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Watch or Do? Vicarious and Experiential Learning in a Crowdfunding Market

Professor Alva Taylor
Technological Innovation, Entrepreneurship, and Strategic (TIES) Management Seminar
Massachusetts Institute of Technology (MIT)
November 7, 2016.

Abstract (coauthored by Alva Taylor & Jaclyn Selby)

It is well established that in addition to learning from their own experience, firms seek to learn from the experience of other organizations. However, an outstanding question is do firms benefit and learn from observing others’ experiences to the same degree that they can build knowledge from their own experiences?

To address this gap, we examine experiential and vicarious learning in the crowdfunding setting and investigate the relative impact of these two learning modes on new venture funding success. We argue that learning can be viewed as a process of solving ambiguity in undertaking future action and that direct and vicarious experience differs in impact on this process. To tease out these constructs, we disaggregate an organizations’ prior direct and vicarious experiences into two dimensions, first splitting them along performance outcomes (failure and successes) and then by industry relatedness.

To test our hypotheses, we use data from the popular Kickstarter platform to construct a sample of 3071 crowdfunding campaigns seeking funding between 2009 and 2015. Drawing on previous research that argues that technology-based crowdfunding campaigns largely go on to become technology ventures and firms, we focus on technology-oriented campaigns aiming to produce physically manufactured products.

Our findings show that direct and vicarious learning are both beneficial for successful projects, but firms tend to only learn from vicariously, as the biases and complexities associated with being involved with failures hamper the ability to learn. Similarly, firms also only learn from unrelated activities vicariously as they can use the multiple observations to make sense of area, in a way that being involved does not allow them. Surprisingly, overall vicarious learning is a stronger and more efficient process for firms to learn when given the option to do both.