Reward-based crowdfunding of entrepreneurial projects: the effect of local altruism and localized social capital on proponents’ success

Abstract

Despite the omnipresent reach of the Internet, evidence exists that geography matters in crowdfunding. This paper shows that some salient characteristics of the geographical area in which entrepreneurs reside affect the success of the crowdfunding projects they propose. Specifically, we theoretically discuss and empirically document that the altruism of people residing in the area (i.e., local altruism) increases the likelihood of success. Moreover, the strength of this effect depends on the level of social capital in the area (i.e., localized social capital). Building on the extant literature, we claim that localized social capital has two main dimensions: the social relations among residents and their compliance with social norms. Using a dataset of 618 proponents that launched 457 crowdfunding projects on 13 Italian reward-based platforms, we find that social relations magnify the effect of local altruism. Conversely, compliance with social norms does not have any moderating effect

New players in entrepreneurial finance and why they are there

“…Geographic distance is indeed negatively correlated with investment probability for all home country investors, while overseas investors are not sensitive to distance. Giudici et al (2017) find that the success of crowdfunding projects closely depends on the characteristics of the geographical area where project proponents are located, which creates a local basin of potential backers. Accordingly, they document that the altruism of people residing in the area contributes to an increased likelihood of success of reward-based campaigns in Italy.…”

“…They find that female investors are less likely to bid in campaigns from younger teams and in high-tech projects, consistent with a greater risk-aversion of female versus male investors. The geographical aspects of crowdfunding are studied by Guenther et al (2017) and by Giudici et al (2017). The former presents evidence of the influence of geographic distance among home country retail, accredited, and overseas investors and venture location in an equity crowdfunding context.…”

Backer Motivation in Crowdfunding New Product Ideas: Is It about You or Is It about Me?

“…Cholakova and Clarysse (), who examine the reward‐based crowdfunding projects, also view helping others as an intrinsic factor in influencing backer behavior. Giudici et al () suggest that backer altruism facilitates project success and find that it is especially true when backers reside in the same geographic area with strong altruism. However, psychology literature has underlined another dimension of motivation based on egoism, which is largely neglected in prior crowdfunding studies.…”

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

“…To date, research has focused upon the rewards-based model synonymous with the US firm Kickstarter and donation crowdfunding (Gerber et al, 2012;Colombo et al, 2015;Mollick, 2014;Giudici et al, 2017) 1 , however the concept has rapidly expanded both in terms of format and geography (Hemer, 2011;World Bank, 2013;Lin and Viswanathan, 2015;Short et al, 2017). In recent years increasing academic interest is being shown in equity crowdfunding -a prominent source of finance for nascent entrepreneurial ventures (Collins and Pierrakis, 2012;Ralcheva and Roosenboom, 2016;Vismara, 2016b;Block et al, 2016;Vulkan et al, 2016) originally rather narrowly defined as "a model in which crowdfunders receive a financial compensation" (Belleflamme et al, 2014, p. 317).…”