Exploring entrepreneurial legitimacy in reward-based crowdfunding

Abstract

Venture financing through social networks has become a global phenomenon. The processes and drivers of crowdfunding require careful study to identify similarities and distinctions from traditional venture finance. The demonstration of project legitimacy is especially interesting because online crowdfunding limits investors' access to the entrepreneur and organisation. How do rewards-based crowdfunding projects establish and demonstrate legitimacy in this virtual, impersonal context? We employ a novel data-set collected from the Kickstarter crowdfunding platform to explore the characteristics of successful projects, including legitimating signals and content. The data reveal numerous findings linking project characteristics to legitimacy and success. First, lower funding targets and shorter duration signal legitimacy by setting modest, achievable expectations. Rewards structures, such as traditional equity investment terms, appear to generate a sense of legitimate investment returns. Finally, narrative legitimacy in the online crowdfunding context may derive more from the online platform community than the visual pitch. Our study reveals a more nuanced picture of legitimacy formation during rewards-based crowdfunding, with implications for theories of resource assembly and the practice of venture finance.

Working the crowd: Improvisational entrepreneurship and equity crowdfunding in nascent entrepreneurial ventures

“…This links to the strong bias for action within these entrepreneurs. The organisational legitimacy crowdfunding confers on firms also seems important (Frydrych et al, 2014), particularly in the context of the early stage ventures in this study.…”

“…While the causal factors surrounding the emergence of crowdfunding seem fairly clear-cut, the drivers influencing entrepreneurs desire to utilise it are much less well understood (Ahlers et al, 2015;Frydrych et al, 2014), particularly with authors observing that there will likely be "considerable variation in the behaviour of entrepreneurs seeking different forms of this finance" (Bruton et al, 2015, p. 18). Additionally, the extent to which increased demand for crowdfunding is a function of the inability to access traditional sources of funding also remains unclear (Pichler and Tezza, 2016).…”

Entrepreneurship Theory: New Challenges and Future Prospects

“…New social technologies as well as the penetration of entrepreneurship into traditional societies should also attract researchers' attention to forms of start-up financing which have hardly been investigated before, such as crowdfunding in established market economies [Tomczak, Brem, 2013;Fraser et al, 2015] or Islamic banking and its role in the development of entrepreneurship in Muslim societies. We are confident that the expansion of crowdfunding practices, above all in social entrepreneurship [Lehner, Nicholls, 2014], and in start-up financing [Frydrych et al, 2014] will shift the focus of analysis of lending practices to a relatively new group of portfolio investors [Bellef lamme et al, 2013]. These investors belong neither to the cohort of professional business angels, nor to the famous '3Fs' (friends, family, and fools) as they would expect a certain reward on their investment and compare this future reward with the reward from alternative investment possibilities.…”

The Role of Polish Crowdfunding Platforms in Film Productions – an Exploratory Study

“…Any crowdfounder must consider that many factors may constitute the success or failure of crowdfunded projects, for example: the entrepreneur's social capital (see -Zheng et al, 2014), the entrepreneur's network of close contacts (Mendes-Da-Silva et. al, 2016), the way in which the project demonstrates its legitimacy (Frydrych et al, 2014), or the level of required funding, the time of project duration, and its contribution frequency from sponsors (Cordova, Dolci, & Gianfrate, 2015 To analyze crowdfunding for filmmaking we gathered the data from two selected Polish reward-based crowdfunding platforms -polakpotrafi.pl and wspieramkulutre.pl. The analyses were based on the descriptive statistics and KMeans analysis aiming to identify the clusters of film projects.…”