We compare the two most popular campaign designs employed by rewards-based
crowdfunding platforms: AoN, in which the entrepreneur collects the money pledged by backers
only if the project can raise the funding goal, and KiA, in which the entrepreneur collects the
money pledged by backers even when the project is partially financed. KiA reduces backers’ willingness
to pay relative to AoN, as the risk that the project may never see the light of day due to
a lack of funds increases. However, achieving partial financing of the project under KiA provides
cash, which the entrepreneur may choose to keep for herself, as well as a tangible proof of demand
for the product, which may in turn unlock additional financing, allowing the project to move forward.
We find that (i) a KiA campaign always raises less money relative to an AoN campaign;
(ii) despite this, KiA leads to higher profits for projects with low ex-ante financing probability and
high retail potential; and (iii) the advantage of KiA stems not from the extra revenues obtained by
appropriating backers’ funds, but from increasing the odds to ultimately carry through with the
project. KiA further improves when backers can withdraw their pledges before the campaign ends.
A new design employed at Seed&Spark, where the campaign succeeds if a minimum fraction of the
goal is raised, can dominate both AoN and KiA even when constrained to set the same minimum
goal completion for all campaigns, provided that said campaigns share the same retail potential.