The Effect of COVID-19 on the Project Supply and Demand of Crowdfunding: Evidence from Kickstarter

With small and mid-sized enterprises (SMEs) and start-ups already facing a significant financing gap in normal circumstances, their financial situation has worsened considerably during the COVID-19 pandemic. We argue that crowdfunding may offer excellent financing opportunities for SMEs to stay solvent. We collect the campaign data from a popular reward-based platform, Kickstarter, and study the effect of COVID-19 on project supply and funders’ demand. On the demand side, we find that COVID-19 increased the number of funders, funders’ contribution sizes, and funders’ total investment amount. The reason is that the epidemic strengthened funders’ altruistic motivation—a desire to help entrepreneurs in need to bring their projects to fruition. Our analysis suggests that both first-time and repeated funders prioritized projects from areas with a severe COVID-19 outbreak. Project categories that rely on in-person attendance attracted fewer funders than other categories. On the supply side, the number of new projects launched significantly reduced. In practice, we encourage financially constrained SMEs to consider crowdfunding as a vital financing alternative. Regarding the crisis relief efforts, we recommend that entrepreneurs design campaigns that appeal to funders’ altruistic motives and that platform managers focus on boosting creators’ confidence and assisting the industries that are most reliant upon in-person engagement.