Crowdfunding and entrepreneurial failure: Why do overfunded startups collapse?

Crowdfunding has become a viable alternative to traditional venture capital and business angel funding. However, new ventures are prone to failure despite exceeding their funding goals. Extant literature presents broad knowledge of the antecedents of crowdfunding success but lacks insights into the causes and consequences of entrepreneurial failure, especially failure after massive overfunding via crowdfunding. We use a qualitative narrative approach to investigate how massive overfunding in crowdfunding threatens entrepreneurial activities. We present our findings as a taxonomy of the causes of failure, at the environmental, firm, and individual levels, based on actual cases that failed after receiving massive overfunding. Our framework challenges established thinking on resources and financing as measures of entrepreneurial success by providing insights into the processes leading to failure despite availability of resources. This serves as a reference for backers aiming to safely invest via crowdfunding and for startups to avoid the common pitfalls of overfunding.