Watch or Do: Vicarious and Experiential Learning by Entrepreneurs in a Crowdfunding Market

Over the past decade, startups seeking funding have increasingly turned to crowdfunding platforms as they become a mainstream source of financing and specifically a channel for entrepreneurial seed capital. One positive externality of being embedded in these environments is that vicarious observations of other early-stage firms provide entrepreneurs with opportunities to compare their own performance to the outcomes of peer organizations and to garner information about the practices, activities, and capabilities that led up to those outcomes. It is well established in the organizational learning literature 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? Prior research has typically examined direct and vicarious learning processes independently. Where studies have included measures of both modes of learning, they focus on a single dimension such as prior failure. Consequently, we have a limited understanding of how the impact of vicarious experience differs from that of direct experience. To address this gap, we examine experiential and vicarious learning in the crowdfunding setting and estimate the relative impact of these two learning modes on new venture funding success. We propose that vicarious experience and direct experience both positively contribute to funding performance but operate via differential mechanisms. To tease out these constructs we disaggregate an organizations’ prior direct and vicarious experiences into two dimensions, first splitting them along performance outcomes and then by industry relatedness. Specifically, do failure experiences moderate direct and vicarious learning differently than success experiences? Does learning from experience in an outside industry require a different mode for learning than experience within in the same industry? To test our hypotheses, we used 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. We propose 1) both learning modes will independently positively contribute to funding performance. We then argue 2) that within each mode (direct, vicarious), learning from previous success will be a stronger driver of funding performance than learning from previous failure. However, due to attribution bias we suggest that learning from vicarious failure contributes more to subsequent venture performance than learning from direct failure. Finally we argue 3) that learning from related industries contributes more to funding performance than learning from unrelated industries. Our results show strong support for our first two groups of hypotheses. However, we find, surprisingly, that vicarious unrelated experience confers greater benefits than vicarious related experience.