Trends in the crowdfunding of educational technology startups By Pavlo D. Antonenko, Brenda R. Lee, and A.J. Kleinheksel, University of Florida

Abstract This article presents an analysis of active crowdfunding campaigns posted on ten crowdfunding platforms in May 2013 to provide a glimpse of the recent trends in the crowdfunding of educational technology startups. We describe the characteristics of the most successful crowdfunding campaigns in educational technology and identify the most popular crowdfunding platforms. This research provides important implications for educational technology entrepreneurs. Top performing educational technology fund raisers tend to a) request a modest but reasonable amount for each phase of the project, b) focus on the informal, out-of-school, rather than formal contexts of learning, c) attract supporters with a tiered system of rewards, and d) communicate with supporters and inform the public of the status of the project through periodic updates and progress reports. Directions for future research include conducting an in-depth content analysis of archived data and exploring the perspectives of successful educational technology entrepreneurs using qualitative interviews. Keywords: crowdfunding, entrepreneurship, project design

Introduction Numerous students and alumni in educational technology and related fields choose to pursue careers as designers and developers of educational technology products and services (Ritzhaupt, Martin, & Daniels, 2010). For example, in 1996 three instructional technology graduate students from Utah State University formed the 3GB group (3 Guys in the Basement) to create an online learning management system entitled Syllabase. The system quickly gained popularity and was adopted by several 36

institutions including Brigham Young University, Colorado State University, and the University of Michigan. Syllabase research and development was funded through a grant by the Utah System of Higher Education; however, in today’s climate of decreased state and federal funding, many educational technology entrepreneurs are exploring other options for seed funds, including venture capital and crowdfunding (Lawton & Marom, 2012). Crowdfunding was a direct societal response to the financial crisis of 2007-2008 and to the consequences of tighter business loan regulations and diminished funding from both federal and state agencies and private and corporate foundations. Crowdfunding, or collective, community-driven financing of projects, has attracted creative individuals from around the world since 2009 when the first crowdfunding platform, Kickstarter, was launched. Crowdfunding involves a person or an organization that proposes the ideas or projects to be funded, and “the crowd” of people who provide relatively small monetary donations to support the proposals. Fund-raisers and supporters interact using a crowdfunding platform like Kickstarter or StartSomeGood, which brings together the project initiator and the supporters. Given the public interest and the potential benefits to the national economy, crowdfunding has recently garnered attention from policymakers as evidenced by the Jumpstart Our Business Startups Act (JOBS Act) recently signed into U.S. law (Chasan, 2012). Of the 50 highest funded projects through 2012 on Kickstarter, 45 have turned into ongoing entrepreneurial firms (Mollick, 2012). Although the basic idea of pooling the donations of many individuals (or crowdsourcing) to finance a project is not new, as seen with the practice of humanitarian organizations (Ordanini, Miceli, & Parasuraman, 2011), the idea was revo-

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lutionized with the advent of 21st century information and communication technologies. Social media such as blogs and social networking applications have allowed people to post their project ideas on the Web, spread the word via their network, and collect donations immediately through services like PayPal™. The popular crowdsourced online encyclopedia Wikipedia has covered its costs with the help of private donors since 2003. Yet, the advent of dedicated, social media based crowdfunding platforms, designed specifically to support project campaigns seeking donors, has resulted in a crowdfunding boom that is transforming the way artists, entrepreneurs, software developers, educators, and filmmakers secure seed funding for their creative projects. Despite subtle differences, most crowdfunding sites provide the same basic functionality. First, the fund-raiser sets up a webpage for the campaign and posts a description of the concept asking for contributions from the community to support the project or a phase of the project. This description typically consists of a video and supporting text and images illustrating the concept. The entrepreneur is usually given a certain amount of time to reach the campaign goal and, if this goal is not reached, the supporters or “backers” are not charged. Although crowdfunding has emerged as a viable and popular model of funding new ventures, little peer-reviewed research has been published on the topic. Schweinbacher and Larralde (2010) reported what was probably the first empirical study of crowdfunding using the case study method. A series of more recent studies have focused on the role of supporters in crowdfunding. Belleflamme and colleagues (2012) offered insights on constructing a theoretical model of when donors choose to crowdfund. Kuppuswamy and Bayus (2013) analyzed the patterns of donor support on Kickstarter varies depending on project success and timing. Agrawal, Catalini and Goldfarb (2010) examined crowdfunding in the context of musician campaigns to understand the geographic distribution of crowdfunding donors. Burtch, Ghose and Wattal (2011) examined how timing and exposure affected 100 pitches for new journalism stories. Mollick (2012) analyzed a dataset of over 48,500 projects with combined funding over $237M and provided insights on the underlying dynamics of success and failure among crowdfunded ventures. This study suggests that crowdfunding projects mostly succeed by narrow margins, personal networks and underlying project quality are associated with the success of crowdfunding efforts, and that geography is related to both the type of Volume 58, Number 6

projects proposed and the success of fundraising (such as seeking and obtaining support for a country music project in Nashville, Tennessee). The purpose of the study reported here was to explore the trends in the crowdfunding of educational technology ventures. Specifically, we aimed to determine which crowdfunding platforms are popular among educational technology entrepreneurs and what characteristics are shared among successfully crowdfunded educational technology startups.

Definitions Our definition of educational technology startups is informed by the Association for Educational Communication and Technology’s (AECT) definition of educational technology as a field: “Educational technology is the study and ethical practice of facilitating learning and improving performance by creating, using, and managing appropriate technological processes and resources.” (Januszewski & Molenda, 2007, p. 1) A startup is defined as a venture or a new business organization in the earliest stages of its development designed to search for a scalable business model (Fonseca, Lopez-Garcia, & Pissarides, 2001). The term “startup” became popular internationally during the “dot-com bubble” when a great number of dot-com startup companies were founded (Hellman & Puri, 2002). Whether the idea behind a startup involves the invention of a product, the manufacture of goods or the selling of things, entrepreneurs concern themselves with the issue of business capitalization and profitability (Mann, O’Sullivan, Robbins, & Roberts, 2003). Based on the above definitions, an educational technology startup was defined in this study as an emerging business organization designed to profit from the production and/or distribution of products or services that facilitate learning and improve performance by creating, using, and managing appropriate technological processes and resources. Examples of such products may include educational videos, learning management systems, multimedia learning materials, digital games, and educational e-books (Molenda & Boling, 2007). Examples of educational technology services that companies may offer include technical support for educational organizations, consulting, planning and implementation of educational technology related events like robotics competitions (Donaldson, Smaldino, & Pearson, 2007). These

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technology-supported products and services may center around formal or informal learning contexts, target various age groups, and focus on any education related goal such as construction of content knowledge in the given domain, improvement of cognitive and metacognitive skills, optimization of collaborative learning, management of education and so forth.

Data analysis consisted of sorting the database based on such variables as Percent Funded, Number of Backers, Crowdfunding Platform, Category, and Target Age Group and providing an in-depth examination and comparison of the characteristics of the most successful crowdfunding campaigns in educational technology.

Method

Results

This descriptive study was designed to examine the following research questions: 1) What crowdfunding platforms are most popular among educational technology entrepreneurs? 2) What are the characteristics of successfully crowdfunded educational technology startups? The methodology for addressing these research questions involved content analysis (Palmquist, Carley, & Dale, 1997) and basic frequency analysis of the features of fundraising campaigns that were active from May 1 to May 15, 2013, on the following 10 crowdfunding platforms: Kickstarter, Indiegogo, Rockethub, Microryza, Newjelly, Peerbackers, Startup Addict, Quirky, iAMscientist, and StartSomeGood. The content analysis began with constructing a database that consisted of the following sortable code categories or variables: a) Crowdfunding Platform, b) Startup Title, c) Category, d) Days Active, e) Amount Requested, f) Amount Generated as of May 15, 2013, g) Percent Funded, h) Number of Backers, i) Learning Context, j) Target Age Group, k) Project Website, l) Startup Location, and m) Other Relevant Information. Based on the AECT discussion of educational technology products (Molenda & Boling, 2007) and processes (Branch & Deissler, 2007; Donaldson, Smaldino, & Pearson, 2007), the educational technology startups were coded as a) Instructional Film, b) Documentary Film, c) Feature Film, d) Serious Game, e) Entertainment Game, f) Simulation, g) Mobile Application, h) Audio, i) Social Media, j) Photography, k) E-Learning Platform, l) E-book, m) Tutorial, n) Creative Expression, o) Hardware, p) Infrastructure Improvement, and q) Training/Consulting. Three educational technology researchers discussed the attributes of educational technology startups based on the shared definition provided above and analyzed the campaigns posted on the 10 crowdfunding websites populating the database. One database entry corresponded to one educational technology startup crowdfunding campaign.

Our analysis produced a total of 207 educational technology related crowdfunding campaigns for May 1 through May 15 of 2013. Most of the educational technology startup campaigns used RocketHub (n=90), followed by Kickstarter (n=76), and Indiegogo (n=37). Only three campaigns were posted on Mycroryza, and only one project chose to use PeerBackers as its crowdfunding platform. This was a surprising finding in that we expected the Kickstarter platform to be the absolute leader because of its being the first and largest crowdfunding site. Additionally, it was surprising to find that platforms like IAmScientist, which specializes in helping young researchers, and StartSomeGood, which provides support for non-profit organizations and social entrepreneurs, were not represented in our sample. Table 1 provides an overview of the top 10 successfully crowdfunded projects based on the percent funded (i.e., amount requested vs. amount generated). These projects include an e-book on learning the Python programming language, an interactive multimedia online course on the Wordpress content management system, a serious game that uses cards and mobile applications to teach pronunciation and spelling, a gamma particle detector, a video tutorial on game programming, a hardware platform for learning basic engineering and programming concepts, an interactive 3D game teaching Linux and the basics of protecting systems from hackers, an e-book on PHP for absolute beginners, an instructional DVD on the effective use of flash in photography, and a 10-week summer program on teaching web design to teens from Chicago’s Englewood neighborhood. Six of the top 10 performing crowdfunding campaigns focused on creating learning materials (e-books, an entertainment game) or training programs (an online course, a video tutorial, a summer camp) that focused on the teaching and learning of programming languages or environments for programming (Linux in the Hackventure game). Only one project focused on each of the following: science learning (mini radiation detector), language

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Table 1. Top 10 Successfully Crowdfunded Educational Technology Projects (May 2013) Title

Category

Requested

Generated

Backers

1) Practical Python

e-book

$800

$21,150

2,007

2) Learn Wordpress

tutorial

$900

$20,508

678

3) Magicians

serious game

$3,000

$34,056

1,025

4) APOC: Mini Radiation Detector

hardware

$5,000

$56,590

701

5) Learn Game Programming

tutorial

$700

$7,005

702

6) Learn Along: PHP

e-book

$600

$2,500

180

7) Teagueduino

hardware

$22,000

$76,697

390

8) Scope Creep Hackventure: Learn Linux

entertainment game

$2,000

$7,095

253

9) The Lighting Asylum

instructional film

$1,650

$4,852

112

10) Englewood Codes

training

$5,500

$10,235

178

learning (Magicians), and pre-engineering learning materials (Teagueduino). Most of these projects were either specifically targeted at informal learning or could be used in both formal and informal learning settings (e.g., e-books). This reflects our observations that most education-oriented projects submitted to the crowdfunding platforms that we analyzed were designed to support learning in an informal, out-of-school context. In fact, a popular project that generated $40,000 from 1,588 backers was an e-book entitled “Don’t Go Back to School: A Handbook for Learning Anything.” This e-book was presented as a “how-to guide for independent learning, with concrete strategies plus stories of people who learn on their own and how they do it.” Nine of the top 10 performing projects requested less than $6,000, although an eighth of them generated more than $7,000. In fact, five of the projects raised more than $20,000. The most successfully crowdfunded projects in our study were relatively modest in terms of the financial support they requested from the public. This finding supports the results of a prior study that analyzed a dataset of over 48,500 projects with combined funding over $237M and revealed that smaller goals were more successful at being funded than larger ones (Mollick, 2012). This result implies that educational technology entrepreneurs should consider designing a series of campaigns for their larger projects, chunking these projects into smaller development and production phases. Volume 58, Number 6

As for the target age group, none of the top performing crowdfunding campaigns focused on an educational technology product or service for learners younger than teens and adolescents (with the exception of Magicians, perhaps). All of the projects received financing from more than 100 patrons, with five of them attracting more than 500 backers. This finding contradicts prior research on the crowdfunding of academic research (Ingeno, 2013), which described the trend of projects receiving few larger donations rather than many small donations. In terms of the geographic distribution, only one top performing crowdfunding campaign originated in a country other than the United States. The Magicians tabletop card game with a suite of mobile applications teaching spelling and pronunciation originated in Seoul, South Korea. Half of the projects were started by individuals or teams in large cities (Washington, DC; Chicago; Seoul; and two from Seattle), three projects listed their main location in rural areas in the U.S. Northeast and Midwest, and two came from suburban areas in California. As Figure 1 demonstrates, most of the projects we reviewed originated in the more densely populated areas in the U.S. Northeast, Pacific Northwest (Seattle and Portland), California (Los Angeles, San Francisco, and San Diego), as well as the Chicago and Minneapolis - St. Paul metropolitan areas. This corroborates the results of a earlier study of crowdfunding geography (Agrawal, Catalini, & Goldfarb, 2010) and

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Figure 1. The geographic distribution of US-based educational technology crowdfunding campaigns

a large-scale study demonstrating that most crowdfunding campaigns originate in large metropolitan areas and that a large number of creative individuals in the city where the project is based is associated with greater success (Mollick, 2012). Fifty-eight of the reviewed projects listed an international location as their main office; most of them originated in Europe (n=31, mostly the United Kingdom), North America (n=14, mostly Canada), and Asia (n=6, mostly India). All of the top 10 crowdfunding performers used a tiered system of rewards for their backers. For example, the APOC Mini Radiation Detector project posted backer’s name on its website for a $5 pledge, sent a T-shirt for a $25 pledge, provided patrons with an APOC building kit for a $50 pledge, sent backers a basic version of the detector for a $80 pledge, a full version of the detector for a $100 pledge, an advanced version of the detector for a $150 pledge, and a “super combo” of a T-shirt, APOC advanced, and a radioactive source disk to those who pledged $200 or more. Similar to our findings, Mollick’s (2012) study on the determinants of successes and failures of crowdfunding revealed that a tiered system of reward categories increases the chances of attracting funding. Rewards were also shown to be one of the most important motivations for participating in crowdfunding communities (de Witt 2012; Gerber, Hui, & Kuo 2012; Steinberg, 2012) and reward-based online crowdfunding platforms are described as the fastest growing form of public fund raising (Massolution, 2012). Finally, all high-performing projects also posted status updates and progress reports 40

to inform their supporters of the recent developments. These status updates were often presented as videos demonstrating the new functionality, conference presentations, screenshots, and photos of the system components. The updates also included such information as the number of units produced and shipped and directions for future work, including specific milestones, and deadlines. This supports results of a prior study of donor behavior in online crowdfunding communities, which provided a quantitative examination of two years of publicly available data on successfully and unsuccessfully funded projects from Kickstarter and demonstrated a positive influence of project updates, particularly in the final stages of funding (Kuppuswamy & Bayus, 2013). According to this study, this was particularly the case for projects that successfully achieve their goals as they are more likely to have an update in the last weeks of funding and generate more excitement from recent backers than projects that fall short. Communication between the fund seekers and supporters was also performed via the crowdfunding platform’s commenting feature. Successful performers tended to respond to questions and comments promptly and posted questions and responses in the Frequently Asked Questions section of their project page.

Summary and Implications This study provides a snapshot of the recent trends in the crowdfunding of educational technology startup projects and corroborates the results of prior research on the dynamics of

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crowdfunding success and failure (Kuppuswamy & Bayus, 2013; Mollick, 2012). Our research provides several implications for the design of crowdfunding campaigns for educational technology entrepreneurs. Top performing educational technology fund raisers tend to a) request a modest but reasonable amount for each phase of the project, b) focus on the informal, out-of-school, rather than formal contexts of learning, c) attract supporters with a tiered system of rewards, and d) communicate with supporters and inform the public of the status of the project through periodic updates and progress reports. Implications for future research include in-depth content analysis of archived data on the crowdfunding of educational technology startups and the use of qualitative interviews to explore the perspectives of successful educational technology entrepreneurs. Correspondence regarding this article should be directed to Pavlo D. Antonenko, School of Teaching and Learning, University of Florida, PO Box 117048, Gainesville, FL 32606 Email: [email protected], Phone: +1 352-273-4176

References Agrawal, A., Catalini, C., & Goldfarb, A., (2010). The Geography of crowdfunding. Social Science Research Network. Retrieved May 3, 2013 from http://papers.ssrn. com/sol3/papers.cfm?abstract_id=1692661 Belleflamme, P., Lambert, T., & Schwienbacher, A. (2012). Crowdfunding: Tapping the right crowd. Social Science Research Network. Retrieved May 3, 2013 from http:// papers.ssrn.com/sol3/papers.cfm?abstract_id=1578175 Branch, R.M. & Deissler, C.H. (2007). Processes. In A. Januszewski, & M. Molenda (Eds.), Educational technology: A definition with commentary (pp. 196-211). New York: Routledge. Burtch, G., Ghose, A., & Wattal, S., (2011). An empirical examination of the antecedents and consequences of investment patterns in crowd-funded markets. Social Science Research Network. Retrieved May 3, 2013 from http://papers.ssrn.com/sol3/papers.cfm?abstract_ id=1928168 Chasan, E. (2012). Crowd-funding industry braces for regulation. Wall Street Journal, April 5, 2012. Retrieved April 24, 2013 from http://online.wsj.com/article/SB100 01424052702303302504577326200304117034.html de Witt, N. (2012). A Kickstarter’s guide to Kickstarter: How to successfully fund your creative project. Retrieved from http://kickstarterguide.com/files/2012/07/AKickstarters-Guide.pdf Donaldson, J.A., Smaldino, S., & Pearson, R. (2007). Managing. In A. Januszewski & M. Molenda (Eds.), Educational technology: A definition with commentary (pp. 175-193). New York: Routledge. Fonseca, R., Lopez-Garcia, P., & Pissarides C. (2001). Entrepreneurship, start-up costs and employment. European Economic Review, 45(4), p. 692–705.

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Gerber, E., Hui, J., & Kuo, P. (2012). Crowdfunding: Why people are motivated to post and fund projects on crowdfunding platforms. Design, Influence, and Social Technologies Workshop at Computer Supported Cooperative Work. Retrieved from http://distworkshop.files.wordpress. com/2012/01/dist2012_submission_11.pdf Hellman, T. & Puri, M. (2002). Venture capital and the professionalization of start-up firms: Empirical evidence. Journal of Finance, 57(1), p. 169-197. Ingeno, L. (2013). Crowdfunding academic research. Inside Higher Ed. Retrieved July 12, 2013from http:// www.insidehighered.com/news/2013/06/10/academicresearchers-using-crowdfunding-platforms Januszewski, A., Molenda, M. (2007) Definition. In A. Januszewski & M. Molenda (Eds.), Educational technology: A definition with commentary (pp. 1-14). New York: Routledge. Kuppuswamy, V. & Bayus, B. L. 2013. Crowdfunding creative ideas: The dynamics of project backers in Kickstarter. Social Science Research Network. Retrieved May 3, 2013 from http://papers.ssrn.com/sol3/papers. cfm?abstract_id=2234765 Lawton, K & Marom, D. (2012). The crowdfunding revolution: How to raise venture capital using social media. New York, NY: McGraw-Hill. Mann, R., O’Sullivan, M., Robbins, L. & Roberts, B.S. (2004). Starting from scratch: A lawyer’s guide to representing a start-up company. Arkansas Law Review, 56, 773. Massolution (2012). Crowdfunding industry report. Retrieved April 22, 2013 from http://www.marketwire. c o m / p r e s s - r e l e a s e / c r ow d f u n d i n g - p l at f o r m s raise-15-billion-successfully-fund-one-millioncampaigns-2011-1654020.htm Molenda, M., & Boling, E. (2007). Creating. In A. Januszewski, & M. Molenda (Eds.), Educational technology: A definition with commentary (pp. 81-139). New York: Routledge. Mollick, E. (2012). The Dynamics of crowdfunding: Determinants of success and failure. Social Science Research Network. Retrieved May 3, 2013 from http:// papers.ssrn.com/sol3/papers.cfm?abstract_id=2088298 Ordanini, A., Miceli, L. Pizzetti, M., & Parasuraman, A. (2011). Crowd-funding: Transforming customers into investors through innovative service platforms. Journal of Service Management, 22(4), 443-470. Palmquist, Michael E., Carley, Kathleen M., & Dale, Thomas A. (1997). Applications of computer-aided text analysis: Analyzing literary and nonliterary texts. In Carl W. Roberts (Ed.), Text analysis for the social sciences: Methods for drawing statistical inferences from texts and transcripts (pp. 171-189). Mahwah, NJ: Lawrence Erlbaum Associates, Publishers. Ritzhaupt, A. D., Martin, F., & Daniels, K., (2010). Multimedia competencies for an educational technologist. A survey of professionals and job announcement analysis. Journal Educational Multimedia and Hypermedia, 19(4), 421-449. Schwienbacher, A. & Larralde, B. (2010). Crowdfunding of small entrepreneurial ventures. Social Science Research Network. Retrieved 5/3/2013 from: http://papers.ssrn. com/sol3/papers.cfm?abstract_id=1699183 Steinberg, D. (2012). The Kickstarter handbook. Philadelphia, PA: Quirk Books.

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