Jumping the Fence: How Consumer Sentiment on Social Media Changes after Crowdfunding

Aim/Research Questions Crowdfunding is an alternative financing model, which has allowed thousands of start-ups and entrepreneurs to fund their ventures, without relying on traditional sources such as banks or venture capital... [ view full abstract ]

Aim/Research Questions

Crowdfunding is an alternative financing model, which has allowed thousands of start-ups and entrepreneurs to fund their ventures, without relying on traditional sources such as banks or venture capital funds. Instead, various types of projects are now raising money from the general public or ‘crowd’ (Belleflamme et al., 2014). Crowdfunding has grown quite significantly in recent years. Originally used to fund creative projects or charitable causes, crowdfunding is now being used to fund companies in the early stage of their life cycle. This type of crowdfunding is known as equity crowdfunding, and it is reducing the funding gap in the early stages of new ventures (Röthler and Wenzlaff, 2011). Much of the existing literature surrounding equity crowdfunding is legal analysis addressing regulations and restrictions (Moritz and Block, 2016). This study looks to add to the existing empirical research (e.g. Agrawal et al., 2015, Mollick, 2014), focusing on the complex nature of the investor-entrepreneur relationship. This study uses sentiment analysis techniques to examine the feelings and emotions of the crowd, and explore the impact a crowdfunding campaign has on public and company sentiment. This study has implications for how start-ups wishing to maximise the reputation-building potential of crowdfunding.

The driving motivation for fundraisers to participate in crowdfunding is the ability to attract financial support. However, this study looks to investigate another reason why fundraisers look to the crowd for financing, as opposed to traditional sources. Identified in a number of studies (Belleflamme et al., 2013, Gerber et al., 2012), fundraisers are also motivated by the marketing aspect of crowdfunding, and its ability to raise awareness of their work and promote their image. One of the key strengths of crowdfunding, is its power to leverage social media to build widespread support and relationships. If used in the right way, social media can help fundraisers to raise awareness of their campaign, engage with potential investors, and can ultimately have a positive effect on the overall funding of a campaign. Thus, we use social media to investigate how public sentiment around a company or product is impacted by an equity crowdfunding campaign. Our sentiment analysis will analyse to underlying tone of the textual comments posted on the company’s Facebook page.

This study first looks at the concept of image from both marketing literature, and organisational literature. We see that marketing literature takes a very external approach to image, placing the consumers at the centre of the definitions. For example Dowling (2004) view corporate image as “a person’s belief about an organisation”. In comparison, organisational literature is much more internally focused. Dutton et al. (1994) defines it as “construed external image”, the way members of the organisation believe others view their organisation.

In relation to crowdfunding, image is an important concept, as how a campaign is viewed by the crowd is linked to its success. From previous research we see that as individuals from the crowd become backers, they feel like they become part of the company (Gleasure and Feller, 2016). As backers move from consumers to stakeholders, they begin to move from external to internal entities, and therefore view the image of the company differently. This move from consumer to stakeholder is particularly relevant with equity crowdfunding, where backers receive a piece of the company, bringing into question whether consumer sentiment towards the company changes after fundraising, as they become stakeholders.

To examine the impact a crowdfunding campaign has on an equity crowdfunding campaign, we will use sentiment analysis techniques. Sentiment analysis has been used before to analyse crowdfunding, and whether it can predict success or failure of a campaign (Courtney et al., 2017, Greenberg et al., 2013, Wang et al., 2017). Unlike these studies that look at the impact image has on a crowdfunding campaign, we are exploring the influence a crowdfunding campaign has on the company’s image.

Building on, we develop 4 hypotheses to be tested.Our first hypothesis suggests that, as investors move from external to internal stakeholders, the sentiment of social media comments after a successful crowdfunding campaign will change (H1). Next, we consider the extent of the transformation of external consumers to internal stakeholders. Specifically, we explore if there is a difference between the sentiments of social media comments made by members of the public and those made by the start-up themselves. Organisations typically rely on social media sites, such as Facebook, for sharing content and promoting their crowdfunding campaigns. However, they also use these platforms to manage their external image more broadly, meaning they are under continuous pressure to ensure they convey consumer satisfaction (H2). Thirdly, we examine the intensity of discussion on a social media page, and its effect on the sentiment score, hypothesising that added hype and excitement of more frequent interactions will lead to an increase in engagement and therefore more positive sentiment (H3). Finally, we focus on the balance of participation between members of the public and the organisation themselves, arguing that a well run crowdfunding campaigns produce positive hype and word of mouth marketing, based on a foundation of investor-led discussion (H4).

H1: The sentiment of social media comments will become more positive after a successful crowdfunding campaign.

H2: The sentiment of social media comments made by a start-up will be more positive than those made by members of the public.

H3: The sentiment of social media comments will be more positive according to the frequency of comments posted.

H4: The sentiment of social media comments will be more negative according to the proportion of comments made by members of the public.

Approach

Data will be gathered from Crowdcube, an established equity crowdfunding platform in the UK. Since its inception in 2011, Crowdcube has helped to raise over £400 million to fund more than 600 campaigns (Crowdcube, 2017). Data from a sample of successful crowdfunding campaigns will be gathered, including Name, Target Amount, Amount Raised, etc. Social media data was gathered from all campaigns that had a Facebook page. All this data is public, and made available from Facebook via their application programming interface (API). The sentiment of the social media data was analysed using the AFINN sentiment lexicon. This lexicon contains a list of 2,477 manually labelled English words and phrases with integer values ranging from -5 (negative) to 5 (positive).

Findings

This study has explored changes in social media sentiment before and after equity crowdfunding campaigns. An organisational image perspective suggested that, not only should the act of crowdfunding impact on social media sentiment, so should (i) whether comments are made by the start-up or members of the public (ii) the level of overall comment frequency by the start-up and its investors on social media (iii) the overall proportion of comments made by members of the public as compared to the start-up itself.

The data supported two hypotheses, confirming that sentiment was more positive for comments made by the start-up and comments made on Facebook pages with more participation from the public. No support was found for a direct effect from the overall level of comment frequency or, perhaps most interestingly, whether comments were made before or after crowdfunding.

Practical Implications

This study has two major implications for practice, specifically for start-ups that are looking to use equity crowdfunding as a way of raising capital for their business. First, we reiterate the importance of maintaining a strong presence in social media discussions for any start-up running an equity crowdfunding campaign. Our findings suggest the image-related benefits are contingent on not just attracting substantial discussion, but also remaining centrally involved over time. Second, start-ups need to understand the implications of transforming external consumers to internal stakeholders. This fundamentally changes their relationship with organisational image by adding an additional layer, i.e. investors may now need to consider the impressions being formed by other external parties, by them and by the organisation more broadly.

Originality

While there have been studies that discuss how crowdfunding is a tool for marketing a project (Aitamurto, 2015, Brown et al., 2017), there is a lack of evidence that shows the actual impact a crowdfunding campaign can have on a company’s image. We see that one of the goals of a fundraiser is to raise awareness, while one of the goals of the funder is to be part of something. However, there has been no convincing argument to show that these crowdfunding campaigns are succeeding in establishing this energetic crowd.