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Supporting entrepreneurs: The role of third-party endorsement in crowdfunding platforms

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  • Massa Saluzzo, Federica
  • Alegre, Inés

Abstract

Third-party endorsements are appreciated in entrepreneurial ventures since they help signal the value of an idea and the trustworthiness of an entrepreneur. They contribute therefore to reducing ‘information asymmetry’, always present in an entrepreneur-investor relationship. However, the role of third-party endorsements in for-profit contexts might differ from that in prosocial contexts. In prosocial contexts, investors are interested not only in financial returns but also in creating a social impact. On the one hand, the endorsement might signal trustworthiness, while on the other, it might also signal that the entrepreneur already has some financial support and thus is less in need than an entrepreneur with no support at all. Investors seeking to maximize their social impact might perceive the social impact generated by funding an endorsed entrepreneur as smaller than the social impact created by funding an entrepreneur with no support at all. This study analyzes these contradictions through the lens of signaling theory and explores the role of third-party endorsements in the success of entrepreneurial projects in the context of online social crowdfunding. A comparison of different types of endorsements shows that having a pro bono endorsement provides the best equilibrium between the number of investors and dollars per investor.

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  • Massa Saluzzo, Federica & Alegre, Inés, 2021. "Supporting entrepreneurs: The role of third-party endorsement in crowdfunding platforms," Technological Forecasting and Social Change, Elsevier, vol. 162(C).
    • Handle: RePEc:eee:tefoso:v:162:y:2021:i:c:s0040162520312282
    DOI: 10.1016/j.techfore.2020.120402
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