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How Big Data is Playing a Role in the Crowdfunding Industry

Crowdfunding is growing in popularity on many different fronts. Not only are individuals launching campaigns to raise money for personal needs, but many businesses are also using it to fund projects or contribute to particular causes. As businesses have begun using crowdfunding, we’ve seen how big data is influencing these campaigns.

The Growth of Crowdfunding

There was a time when crowdfunding was only used for small needs and very personal goals. For example, an individual may have started a fund to raise money for a friend’s medical expenses. Or, maybe a young entrepreneur would launch a campaign to raise a few hundred dollars for a new business idea.

While crowdfunding is still widely used for needs just like these, early success has ultimately led to even bigger causes. It’s now common for charities and nonprofits to fundraise through crowdfunding platforms. And as businesses have gotten involved with crowdfunding, this has naturally led to growth in other areas. In particular, we’re beginning to see how data and analytics are transforming the crowdfunding industry from the inside out.

3 Ways Big Data and Crowdfunding are Intertwined

Wherever there’s big money, you can expect big data to follow. And with tens of billions of dollars being contributed each year to crowdfunding campaigns, you better believe data scientists and software developers are flocking to this industry. Here are a handful of exciting data-related things currently happening with crowdfunding.

  1. Campaign Success Predictions

If you’ve watched any of the recent state primaries or caucuses on the news, you’re aware of just how quickly outcome predictions can be made. Even with less than one percent of votes in, some news stations can confidently call a race. They’re able to do this because of rules, algorithms, and knowledge of past trends.

Well, now that crowdfunding has been around for some time, data scientists are able to do the same with fundraising campaigns. Researchers from the School of Computer and Communication Sciences Ecole Polytechnique Federale de Lausanne (EPFL) have developed a proprietary method for determining whether or not crowdfunding campaigns will be successful within four hours of launch. So far, predictions come with a 76 percent accuracy rate.

By understanding whether or not a campaign will be successful so early, campaign managers can make necessary tweaks and adjustments to improve their odds of getting fully funded.

  1. Social Media’s Role

As you may guess, social media plays a vital role in the success of individual crowdfunding campaigns. Researchers from the University of Illinois verified this assumption by identifying a tangible link between social media activity and funding success. In particular, they found that Twitter and Facebook are the most important platforms.

  1. Crowdfunding Dynamics

For those looking to understand the underlying dynamics of success and failure among crowdfunded campaigns, the best resource is Ethan Mollick’s The Dynamics of Crowdfunding: An Exploratory Study.

In this study, Mollick analyzed 48,500 projects and reached a number of interesting conclusions. First off, he found that social networking and geography play a major role in determining success. Secondly, he found that while most campaigns deliver the promised products/rewards, roughly 75 percent are delayed. Furthermore, the chances of products/rewards being delayed increase as funding increases.

Putting it All Together

As you can see, big data and analytics are shedding some light on crowdfunding. In many cases, these findings are merely verifying what we already know. In other cases, these findings are revealing new information that’s able to help professional crowdfunders, businesses, nonprofits, and even individuals achieve more success.

It will be interesting to watch how the intermingling of big data and crowdfunding affects the industry moving forward.

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