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Exploring entrepreneurial legitimacy in reward-based crowdfunding

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Listed:
  • Denis Frydrych
  • Adam J. Bock
  • Tony Kinder
  • Benjamin Koeck

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.

Suggested Citation

  • Denis Frydrych & Adam J. Bock & Tony Kinder & Benjamin Koeck, 2014. "Exploring entrepreneurial legitimacy in reward-based crowdfunding," Venture Capital, Taylor & Francis Journals, vol. 16(3), pages 247-269, July.
    • Handle: RePEc:taf:veecee:v:16:y:2014:i:3:p:247-269
    DOI: 10.1080/13691066.2014.916512
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    References listed on IDEAS

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    1. Scott Shane & Daniel Cable, 2002. "Network Ties, Reputation, and the Financing of New Ventures," Management Science, INFORMS, vol. 48(3), pages 364-381, March.
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