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Article

The Drivers of Successful Crowdfunding Projects in Africa during the COVID-19 Pandemic

by
Lenny Phulong Mamaro
and
Athenia Bongani Sibindi
*
Department of Finance Risk Management and Banking, University of South Africa (UNISA), P.O. Box 392, Pretoria 0003, South Africa
*
Author to whom correspondence should be addressed.
J. Risk Financial Manag. 2023, 16(7), 332; https://doi.org/10.3390/jrfm16070332
Submission received: 5 June 2023 / Revised: 5 July 2023 / Accepted: 7 July 2023 / Published: 13 July 2023
(This article belongs to the Special Issue FinTech, Blockchain and Cryptocurrencies)
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Abstract

:
The challenge of accessing finance by entrepreneurs from traditional financial sources is pervasive. The COVID-19 pandemic further exacerbated the problem of limited access to finance from banks. Against this backdrop, the objective of the study was to determine the factors driving crowdfunding success during the COVID-19 pandemic in Africa. The ordinary least squares (OLS) and probit regression models were estimated to analyse 215 crowdfunding projects in Africa. The results of the study documented that targeted amounts (TA), comments (CMM), and the COVID-19 pandemic were negative and significant drivers of crowdfunding success. Furthermore, duration (DRN) was negative and significantly affected crowdfunding success. Conversely, images (IM), videos (VD), backers (BCK), and updates (UPD) were positive and significantly affected crowdfunding success. The study contributes to the body of knowledge by investigating the drivers of crowdfunding success during the COVID-19 pandemic period, which hitherto had not been extensively researched.
Keywords:
crowdfunding; COVID-19 pandemic; financing; access to finance
JEL Classification:
C01; F65; L21; L26

1. Introduction

It is difficult to realise a creative dream without any financial support or access to finance. To overcome this problem, an alternative form of financing, namely crowdfunding, has emerged. The COVID-19 pandemic has triggered several reactionary measures for the financing on entrepreneurship endeavours worldwide (Leong et al. 2022). An increase in the restrictions to accessing finance due to the unavailability of finance is a growing concern for new SMEs and entrepreneurs after the global financial crisis. The current health crisis, namely COVID-19, has exacerbated access to finance for entrepreneurs. The work of social entrepreneurs is vital during the COVID-19 pandemic, as they can reach those who are unaccountable to the market and governments (World Economic Forum 2020). Crowdfunding refers to financial contributions made by a group of people, known as backers, to a crowdfunding platform using the Internet without a standardised financial intermediary (Presenza et al. 2019). The digital evolution and innovation in crowdfunding have emerged as an alternative access to finance for entrepreneurs, which has dramatically grown in recent times (Shneor and Vik 2020). Invariably, the studies that have examined the factors influencing crowdfunding campaigns with a focus on equity-based and reward-based crowdfunding campaigns have mainly focused on developed countries (Petitjean 2018; Sajjan and Venkatesha 2020; Liu et al. 2022; Smirnova et al. 2019). Hence, the current study contributes to the gap in knowledge in this regard by focusing on Africa.
The World Bank estimates the growth of crowdfunding volume to reach USD 300 by the year 2025 (Short et al. 2017). In sub-Saharan Africa, the crowdfunding market volume is estimated to be USD 2.5 billion by the year 2025 (World Bank 2013). Therefore, the number of crowdfunding platforms on the African continent has increased from 100 to 1660 in the year 2020 (Adhikary et al. 2018). Crowdfunding has increased in growth and popularity and has contributed to the disintermediation of finance. This has contributed to accessing finance. Crowdfunding is an alternative source of finance that could provide a supportable solution to addressing the lack of access to finance that has been experienced in recent times (Lurchenko et al. 2022). Therefore, investors or backers make decisions based on the information provided on the crowdfunding platform and the language of expectation (Eldridge et al. 2021).
The COVID-19 pandemic influenced the emergence of an alternative solution to gaining access to finance, namely crowdfunding. This involves an internet-based platform and many people who are willing to contribute to raise capital for a project openly and transparently. The role of entrepreneurs and SMEs in fostering economic growth in economies through job creation is well documented in several studies (Nyberg and Åberg 2017). An additional number of studies have advanced ‘access to finance from traditional sources of finance as the major impediment to the development of this sector. With the rapid advancement in technology, investors have also allocated more risk capital to digital equity crowdfunding sites (Brown et al. 2018). Because of the integration and development of the Internet and financial technology, Internet finance has gradually become an important focus for promoting the development of inclusive finance and venture capital financing (Leong et al. 2022).
The sustainability of entrepreneurs is considered to be a major engine of economic growth and development, mainly because it creates jobs and innovation (Mamaro and Sibindi 2022). This has directed African governments to encourage the establishment of small and medium-sized enterprises across the continent. Nowadays, small- and medium-sized enterprises are the main job creation drivers on the continent (Adjakou 2021). Governments around the world pay special attention to removing barriers to entrepreneurial initiatives to support development through various policies, especially corporate finance (Ngo and Nguyen 2022). One consideration to address this is through crowdfunding, which has the potential to advance poverty alleviation in Africa and on many other continents in a variety of ways, from efficiently rallying and channelling savings to growing businesses in key industrial sectors and, thereby, reducing the vulnerability of some of the poorest people by bringing people together, namely, those with funding needs and those with savings to invest or donate (Hiller 2017).
Despite the growth of crowdfunding in Africa, the research on this trend that has been conducted on the continent is still in its infancy. Several studies conducted on the signal factors that affect the success of crowdfunding projects on the African continent have not been investigated further (for review, see Wachira 2021; Hiller 2017; Berndt 2016; Gajda and Walton 2013). In developed countries, studies mainly focus on identifying factors of success; however, data collected from a single crowdfunding platform and country, such as Kickstarter and Indiegogo, utilises variables such as project description, backers’ geographical location, social network, information disclosure, and e-WOM (Kuppuswamy and Bayus 2018; Bi et al. 2017; Presenza et al. 2019). The few empirical studies conducted on the drivers of crowdfunding success during the COVID-19 pandemic originate from developed countries (see, for instance, Wang et al. 2019; Zhao et al. 2020; Brown et al. 2018; Zribi 2022). Hence, the current study fills in the gap in the developing countries in Africa owing to differences in cultures, social interaction, political and legal requirements, and business activity. To plug the identified research gap, the present study employed a cross-country dataset consisting of African crowdfunding projects during the COVID-19 pandemic.
Despite the potential on crowdfunding on the African continent to finance entrepreneurs and SMEs on the continent, these studies conducted in Africa were limited to descriptive and conceptual studies (Berndt 2016; Olafusi et al. 2022). The crowdfunding concept has received minimal research in Africa, with the existing research focusing on the donation-based model. However, the drivers of successful performance during the COVID-19 pandemic remain unanswered, and, more importantly, existing studies generally use crowdfunding projects from a single platform or model these dynamic influences of different signals on crowdfunding success. As a result, the drivers of crowdfunding campaign success in Africa remain a knowledge gap to be resolved.
To address this research gap, the aim of the study was stated as follows:
  • To determine the factors influencing the crowdfunding performance in Africa during the COVID-19 pandemic.
The study identifies drivers of crowdfunding success during the COVID-19 pandemic and addresses the relationship between these variables in order to explore the related managerial and practical implications. In addition, it aims to contribute to the advancement of signalling theory by identifying factors that signal crowdfunding success on the African continent. The study adopted a quantitative research approach and estimated a probit regression model in line with past studies that applied a similar approach. The current study utilised a sample of 215 crowdfunding projects in Africa from Kickstarter, Indiegogo, and Fundraised. The results of the study document that the presence of images and videos on the crowdfunding campaign, the frequency of updates on the campaign, as well as the number of backers, positively impacted crowdfunding success. While the targeted amount to be raised, the presence of comments on the campaign, the duration of the campaign, and the COVID-19 pandemic were found to be negative and significant drivers of crowdfunding success.
The rest of the paper is organised as follows: Section 2 focuses on the literature review and hypothesis development, followed by the research method in Section 3. The research discussion and implications of the study are presented in Section 4, followed by the conclusion and the direction of future research in Section 5.

2. Literature Review and Hypotheses Development

Information asymmetry leads to inefficient communication and, as a result, market failure. In the crowdfunding market, a high level of uncertainty is created when financing a project where other stakeholders of crowdfunding namely, backers and the entrepreneur (creator), cannot not access the full information concerning the project. The signalling theory was first investigated in the context of job and product markets. This theory has been advanced by Spence (1978), which provides a signal balance that distinguishes which signal information concerns the quality of the capital market. The theory is supported by (Mavlanova et al. 2012; Akintoye and Niyonzima 2018). The signalling theory (Spence 1978) suggests that the information actor could convey observable signals and disclose unobservable information to the less informed actor to aid in effective communication in the case of information asymmetry. Following that, Courtney et al. (2017) propose that signaller qualities and signaller behaviours can be two useful dimensions on which informed fundraisers might work to convey unambiguous signals to less informed contributors in the context of online crowdfunding. Following this reasoning, this study investigates the solutions to the information asymmetry problem in an online donation-based crowdfunding platform from the perspectives of signaller qualities and behaviours. Its goal is to contribute to fundraising success. Considering signal attributes, entrepreneurs’ marketing strategies, such as updates, videos, comments, and images included on the campaign page, can be a potential remedy to alleviate information asymmetry. Previous studies provided evidence that comments, updates, images, and video are important dimensions that lead to campaign success (see, for instance, de Larrea et al. 2019; Jung et al. 2022; Pinkow and Emmerich 2021).
Based on social theory, backers and the public, in general, accept recommendations made by experienced fundraisers (Tajvarpour and Pujari 2022). Furthermore, the usage of private and public networks signals digital reputation, and the collaboration between backers and entrepreneurs results in successful crowdfunding (Miglo and Miglo 2019). Social network usage reflects the project’s trustworthiness, professionalism, and persuasiveness, enhances trust, and increases public participation (Saluzzo and Alegre 2021). Consequently, crowdfunding is characterized by many backers who fail to make decisions on whether the project is worth their contribution, resulting in high information costs (Junge et al. 2022). The crowdfunding platform and the use of the Internet have significantly reduced transaction costs, the cost of fraud, and the impact of information asymmetry (Thies et al. 2019).
According to Weiner (1985), people search for the causes of successful and unsuccessful events or circumstances based on the characteristics of locus (internal vs. external), stability (stable vs. unstable), and controllability (controllable vs. uncontrolled). In the context of entrepreneurship, blame external attributions that are beyond the individual, such as inflation and financial crises, whereas internal attributions are controllable factors such as management style and leadership (Lee and Chiravuri 2019). Hence, the updates, comments, images, and videos are considered important attributes that motivate the backers. The creative entrepreneur communicates directly with the crowdfunding markets, which reduces the involvement of intermediaries and establishes an emotional bond between the relevant stakeholders of the crowdfunding campaign. Attribution theory posits that internal factors lead to success and external factors lead to failure (Kelley and Michela 1980).
Goal-setting theory argues that the effectiveness of the targeted amount and deadlines are related to crowdfunding success (Lunenburg 2011). The theory posits that it is very important for an entrepreneur or project creator to provide a reasonable targeted amount that attracts backers to contribute. A targeted amount or fundraising goal needs to be realistic and achievable. A crowdfunding project that sets a lower targeted amount seems to be more successful than projects with a larger and more unrealistic targeted amount (Mollick 2014). The use of goal-setting theory may assist entrepreneurs in maintaining focus and dedication for their project, which ultimately leads to a successful crowdfunding campaign. Therefore, the presentation of video and images is what motivates backers to support the crowdfunding campaign.
Figure 1 below presents the relationship between independent variables and the theories applicable to the study.
There are two types of crowdfunding, firstly, one that includes an investment model, namely lending and equity-based crowdfunding, and secondly, a non-investment model, which includes the reward and donation-based models. These are characterised in Table 1.

Development of the Research Hypotheses

The hypothesis was developed based on the signal theory and its relationship to the successful performance of crowdfunding.
On the other hand, if the funding target is not reached, it would mean that the crowdfunding has failed, and the funds will then be returned to the investors. Hence, the targeted amount negatively affects crowdfunding success (Mollick 2014). To achieve the targeted amount, the project creator needs to seek a reasonable and reliable amount to ensure the success of the project campaign (Liu et al. 2021). Several studies confirmed that crowdfunding projects with higher goal amounts are likely to be unsuccessful (Ahlers et al. 2015; Cha 2017). Therefore, the lower the amount requested, the higher the probability of crowdfunding success, which is in line with goal-setting theory.
The presentation of comments on the crowdfunding campaign page, made by potential backers or the crowd, and where questions can be asked or clarified or information concerning the crowdfunding campaign can be sought from a project creator, are encouraged, as this provides the opportunity for more information to overcome the misunderstanding (Wang et al. 2018). The comments made on the crowdfunding campaign platform can contribute to eliminating risks concerning information asymmetry between backers and the SME. Hence, constant communication using comments and updates on the projects may directly influence the backer’s contribution to the crowdfunding project and lead to successful performance (Kunz et al. 2017). This signals trustworthiness and builds confidence among the crowd or backers concerning the crowdfunding campaign, which leads to success. The project creators need to post regular updates on the crowdfunding platform and respond when the crowd seeks clarity or more information (Kunz et al. 2017). Gefen and Straub (2004) showed that the exchange of communication among the crowdfunding stakeholders through constant updates reduces perceived risk, which increases excitement among backers to support the crowdfunding project campaign. Consequently, constant updates can contribute to overcoming the information asymmetry among the backers (Tian et al. 2018). Furthermore, the updates and comments are considered important drivers of a successful campaign. During the funding period, entrepreneurs more frequently post updates and comments addressing the problems associated with information asymmetry (Ullah and Zhou 2020). The targeted amount does not affect the crowdfunding success, which is in line with the goal-setting theory (Fourkan 2021; Wachira 2021; Li et al. 2022). However, it contradicts the findings by Barbi and Bigelli (2017); Jung et al. (2022); Xu (2018). Consequently, the findings remain inconclusive despite the theories related to project updates and comments.
The availability of images and videos on the crowdfunding campaign site signals the quality of the crowdfunding project, which may lead to successful performance (Jiang et al. 2005). The project creator or entrepreneur presents a video and image that provide information about the crowdfunding campaign. Additionally, the project creator provides detailed information, intending to attract the interest of backers in the crowdfunding campaign (Liang et al. 2019). Therefore, the objective of posting videos and images is to provide reassurance concerning the authenticity and trustworthiness of the crowdfunding campaign, thereby increasing the probability of success. Extant studies found evidence that the dynamic visual display and presentation of video or information is more effective than static visual display (Koch and Siering 2019; Jung et al. 2022). Therefore, the presence of videos and visuals represents credibility, trust, and preparedness and ultimately attracts backers contributions. This is in line with signal and information asymmetry theory and leads to a successful project campaign. Additionally, both images and video mitigate the information asymmetry problem (De Crescenzo et al. 2021).
The project duration refers to the time between launching the crowdfunding campaign and its end (Liu et al. 2022). It normally ranges from 1 to 40 days; crowdfunding campaigns that last longer than 40 days are not successful (Mollick 2014). Hence, a shorter duration sends a positive signal to backers and investors and increases backers’ certainty concerning the project campaign and trustworthiness, which ultimately increases success (Lukkarinen et al. 2016; Mollick 2014). To enhance backers’ confidence and reduce their valuation uncertainty of quality, many creators are willing to provide detailed product descriptions, although they often lack creditability for consumers. Crowdfunding backers tend to focus more on the fundraiser’s prior experience when making investment decisions (Reichenbach and Walther 2021; Jiang et al. 2022). The COVID-19 pandemic reduced access to finance, especially from traditional finance (Santos and Laureano 2022). The paper is built on the expectation that banks with sophisticated managers anticipate in advance the negative economic impact of COVID-19 and, as a result, decrease loan amounts prior to the crisis to better smooth loans intertemporally (Vismara 2022). Therefore, the COVID-19 pandemic decreases crowdfunding campaign success (Zribi 2022). However, in contrast, Ho, Chiu, Mansumitrchai, Yuan, Zhao, and Zou (Ho et al. 2021) documented that crowdfunding projects initiated during the COVID-19 pandemic were more successful than pre-COVID-19 crowdfunding projects. Consequently, this remains unanswered considering the fact that these studies were conducted in developed nations, namely the United States and Spain. The current study seeks to shed light on this phenomenon from the African continent’s point of view. The COVID-19 pandemic ushered in the growth of the crowdfunding market. As the world grapples with this pandemic, crowdfunding provides a dynamic opportunity to assess local relief needs and global public responses (Zribi 2022). The crowdfunding market in Europe has collected 1.02 billion euros, which represents 62% growth compared to the year 2019. Conversely, on the African continent, the COVID-19 pandemic has negatively affected financial markets through a loss of confidence and liquidity constraints (Zeidy 2020). Therefore, the COVID-19 pandemic increases the usage of crowdfunding, especially for non-profit organisations with a donation-based model (Santos and Laureano 2022). However, the COVID-19 pandemic signifies a negative impact on crowdfunding success. From the above, the following hypotheses are formulated:
Hypothesis 1.
The targeted amount contributes to the success of a crowdfunding project.
Hypothesis 2.
The number of backers of crowdfunding projects increases the probability of success.
Hypothesis 3.
The presence of comments on the crowdfunding campaign site increases the success.
Hypothesis 4.
The availability of images on the crowdfunding campaign site increases the probability of success.
Hypothesis 5.
The presence of video on the crowdfunding site increases the probability of success.
Hypothesis 6.
The longer the duration of the crowdfunding campaign, the lower the probability of success.
Hypothesis 7.
The COVID-19 pandemic negatively influences the probability of success.

3. Research Methodology

The population of the study consisted of crowdfunding projects on the African continent. Initially, the researchers manually collected data on 292 projects, of which erroneous records and duplicates accounted for 43 projects, 20 cancelled projects, and 14 suspended projects. These were removed from the sample.
The non-probability sampling method was applied in the study, specifically convenience sampling consisting of 215 crowdfunding projects in the year 2020 during the hard lockdown on the African continent. Secondary data were collected, consisting of crowdfunding projects from 36 African countries. Data on reward-based crowdfunding projects in Africa was collected from TheCrowdDataCenter database, which consists of the leading crowdfunding platforms, namely Kickstarter, IndieGoGo, and Fundraised.
The study applied two estimation methods as recommended by Koh et al. (2020); Yang and Koh (2022), namely, ordinary least squares (OLS) and probit models, both of which used success as a dependent variable measured by a binary of 1 if the project was successful and 0 if the project failed. The two estimation methods were carried out using binary (logistic) regression due to the coding of the dependent variable (value state), and in contrast to linear regression, (binary) logistic regression calculates the probability of an event (dependent variable) occurring. The level is not calculated using predicted readings. In this study, we applied two methods of estimation to calculate our equations, namely, the OLS and probit models. Table 2 describes the variables adopted and their measurements.
For the first equation, we used an ordinary least squares (OLS) estimation, where our dependent variable is the funding ratio. ε is the error term that follows an identical independent distribution and a normal distribution. Therefore, the OLS estimation model was adopted due to the nature of the dependent variable (Funding ratio).
The ordinary least squares (OLS) estimation is specified as follows in model 1:
O L S   F u n d   r a t i o   = β 0 + β 1 I M + β 2 C M M + β 3 V D + β 4 D R N + β 5 B C K + β 6 U P D + β 7 T A + β 8 C O V I D − 19 + ε  
For our second equation, we utilized probit model estimation. The reason for using the probit model is that our dependent variable is binary in nature with a 1, 0 outcome. It is estimated using the maximum likelihood estimation method (Wooldridge 2019), where the model takes the form as follows:
The probit regression was used to estimate model 2 and is expressed as follows:
P r o b i t   C r o w d f u n d i n g   s u c c e s s = β 0 + β 1 I M + β 2 C M M + β 3 V D + β 4 D R N + β 5 T A + β 6 U P D + β 7 B C K + β 8 C O V I D − 19 + ε

4. Empirical Results and Discussion of Findings

This section presents descriptive statistics and conducts correlation analysis and the regression analysis, respectively. Lastly, the empirical results are discussed in light of the research objective.
Figure 2 presents the trends in crowdfunding campaigns in African countries. South Africa leads the pack with 44 projects, followed by Egypt with 27 projects, Nigeria with 22 projects, Uganda with 22 projects, Kenya with 15 projects, and Ghana with 10 projects, respectively. Other countries account for less than 10 crowdfunding projects. These countries are as follows: Angola [AO], Central African Republic [CF], Cote d’Ivoire [CI], Cameroon [CM], Cape Verde [CV], Algeria [DZ], Egypt [EG], Ethiopia [ET], Ghana [GH], Heard and Mc Donald Islands [GM], Guinea [GN], Kenya [KE], Liberia [LR], Lesotho [LS], Libyan Arab Jamahiriya [LY], Morocco [MA], Madagascar [MG], Mali [ML], Mauritania [MR], Mauritius [MU], Malawi [MW], Mozambique [MZ], Namibia [NA], Nigeria [NG], Reunion [RE], Rwanda [RW], Senegal [SN], Somalia [SO], Swaziland [SZ], Togo [TG], Tunisia [TN], Tanzania, United Republic of [TZ], Uganda [UG], South Africa [ZA], Zambia [ZM], and Zimbabwe [ZW].
Figure 3 indicates the successful and unsuccessful crowdfunding projects on the African continent. The results implied that crowdfunding projects in Africa are characterised by a lower success rate.
There were 215 crowdfunding projects employed for the study, of which 33 were successful and 182 failed. The total pledged amount was USD 1,040,234 from 9336 backers. It is important to note that each number of backers does not represent a unique project because an individual contributes to several projects. These projects generated 1430 comments and 333 updates in total. The total targeted amount is USD 20,047,395, whereas the average number of days per crowdfunding campaign is 43 days. A detailed descriptive statistic for a project is presented in Table 3.
In Table 4, a descriptive and correlation analysis of the results is presented that includes the mean, standard deviation, and correlations between the variables. The correlation coefficients are between −0.02 and 0.60, which are within the threshold of 0.80 suggested by Wooldridge (2019). It can be concluded that the correlation among the variables is not great. Therefore, there are no multicollinearity problems between the variables. Both descriptive and correlation data for all variables are reported in the Table 3. Based on the correlation matrix, a strong correlation is shown among both independent variables with a threshold of less than 0.80 (Kline and Tamer 2020). Additionally, the variance inflation factor (VIF) of all independent variables is used to avoid the risk of multicollinearity using a benchmark of 10 (Franco et al. 2020; Curto and Pinto 2011). The VIF of all independent variables is as follows: Image (1.09), Comments (1.15), Video (1.44), Duration (1.33), Backers (2.03), Targeted amount (1.92), and COVID-19 pandemic (1.09).
The present section discusses the empirical results that aimed to respond to the research objective of the study, namely, investigate the factors driving crowdfunding success in Africa. The study conducted OLS and regression analysis to determine the factors driving crowdfunding success. Below, Table 5 presents the OLS regression analysis in model 1 and the probit regression analysis in model 2.
Table 5 above presents both OLS and probit results. The fitness of the models was validated by the R-squared and Durbin Watson tests of 52% and the pseudo-R-squared of 70%, and 2.02, respectively. The study further used t-statistics to test the level of significance for both models 1 and 2. Table 5 offers proof of the fitness of the model and, as a result, supports the dependence of the data on the model probit and OLS. Table 5, above, shows that, regarding model 1, duration and the COVID-19 pandemic are negatively associated with crowdfunding success but not significantly (β = −0.0022 and −0.0602, respectively, in model 1). Therefore, results imply that the COVID-19 pandemic as well as longer durations do not increase the probability of success, as supported by Santos and Laureano (2022) and Zribi (2022). However, in contrast, Ho et al. (2021) revealed that crowdfunding projects initiated during the COVID-19 pandemic are successful.
The duration has a negative effect on crowdfunding success. The findings are in line with studies by Aleksina et al. (2019); Dikaputra et al. (2019); Prasobpiboon et al. (2021); as well as Gangi and Daniele (2017). Hence, the duration on the crowdfunding platform may signal an unsuccessful campaign project. Drawing from attribution theory, the potential backers are motivated by the shorter duration, which shows preparedness and credibility. In contrast, Alazazi et al. (2020), Ho et al. (2021), and Dikaputra et al. (2019) found a positive relationship between duration and crowdfunding success. Therefore, according to the findings of this study, the long duration of the COVID-19 pandemic negatively impacts crowdfunding performance. The duration of the crowdfunding appeal on the site was positive but insignificantly influenced the crowdfunding success (β = 0.022). The results are in line with those of Hsieh and Vu (2021); Kedas and Sarkar (2023); and Calic and Shevchenko (2020). Therefore, the duration is a signal of crowdfunding success on the African continent. These findings are in contrast to the results by Sajedi and Soosaipillai (2021); Alazazi et al. (2020); Hsieh and Vu (2021); and Tan and Reddy (2021), who found that duration had a negative effect on a crowdfunding project to ensure the success of the campaign.
The targeted amount and comments are negative and significantly associated with crowdfunding success (β = −0.054; p > 0.10 and −0.002; p > 0.05, respectively, in model 1). Findings suggest that the targeted amount and the comments strongly decrease the potential for crowdfunding success. Targeted amounts and the comments signal a negative influence on crowdfunding performance, according to Ho et al. (2021); Ayturk et al. (2022); Schraven (2022); Petitjean (2018); and Song et al. (2019); and Wang et al. (2018). Therefore, it is important to set a realistic target amount that is in line with signalling and goal-setting theories. In contrast, Alazazi et al. (2020) found a positive relationship between the targeted amount and crowdfunding success. The higher the targeted amount pledged or requested on the crowdfunding campaign platform, the higher the likelihood of the crowdfunding campaign’s failure (Wachira 2021; Aleksina et al. 2019; Shneor et al. 2021). The findings of the study remain inconclusive; hence, this study adds to the existing literature.
Conversely, the presence of the image and video is positive but does not affect the crowdfunding success (β = 0.185 and 0.088, respectively, in model 1). The presentation of images and videos signals the probability of success while eliminating the problem of information asymmetry between backers and fund seekers known as entrepreneurs. Therefore, trustworthiness between crowdfunding stakeholders overcomes uncertainties about the quality of the campaign, thus increasing the probability of success (Zhao et al. 2022). Consequently, potential backers who contribute to investing are attracted by the presentation of updates, images, and videos. Therefore, it is in line with the signal theory, which alleviates confusion created during the campaign process.
Conversely, updates and backers positively and significantly influence crowdfunding success (β = 0.011; 0.001, respectively; p < 0.01, and p < 0.01). The findings of the study are supported by Tian et al. (2018); Zribi (2022); de Larrea et al. (2019); Tan and Reddy (2021); and Fontana and Ordóñez (2020). Constant updates made on the crowdfunding campaign site are used as an effective communication tool between backers and entrepreneurs and reduce information asymmetry. Furthermore, for updates, backers signal the crowdfunding success. In the crowdfunding market, potential backers consider information availability, which impacts individual decision-making on whether projects deserve their support or not. Therefore, without the presentation of updates, backers may not be reasonably able to assess risk and the prospect of crowdfunding, which may lead to a failed project. In contrast, Liu et al. (2021); Wang et al. (2019); and Tan and Reddy (2021) reported a negative relationship between updates and crowdfunding success. Therefore, there is no universal agreement on the factors that affect crowdfunding success.
It is advisable for project creators to set up a reasonable time frame for crowdfunding projects to ensure the success of the campaign. Most of the variables that impact crowdfunding performance have been affected by the COVID-19 pandemic. However, it is evident that, during the COVID-19 pandemic, many of the views on the variables that influence crowdfunding success have changed. The presence of comments, videos, and images has assisted in overcoming information.
Model 2 represents the probit regression results that respond to the research question outlined above. The findings revealed that images, comments, videos, and duration were positive drivers but did not significantly influence the crowdfunding success (β = 0.8897; 0.0889; 0.0204; and 0.0039, respectively, in model 2). Findings implied that both images, comments, videos, and duration are important drivers of crowdfunding success that attract large numbers of backers to contribute to the campaign platform. The availability of images, videos, and updates on the crowdfunding campaign increases the probability of success, whereas a higher number of backers signals crowdfunding success due to a high number of backers supporting the campaign. The availability of images, videos, comments, and updates on the crowdfunding platform overcomes the problems of information asymmetry and signals the success of performance (De Crescenzo et al. 2021).
The findings are consistent with those of Fourkan (2021); Tafesse (2021); Song et al. (2019); Yeh et al. (2019); and Liu et al. (2022). The availability of videos, images, and comments on the crowdfunding campaign platform effectively alleviates the existence of information asymmetry between the fund seeker and the fund provider. Furthermore, they signal the quality of the crowdfunding project; hence, it is likely to attract a large number of backers. Thus, it increases the probability of crowdfunding success.
Additionally, backers were found to be positive and significantly affect the crowdfunding success (β = 0.0403 p < 0.01). Hence, a large number of backers signals the probability of crowdfunding success. In contrast, updates decrease the probability of crowdfunding success but are not significant (β = −0.0255). Surprisingly, the update seems not to have affected the crowdfunding success. Additionally, the targeted amount and the COVID-19 pandemic were negative and significantly associated with crowdfunding success (β = −0.6362 p < 0.01; −0.6891 p < 0.10). This implies that the targeted amount and the COVID-19 pandemic do not attract potential backers to invest in a campaign, thereby decreasing the probability of success. The results imply that the targeted amount enhances the backer’s contribution, which ultimately increases success. This is in line with the studies by Alazazi et al. (2020). The targeted amount signals crowdfunding success. These findings are challenged by researchers such Latinović and Arsić (2019); Troise et al. (2020); Liu et al. (2022); and Predkiewicz and Kalinowska-Beszczynska (2020), who found a negative relationship between the targeted amount and backers’ performance. Therefore, the findings remain inconclusive. Crowdfunding platforms encourage the project creator to initiate the presence of videos and images, infographics, and animation (Crosetto and Regner 2018). Despite being consistent with goal-setting theory and attribution theory.
The current study has several theoretical and practical implications. Firstly, the study contributes to the crowdfunding literature by understanding the drivers of crowdfunding success, which are based on signalling, attribution, and goal-setting theories. Most previous studies have investigated signalling dynamics, often limited to a single economy or country (Courtney et al. 2017; Usman et al. 2019; Wang et al. 2018). The study sampled crowdfunding projects across African countries for a period from January 2020 to December 2020. To the best of our knowledge, the current study is one of the first to investigate the importance of signalling in project success and its role in mitigating the problem of information asymmetry in the crowdfunding market from the perspective of African countries. Based on goal-setting theory, the entrepreneur needs to set a reasonable target amount to access funds successfully.

5. Conclusions

Crowdfunding platforms provide an alternative financial solution for entrepreneurs with new, innovative, and creative ideas to have direct interactions with potential investors or backers. Through a crowdfunding platform, entrepreneurs are not obligated to acquire collateral or a business plan to access funds. Consequently, the aim of the study was to determine the factors driving crowdfunding success, particularly on the African continent. The study employed OLS and probit regression analysis and established that the factors driving crowdfunding success in Africa are not different from those in developed nations. It was found that the presence of images and videos on the campaign, the frequency of updates, and the number of backers are the main drivers of crowdfunding campaign success. The results also documented that the number of comments, duration of the campaign, targeted amount, and COVID-19 pandemic were negative drivers of crowdfunding campaign success. The presentation of comments, longer duration, and higher targeted amount discourage backers from supporting the crowdfunding campaign. Lastly, during the COVID-19 pandemic, most backers did not participate in the crowdfunding campaign, thereby decreasing its success.
The study contributes to the literature pertaining to the factors driving crowdfunding success in Africa, where the concept is still in its infancy. Secondly, it provides a cue to project creators on how to wage a successful crowdfunding campaign. Thirdly, it contributes methodologically owing to data collection from multiple crowdfunding platforms and countries. Lastly, it advances the signal theory by identifying the factors that drive crowdfunding success in Africa.
The presence of the COVID-19 pandemic created negative economic uncertainty, which ultimately decreased crowdfunding success. It may be argued that the successful crowdfunding projects during the COVID-19 pandemic were the ones addressing the immediate needs of individuals such as food, healthcare, and remote work (donation-based models), which were more likely to succeed. Effective collaboration through online platforms, specifically social networks, with an influential backer broadens outreach and hence increases the probability of success. Regular updates, the presence of images, and video presentations concerning a project campaign enhance the backers confidence and trust in the project, thereby mitigating the information asymmetry problem.
The entrepreneurs should be able to evaluate the economic landscape, understand backers behaviours in line with their preferences, and adapt fundraising strategies to achieve their funding goal. Additionally, entrepreneurs should be able to engage with the community through social networks to attract potential backers. Collaboration and alliance creation among organisations and people are necessary to enhance a crowdfunding campaign’s network. Adaptability and flexibility are the keys to planning and creating a project and being able to adjust the targeted amount and duration in line with backers’ preferences. In conclusion, understanding the relationship between social, economic, and managerial factors is an important mechanism that increases crowdfunding success. The COVID-19 pandemic decreases crowdfunding success owing to the high number of reward-based projects other than donation-based projects. Consequently, with these conclusions and implications of the study, entrepreneurs are well guided on how to create successful crowdfunding projects.
There are a number of limitations to the present study. Firstly, the study sample only consisted of crowdfunding projects on the African continent. Secondly, the data collected were solely based on reward- and donation-based crowdfunding models. As such, the findings cannot be generalised to other developed countries due to differences in ICT infrastructure, culture, and internet participation, which, ultimately, drive crowdfunding development and growth.
Therefore, future research could be conducted by utilising a sample of developing and developed countries with a specific focus on the investment-based crowdfunding model. Additionally, future research studies could investigate if the results of this study are consistent or not for different types and models of crowdfunding. Since the study exclusively explored rewards-based crowdfunding, the findings may not apply to other types of crowdfunding, such as equity-based crowdfunding or the lending-based crowdfunding model.

Author Contributions

Conceptualisation, L.P.M. and A.B.S.; methodology, L.P.M.; software, L.P.M.; validation, L.P.M. and A.B.S.; formal analysis, L.P.M.; investigation, L.P.M.; resources, L.P.M.; data curation, L.P.M.; writing—original draft preparation, L.P.M.; writing—review and editing, A.B.S.; visualisation, L.P.M. and A.B.S.; supervision, A.B.S.; project administration, L.P.M.; funding acquisition, L.P.M. and A.B.S. All authors have read and agreed to the published version of the manuscript.

Funding

This research was funded by the National Research Foundation Grant Number: BAAP200401510931 in South Africa.

Data Availability Statement

The data may be available upon request.

Acknowledgments

Anonymous participants at the World Finance Conference held in Italy in 2022 for their valuable inputs on this paper.

Conflicts of Interest

The authors declare no conflict of interest.

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Figure 1. The theoretical framework. Source: Authors’ own compilation.
Figure 1. The theoretical framework. Source: Authors’ own compilation.
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Figure 2. Trends in crowdfunding.
Figure 2. Trends in crowdfunding.
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Figure 3. Successful and failed crowdfunding campaigns.
Figure 3. Successful and failed crowdfunding campaigns.
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Table
Table 1. Types of crowdfunding models.
Table 1. Types of crowdfunding models.
Investment Models:Non-Investment Models:
Lending-based crowdfunding
  • Access finance with a need to pay interest or return on investment
  • Timely and cost-effective for finding suitable investors
  • Friends and family play a key role in the early stages of fundraising
Equity-based crowdfunding
  • The lack of strict reporting and accounting
  • Contribution in exchange of shares, bonds, and ownership
  • Backers can track crowdfunding progress
Reward-based crowdfunding
  • Raise funds without upfront fees
  • Pre-order for products to be launched
  • Provide tangible and intangible support to backers
  • Financial resources in the form of a pre-order for products
Donation-based crowdfunding
  • Backers contribute without interest or a return on the contribution
  • No expectations of funds or any intangible support
  • Reduced transaction and coordination costs
Source: Mamaro and Sibindi (2022).
Table
Table 2. Description of variables and measurements.
Table 2. Description of variables and measurements.
Crowdfunding Success (SP) Dependent VariableIf the Targeted Amount Is Reached The Binary Variable of 1, If the Targeted Amount is Obtained, and 0 Otherwise
Duration (DRN)The number of days for a campaign to raise fundsTransformed as log
Comments (CMM)The existence of comments in the campaignThe binary variable of 1, if there are comments on the project’s pitch, and 0 otherwise
Targeted amount (TA)The amount requested by the fund seeker or entrepreneurTransformed as log
COVID-19 pandemicThe existence of crowdfunding projects during the COVID-19 pandemicA dummy variable of 1 if the project was pitched during the COVID-19 period and 0 otherwise
Backers (BCK)The number of supporters who contributed to the projectTransformed as log
Video (VD)The existence of a video
in the campaign		Dummy variable of 1 if the video is available on the website, and 0 otherwise
Images (IM)The existence of images or visuals on the project campaign websiteDummy variable of 1 if the video is available on the website, and 0 otherwise
Table
Table 3. Descriptive statistics.
Table 3. Descriptive statistics.
SPBCKDRNCMMIMTAUPDVDCOVID-19
Mean0.1531.3843.6226.6510.7589.2931.5860.5530.730
Median0.0000.6933.7140.0001.0009.2100.0001.0001.000
Maximum1.0007.7994.205781.001.00015.94441.001.0001.000
Minimum0.0000.0001.0990.0000.0005.8860.0000.0000.000
Std.Dev.0.3611.7770.54156.3470.4291.7964.8590.4980.445
Observations215215215215215215215215215
Table
Table 4. Correlation matrix.
Table 4. Correlation matrix.
SPIMCMMVDDRNBCKUPDTACOVID_19VIF
SP1.000 DP
IM0.150 **1.000 1.09
CMM0.266 ***0.0171.000 1.15
VD0.149 **0.170 **0.0921.000 1.44
DRN−0.194 ***0.072−0.0800.0551.000 1.33
BCK0.416 ***−0.0520.624 ***0.158 **−0.148 **1.000 2.03
UPD0.491 ***0.120 *0.425 ***0.066−0.141 **0.382 ***1.000 1.56
TA−0.188 ***0.0054520.0260.235 ***0.343 ***0.103−0.132 **1.000 1.92
COVID_19−0.177 ***0.0970.012−0.0400.185 ***−0.058−0.0370.121 *1.0001.09
Notes * p < 0.1, ** p < 0.05, *** p < 0.01 Source: Authors’ compilation.
Table
Table 5. The regression analysis results.
Table 5. The regression analysis results.
VariablesModel 1Model 2
Fund Ratio (OLS)Success (Probit)
IM0.185(0. 1167)0.8897(0.663)
CMM−0.002 **(0.0011)0.0889(0.0709)
VD0.088(0.10270.0204(0.444)
DRN−0.0022(0.003)0.0039(0.013)
BCK0. 0022 ***(0.0003)0.0403 ***(0.0084)
UPD0.110 ***(0.0114)−0.0255(0.0436)
TA−0.0544 *(0.030)−0.6362 ***(0.194)
COVID-19 pandemic−0.0608(0.111)−0.6891 *(0.386)
C0.624 **(0.1135)2.7199 **(1.376)
Pseudo   R 2 / R 2 0.516 0.696
Number of observations 215 215
DW test2.02
Notes * p < 0.1, ** p < 0.05, *** p < 0.01. Source: Authors’ compilation.
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Mamaro, L.P.; Sibindi, A.B. The Drivers of Successful Crowdfunding Projects in Africa during the COVID-19 Pandemic. J. Risk Financial Manag. 2023, 16, 332. https://doi.org/10.3390/jrfm16070332

AMA Style

Mamaro LP, Sibindi AB. The Drivers of Successful Crowdfunding Projects in Africa during the COVID-19 Pandemic. Journal of Risk and Financial Management. 2023; 16(7):332. https://doi.org/10.3390/jrfm16070332

Chicago/Turabian Style

Mamaro, Lenny Phulong, and Athenia Bongani Sibindi. 2023. "The Drivers of Successful Crowdfunding Projects in Africa during the COVID-19 Pandemic" Journal of Risk and Financial Management 16, no. 7: 332. https://doi.org/10.3390/jrfm16070332

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