but only one of them might be considered successful. The first one was sold in 8.5 million copies by the end of 2012 (Yin-Poole, 2012). Whereas, the later was the biggest victim of piracy in video games history and statistics of sales are far lower than estimated number of users (Howson, 2008). In both cases, gamers were more than allowed to integrate with the game design. Those games were practically based on user-generated content. Software itself was a frame equipped with tools allowing users to generate levels and storyline by themselves. Because only a core of the product was the same, each world generated by each player was personalized and unique (Banks et al, 2010; O’Connor, J. 2009). Films or phonographic albums might be influenced by the communities formed around authors or topics. However, once finished, they are closed in their forms. Invariable and fixed. Whereas, digital character of games allows for them to be changed before, during and after their development. The constant testing and improving are characteristic for this business and consistent with its ideology (Kerr, 2013). Production is an ongoing process which includes end-users input from the early stages, such as use of opinions, statistics and intentions of communities in planning the new product. Till this phase it is no different than writing a book or directing a movie. Nevertheless, it is unreal for authors of novels or films to create demonstration version of their work and share it with certain groups of fans to test it. Whereas, this co-testing procedure known as alpha- and beta-testing is a common practice used by gaming companies to obtain feedback concerning the current shape and design of their products. Gaudiosi (2014) in his interview with Chef Creative Officer of Activision Blizzard (one of the five biggest video game companies) was discussing the idea of co-creation in the current games production reality. Rob Pardo, the CFO with a 17 years of an experience, said “…one of my favorite aspects to game design is the beta process. This is where your game is truly tested by a mass audience for the first time. (…) I love the fast-paced aspect of beta iteration and being able to quickly tune and perfect the game. There isn’t another entertainment medium that enables creators to iterate and polish their final product like this.” However, the act of improvement of the product does not end right after it is released, as users are offered patches and expansions to already finished software – modding done by creators (Postigo, 2007).