Success Factors in Reward based and Equity based Crowdfunding in Finland

Master’s Thesis 
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4.1.2. Reward-based Model 
In reward-based crowdfunding funders receive compensation for their contribution, 
but not in the form of financial returns. These compensations can be divided into two 
categories: tangible rewards and intangible rewards.
An intangible reward can be for example being credited in a movie or having creative 
input in a product during development (Mollick, 2014). Alternatively, the reward can 
simply be recognition or voting rights (Belleflamme et al., 2014). This means funders 
receive something in return for their contribution, but it is not directly the product or 
service being crowdfunded. 
A tangible reward on the other hand is usually the product or service being crowd-
funded. This type of reward system is also referred to as pre-selling or pre-ordering. 
Funders are seen as early customers that get products earlier than other, at a better 
price or with a special benefit (Mollick, 2014). Thus this type of crowdfunding often 
requires the entrepreneur to have at least a prototype of the product ready at the time 
of crowdfunding (Belleflamme et al., 2014). 
Pre-ordering has both benefits and challenges for a startup entrepreneur. Entrepre-
neurs can use pre-ordering to test pricing by having customers reveal their willingness 
to pay for a crowdfunded offering (Belleflamme et al., 2014). These funders can also 
be seen as or turned into ambassadors of the product or service. These early-stage 
funders can promote the offering on social media and gain public interest for the en-
trepreneur (Belleflamme et al., 2015). However, an entrepreneur may lose future prof-
its if pre-ordering is excessive. When the amount of capital needed through crowd-
funding is large, the entrepreneur is forced to distort their pricing to attract more fun-
ders – meaning they pre-sell the product or service at too low a price in order to invite 
more customers. This will make them lose future customers and profits. This is why 
pre-ordering is suitable for entrepreneurs with relatively small capital requirements 
working in a market with a large customer base. (Belleflamme et al., 2014) 
All in all, the wide range of possible rewards means reward-based crowdfunding is 
suitable for a relatively varied group of ventures. The taste heterogeneity of funders 
plays a more prominent role in reward-based than in investment-based crowdfunding. 

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