Stanford Study Reveals How to Win at CrowdFunding

By Adi Gaskell , CrowdFundBeat Guest Contributor Editor,

As crowdfunding has become more mainstream, there has been a growing interest in it from the academic world.  Indeed, UC Berkeley recently announced a new hub for crowdfunding research.

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We’ve had a paper from UCL/Stony Brook that revealed the importance of early success in your crowdfunding.  A Georgia Tech study focused instead on the language you should use in your pitch, and revealed that having a community before you crowdfund is great, as is regular engagement with that community throughout your campaign.

Another study has looked at the kind of people that support projects, be they occasional investors or professionals.  It outlined a number of qualities that frequent backers look for in a project.

Applying data science to crowdfunding

A recent paper published via Stanford suggests that data science can be used to apply some of the best practice advise outlined in the previous papers on a rigorous basis.

The researchers looked at millions of donations over a 14 year period and believe that their findings could increase repeat donations considerably, with even a 10 percent boost yielding a gain of 60 percent in funds raised.

“Most people give once and never return,” the authors say. “When you increase the number of repeat givers, you get a multiplier effect. The people who become repeat givers tend to give more with successive donations, and they also recruit others to give.”

Securing repeat backers

The petri dish for this particular study was the DonorsChoose.org platform, which helps educators raise funds for class projects.

Over the 14 year study period, some 638,000 projects were posted onto the site, with a total of $282 million raised for them by 1.5 million donors (who made 3.9 million donations between them).

Of the donors, a whopping 75 percent were one time backers, with just 1 percent of donors giving more than five times.  The figures chime with those from non-profits and other organizations that rely on donor support.

Heuristics for success

A number of key findings emerged that the authors believe are key to success:

  • Was the donor local to the project?
  • Was the donors first project successful in terms of funds raised?
  • Was the donor thanked by the teacher and kept up to date with the project?

As UCL study from earlier suggested, success tends to beget success, and this was found to be true for repeat donors.  It suggests that a smaller project (which is more likely to succeed) might be the best way of venturing into crowdfunding.

Interestingly, whilst most teachers thanked backers when the project was funded, the highest retention was achieved when this acknowledgment arrived within hours of the funds being given.

The authors used these findings to build a model that they believe can predict which donors are likely to return for more.  They believe that their model can help fundraisers focus on building relationships with those who are more likely to return for more.

“All fundraisers have to focus their efforts,” they say. “What we are doing with this study is figuring out what data you should collect and how to start using that data to identify your most likely return givers. This is where your scarce campaign dollars are best spent.”

This is crucial because as donors become more familiar with the process, and the likelihood of success, they tend to donate larger sums.  The authors suggest therefore, that an increase in retention rate from 26 percent to 36 percent could yield a 60 percent increase in money raised, which is a good return in anyones book.

This article also was publish at:

http://adigaskell.org/2015/06/02/stanford-study-reveals-how-to-win-at-crowdfunding/

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