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 cen- tered 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 essen- tially a public good, creating a scenario where anyone can appropriate value from the product without com- pensating its creators. As such, an OSS approach can dissuade investors primarily concerned with appro- priating value for themselves, making it difficult for early-stage OSS ventures to attract investors. However, the rapid rise of crowdfunding has created a com- munally 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 supe- rior financing outcomes. Our mixed methods approach blends archival analyses of Kickstarter data with a con- structive replication through a randomized experiment, providing consistent support that an OSS approach can be advantageous in the crowdfunding context.