Financing A Free-for-All: Crowdfunding Open-Source Software

This paper examines whether open-source software (OSS) provides unique advantages in the entrepreneurial crowdfunding context. The economic model for new ventures with business plans centered on OSS is often counterintuitive to early-stage investors. On the one hand, the non-restrictive OSS approach reduces the barriers to widespread product adoption and collaboration; on the other, OSS is essentially a public good, creating a scenario where anyone can appropriate value from the product without compensating its creators. As such, an OSS approach can dissuade investors primarily concerned with appropriating value for themselves, making it difficult for early-stage OSS ventures to attract investors. However, the rapid rise of crowdfunding has created a communally minded investor base that might instead find OSS projects enticing. We theorize that the attributes of OSS projects align with the communal expectations of crowdfunding investors and thus create supportive environments for OSS-based ventures. We illustrate this alignment through the community-based resource mobilization framework and suggest that the OSS approach yields greater investor trust, leading to superior financing outcomes. Our mixed methods approach blends archival analyses of Kickstarter data with a constructive replication through a randomized experiment, providing consistent support that an OSS approach can be advantageous in the crowdfunding context. Can rewards-based crowdfunding open new doors to finance open-source software (OSS) projects? Our research suggests that crowdfunding backers are more likely to support OSS projects because they are perceived as more trustworthy. While the economic principles of OSS can be counterintuitive, OSS promotes widespread product adoption and collaboration. This allows anyone to benefit from OSS. Our research builds on the notion that crowdfunding, much like OSS, is a communal endeavor. We leverage data from the rewards-based crowdfunding platform Kickstarter.com and a controlled experiment, finding a connection between projects that espouse the OSS approach and crowdfunding success. The culmination of the two studies advances knowledge of the unique preferences of crowdfunding backers and suggests that the crowdfunding context is fertile ground to bring new insights into OSS-focused start-ups.