Crowdfunding has emerged as a popular way for entrepreneurs to finance their innovative products or ventures. However, not all crowdfunding campaigns are successful, and many factors can influence the outcome. One such factor is the use of patents as a signal of quality and innovation. While previous research has suggested that patents can increase the likelihood of accessing financing, a recent study has revealed a paradoxical effect of patents in the crowdfunding context. In this blog post, we will explore the patent paradox in crowdfunding and its implications for entrepreneurs, and investors.

‍

‍

Before we dive into the study, let's first provide some background information on crowdfunding and signaling theory. Crowdfunding is a method of raising funds from a large number of people, typically through online platforms such as Kickstarter or Indiegogo. Signaling theory, on the other hand, is a concept from economics that explains how individuals use signals to convey information about their quality or ability. In the context of crowdfunding, entrepreneurs may use various signals, such as social proof or endorsements, to attract backers and increase the likelihood of success. One such signal is the use of patents, which are legal protections for inventions that can signal the quality and novelty of innovation.

‍

Now, let's turn to the study of the patent paradox in crowdfunding. The study, which was conducted by researchers from the University of Padova and the University of Bologna, analyzed data from over 1,000 Kickstarter campaigns in the technology and design categories. The researchers found that while patents can increase the amount of funding raised, they can also decrease the likelihood of success. In other words, having a patent can signal quality and innovation, but it can also signal complexity and uncertainty, which can deter potential backers.

‍

So, what are the implications of the patent paradox in crowdfunding? For entrepreneurs, it suggests that they should carefully consider the use of patents as a signal of quality and innovation. While patents can increase the amount of funding raised, they may also decrease the likelihood of success. For investors, it suggests that they should not rely solely on patents as a signal of quality and innovation, but should also consider other factors such as team experience and market potential. 

‍

In conclusion, the patent paradox in crowdfunding highlights the complex nature of signaling in the context of innovation and entrepreneurship. While patents can signal quality and innovation, they can also signal complexity and uncertainty, which can have a negative effect on crowdfunding success.