Launch on a High Note: How Prefunding Strategies Affect Crowdfunding Outcomes

Recently, the phenomenon of crowdfunding has surfaced as an innovative way to raise capital for venture opportunities online. Using data from a unique crowdfunding platform, we examine whether opting for “prefunding”, or raising awareness prior to fund-raising, increases the likelihood of a campaign meeting its fund-raising goal. We also examine how prefunding activities influence fundraising dynamics to show that prefunding activities significantly increase the likelihood of a campaign meeting its fund-raising goal, and that the relationship between prefunding and project success is mediated by the number of backers and quality of backers. We take an in-depth look at projects that use prefunding and find that it is effective when entrepreneurs keep potential backers informed and ensure that they are engaged.