When Small Predicts Large: The Effect of Initial Small Contributions on Subsequent Contributions in a Crowdfunding Project

Crowdfunding is becoming an increasingly popular means for entrepreneurs to raise capital through online platforms. When deciding whether to support a project, a potential backer evaluates the project not only based on information provided by the entrepreneur, but also based on the amount already invested in the project. Some research has suggested that larger contributions are likely to create contribution momentum and elicit backers’ herding behavior (Agrawal, Catalini, and Goldfarb 2015). Accordingly, it is common for entrepreneurs to ask their friends or families to “seed” investments in the early stages of a crowdfunding project. But does this “friendship-giving” really benefit crowdfunding projects? We propose that the opposite is true, such that “friendship-giving” may impede rather than benefit a crowdfunding project. Our proposition relies on potential backers’ awareness of the amounts invested during the early stages of the project and on the “friendship-giving” lay belief, according to which people believe that entrepreneurs’ friends contribute more to their crowdfunding projects than strangers do. This lay belief was supported in a pilot study (n=99; 4.69 vs. 2.94, respectively; t(98)=4.87, p