Who Makes Better Funding Choices: Crowds or Experts?

Crowdfunded projects perform as well as expert-funded ones, study finds, but the 'art' of raising money from crowds may be slightly different

The crowd tended to like projects that offered several levels of rewards and provided more updates. The crowd tended to like projects that offered several levels of rewards and provided more updates.

It used to be that a few experts would decide which innovations were worthy of funding. No more.

Today, crowds of interested stakeholders are making decisions about everything from product design to entrepreneurship that used to be the exclusive province of venture capitalists and grant-making entities.

However, not much is known about how crowds and experts differ in their ability to judge projects seeking funds, or whether crowd decision making is based on any rational criteria.

Now, two Ivy League researchers have compared crowd and expert evaluation of proposed theater projects, a category where they thought preferences might differ greatly.

The researchers drew on a panel of national experts who had judged theater applications for institutions such as the National Endowment for the Arts and on comprehensive data from Kickstarter, the largest crowdfunding site, to examine funding decisions for a category that relied on taste and judgment, rather than prediction.

They found considerable agreement between the funding decisions of crowds and experts.

Crowdfunded projects received consistently higher scores from experts, were likelier to have been rated best among those under consideration and were much more likely to have received funding from the experts.

In instances when crowds and experts disagreed, the crowd was far likelier to fund a project that an expert did not like.

The researchers found that the crowd tended to like projects that offered several levels of rewards and provided more updates. In contrast, projects ranked highly by the experts but not funded by crowds had fewer reward tiers, fewer pictures and fewer videos.

From this, the researchers perceived an “art” to raising money from crowds that may be different from that of raising money from experts.

Because most of the disagreements between the crowd and experts related to projects funded by the crowd, the researchers were able to compare long-term outcomes of projects liked by both and those that only the crowd liked.

They found that both were equally likely to have delivered on budget and result in organizations that continued to operate. Moreover, they found strong qualitative evidence that many of the theater pieces had commercial success and received positive critical notices in national media outlets.

They said their findings suggested that crowdfunding could be a viable source of entrepreneurial financing for both cultural projects and traditional startups.

The crowd, they said, had the potential to increase innovation, lower barriers to entry and democratize the entrepreneurial process by allowing more ideas to compete in the marketplace.

Crowdfunding could be a boon for individuals who might lack experience or knowledge of grant writing to apply, say, to the NEA, or have the wrong skillset to apply or be proposing projects that fall outside NEA guidelines.

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Check out RCS, Schorsch Jump Into Crowdfunding on ThinkAdvisor.

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