Crowdfunding models: Keep‐It‐All vs. All‐Or‐Nothing

Abstract

Reward-based crowdfunding campaigns are commonly offered in one of two models via fundraising goals set by an entrepreneur:"Keep-It-All" (KIA), where the entrepreneur keeps the entire amount raised regardless of achieving the goal, and "All-Or-Nothing" (AON), where the entrepreneur keeps nothing unless the goal is achieved.We hypothesize that AON forces the entrepreneur to bear greater risk and encourages crowdfunders to pledge more capital enabling entrepreneurs to set larger goals. We further hypothesize that AON is a costly signal of commitment for entrepreneurs yielding a separate equilibrium with higher quality and more innovative projects with greater success rates. Empirical tests support both hypotheses.

Case in disruption: LexShares and the litigation finance sector

“…Because of its novelty, the exact nature of the LexShares business model is difficult to categorize. While it clearly fits into Lambert and Schwienbacher's () definition of crowdfunding, for investors the binary nature of its investments places it in Cumming et al's () “Keep‐It‐All” category. Although it parallels other internet‐based crowdfunding platforms, such as Kickstarter, it differentiates itself through its rigorous selection process.…”

“…Cumming, Leboeuf, and Schwienbacher () further break down reward‐based crowdfunding into two subcategories. The first is a “Keep‐It‐All” model that “involves the entrepreneurial firm setting a fundraising goal and keeping the entire amount raised, regardless of whether or not they meet their goal, thereby allocating the risk to the crowd when an underfunded project goes ahead” (Cumming et al, , p. 2).…”

“…Cumming, Leboeuf, and Schwienbacher () further break down reward‐based crowdfunding into two subcategories. The first is a “Keep‐It‐All” model that “involves the entrepreneurial firm setting a fundraising goal and keeping the entire amount raised, regardless of whether or not they meet their goal, thereby allocating the risk to the crowd when an underfunded project goes ahead” (Cumming et al, , p. 2). The second is an “All‐or‐Nothing” model that “involves the entrepreneurial firm setting a fundraising goal and not keeping anything unless the goal is achieved, thereby shifting the risk to the entrepreneur” (Cumming et al, , p. 2).…”

An Analysis on Charitable Crowdfunding in an Authoritarian Regime

“…The factors associated with successful fundraising draw attention from both academia and industry. The most commonly used campaign project performance metrics include the project's goal, subject, geographical location, campaign duration, number of backers, amount funded (Fedor, ), and funding model (Cumming, Leboeuf, & Schwienbacher, ). Detailed factors affecting the probability of reaching the funding target include the purpose of the fundraising (Belleflamme et al, ), modes of communication (Beier & Wagner, ), frequency of information update [ibid], and the social capital of capital seekers (Giudici, Guerini, & Rossi Lamastra, ), as well as funding amount and duration.…”

Crowdfunding and Innovation

“…Although some are generalists, others are specialized in specific project categories. Some operate under the all‐or‐nothing funding model, whereby a funding threshold must first be met, whereas others under the keep‐it‐all funding model allowing all funding to be kept; others again give entrepreneurs the possibility to choose between the two (Cumming et al ., ). More recently, some platforms now offer the possibility to choose among different crowdfunding types.…”