ENTREPRENEURIAL RESOURCE ACQUISITION AT THE INTERSECTION OF SOCIAL INVESTING AND CROWDFUNDING

Abstract

Crowdfunding – an open call on an internet platform for money – is becoming an important source of financial capital for entrepreneurs. Compared to traditional sources of financial capital, the phenomenon of crowdfunding has several unusual properties. Among the most unusual is the violation of the norm of reciprocity between entrepreneur and capital provider on some crowdfunding platforms (cf. Gouldner, 1960). These crowdfunding platforms offer potential funding providers nothing in return - no financial return on investment. Yet because crowdfunded ventures are very early-stage, the risk level is quite high. In one of the most common forms of crowdfunding, all a funder gets in return for their capital is repayment – without interest – of their loaned funds. These deal terms are unattractive; thus it would be surprising if there were much interest in participating from potential funders. Yet, there is no shortage of people willing to provide funds on these terms. This mismatch between what the entrepreneurial finance literature predicts and observations of the phenomenon suggests that when we examine crowdfunding as a financial transaction alone, we may be missing a material element of the phenomenon. Prior work has suggested a prosocial component to crowdfunding. Yet this work has stopped short of explaining how a firm’s choices can influence crowdfunding performance through a prosocial mechanism. Accordingly, I draw from research on prosocial behavior to develop cross-level theory on the means by which entrepreneurial rhetoric in the form of prosocial cues and trust cues influence prosocial funding behavior by investors providing capital to investors through crowdfunding. I examine whether entrepreneurs who display these cues in crowdfunded microlending requests experience different resource acquisition performance. The findings indicate that prosocial and trust cues have a significant impact on resource acquisition performance in crowdfunding. Moreover, the findings suggest that investors’ perceptions of prosocial impact, their affective commitment, and their prosocial motivation convey the effect of prosocial cues onto fundraising performance.