Listening to investors at the start of a new business can make the difference between success and failure, according to new research from the UCL School of Management that highlights the boost that crowdfunding offers.
Former PhD student Philipp Cornelius, who is now an Assistant Professor at Rotterdam School of Management, Erasmus University and Associate Professor Bilal Gokpinar from the UCL School of Management found that entrepreneurs that used online crowdfunding to raise capital benefitted from the insight of their customer investors.
“Entrepreneurs who use popular crowdfunding platforms to raise all or parts of their financing usually get investments from customer investors, who receive products instead of shares in return for their investment. The feedback of these investors on the products has a positive influence on product development for start-ups” says Cornelius.
“It is important to understand that some customers may actually know more about a certain product than the entrepreneur, especially if they own multiple businesses. However, in order for this to really work, entrepreneurs need to adapt their projects depending on the customer feedback,”says Bilal.
The researchers advise budding entrepreneurs to consider crowdfunding websites as a way to fund their new business, rather than just relying on traditional investors or venture capitalists.
These findings come from over 20,000 businesses taken from the crowdfunding website Kickstarter, covering 13 business categories across 138 countries. The research is due to be published in Management Science.