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

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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.

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Notes

  1. https://www.kickstarter.com/.

  2. Other studies on crowdfunding use the terms philanthropic (Gerber and Hui 2013) or pro-social behavior (Villarroel and Pinto 2014).

  3. On the contributions of self-efficacy to crowd-based phenomena, see Hertel et al. (2003).

  4. Bookabook (http://bookabook.it), Boomstarter (http://boomstarter.it), Crowdfundme (http://www.crowdfundme.it), Crowdfunding-Italia (http://www.crowdfunding-italia.com), DeRev (https://www.derev.com), Eppela (http://www.eppela.com), Ginger (http://www.ideaginger.it), H2RAISE (http://www.h2raise.it), Kendoo (http://www.kendoo.it), MusicRaiser (http://www.musicraiser.com), Produzioni Dal Basso (https://www.produzionidalbasso.com), Starteed (http://www.starteed.com), and TakeOff Crowdfunding (http://www.takeoffcrowdfunding.com). For an overview of the Italian crowdfunding market, see Giudici et al. (2013).

  5. For additional details on the sources of information used to build our social capital measures, please see Table 3 in “Dependent and independent variables and econometric model specifications” section.

  6. If the same individual (or organization) presented more than one crowdfunding project, we consider her/him (or it) a distinct proponent for each project. The proponent is therefore defined as the individual (or organization) that presented a given crowdfunding project. In other words, two proponents can refer to the same individual presenting two different projects.

  7. For instance, these entities include universities, hospitals, and cultural associations. Note that taxpayers may change the entities to which they donate their 5 per mille every year.

  8. The interaction terms were formed based on the standardized values of the abovementioned variables.

  9. The average ME is the average increase in proponent success in our sample due to a one-unit increase in the variable of interest. As all regression variables have been standardized, a one-unit increase corresponds to a one standard deviation increase. It is worth noting that the coefficients reported in Table 7 represent the MEs on the latent variable (attractiveness), but they cannot be directly interpreted as the MEs on the observed variable (proponent success). Given the non-linear nature of the Tobit model, average MEs on proponent success are obtained by calculating the ME for each observation in the sample and then averaging the computed MEs.

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Acknowledgements

We presented earlier drafts of this paper at the XXV Annual Scientific Meeting of the Associazione Italiana di Ingegneria Gestionale in Bologna (Italy), October 16–17, 2014, the “Economics of Entrepreneurship and Innovation” workshop, June 2–3, 2015, in Trier (Germany), and the Third Crowdinvesting Symposium, October 23, 2015, in Munich (Germany). The authors thank their colleagues at these conferences for their helpful suggestions. The authors are also grateful to Vincenzo Butticè, Massimo G. Colombo, and Chiara Franzoni, who provided useful comments on earlier versions of the paper. Moreover, they wish to thank the two anonymous referees and the guest editors of the special issue for their insightful and constructive comments, which proved to be very helpful in developing the final version of the paper. Francesca Tenca, Paola Rovelli, and Gianluca Grassi provided excellent research assistance in collecting data. Responsibility for any error rests solely with the authors.

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  1. Politecnico di Milano - School of Management, Via Lambruschini 4b, 20156, Milan, Italy

    Giancarlo Giudici, Massimiliano Guerini & Cristina Rossi-Lamastra

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  1. Giancarlo Giudici
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Giudici, G., Guerini, M. & Rossi-Lamastra, C. Reward-based crowdfunding of entrepreneurial projects: the effect of local altruism and localized social capital on proponents’ success. Small Bus Econ 50, 307–324 (2018). https://doi.org/10.1007/s11187-016-9830-x

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