Economists name crowdfunding model that suits startups best

Crowdfunding campaigns come in a range of varieties, but there are two main models that are commonly used.

  1. With the Keep-It-All scheme, the startup sets a fundraising goal and keeps the entire amount raised, regardless of whether or not they meet their goal.
  2. The All-Or-Nothing model implies that the entrepreneur receives no funds, unless the goal is achieved.

Research on this subject shows that overall, the All-Or-Nothing campaigns are more successful in achieving their fundraising goals. Economists say that the main reason behind this fact is that in this model the entrepreneur is more encouraged. There are more risks involved, but the potential return is also high.

In contrast, Keep-It-All campaigns are said to be generally less successful. This model presents less risk and less return for the entrepreneur, and is not as motivating as All-Or-Nothing.

There is also another clear distinction between the nature of these two schemes. Business analysts claim that small and scalable projects are more likely to be funded through the Keep-It-All model, while large non-scalable projects tend to use the All-Or-Nothing scheme.

For startups that most often develop in an either-or situation, choosing the right crowdfunding model can be a vital decision.

Sources: Crowdfunding models, by Douglas J. Cumming (Florida Atlantic University), Gael Leboeuf (Université Lumière Lyon 2), Armin Schwienbacher (SKEMA Business School).