Mind the Gap: Crowdfunding and the Role of Seed Money

We analyze voluntary private contributions to public goods and the role seed money plays in signaling the public good's quality to potential subsequent contributors. We present a theoretical model and analyze two sets of naturally occurring data from crowdfunding platforms. After developing the theoretical background, we find statistically significant switch points that distinguish between seed contributions and subsequent contributions. A positive change in contribution behavior after the switch suggests an increase in the perceived value of the public good. We find that the signal comprises the number of contributors and the average contribution (as a proportion of the targeted goal).