The Dark Side of Entrepreneurial Crowdfunding

THE DARK SIDE OF ENTREPRENEURIAL CROWDFUNDING

STEVEN ANDREW CREEK

A dissertation submitted in partial fulfillment of the requirements for the degree of

DOCTOR OF PHILOSOPHY

WASHINGTON STATE UNIVERSITY Carson College of Business

MAY 2018

To the Faculty of Washington State University:

The members of the Committee appointed to examine the dissertation of

STEVEN ANDREW CREEK find it satisfactory and recommend that it be accepted.

Arvin Sahaym, Ph.D., Chair

Thomas H. Allison, Ph.D.

John B. Cullen, Ph.D.

ii ACKNOWLEDGEMENTS

As a Christian, I first and foremost “give thanks to the Lord, for he is good and his love

endures forever (1 Chronicles 16:34).” This dissertation would not have been possible without

God and the people he brought into my life. The first of those people are Dr. Fred David and Dr.

Kay M. Poston of Francis Marion University and Dr. Denny Bates of Quality Leadership

Consultants, who I thank for their support and encouragement as I applied for admittance into the

Ph.D. Program at Washington State University.

I owe much of my success during my four years at WSU to faculty members in the

Carson College of Business. Above all, I would like to thank my committee chair, Dr. Arvin

Sahaym, for accepting me into the program in 2014 and his unending mentorship since. His desire to grow me into an academic has changed my life and leaves me forever indebted. I also greatly appreciate my other committee members, Dr. Thomas H. Allison and Dr. John B. Cullen, whose input has been invaluable both to this dissertation and my Ph.D. journey as a whole. I would also like to acknowledge Dr. Kristine M. Kuhn, who along with Dr. Sahaym coauthored my first publication, as well as Dr. Paul F. Skilton and Dr. Benjamin J. Warnick who coauthored conference papers. Lastly, I would like to thank my seminar and methods professors who vastly improved my understanding of business and statistics: Dr. Sahaym, Dr. Cullen, Dr. Kuhn, Dr.

Babu J. Mariadoss, Dr. Jeffrey Joireman, Dr. Leonard Burns, and Dr. Craig D. Parks.

I also thank my peers, many of which I now call friends, who have toiled with me through exams, teaching assistantships, and research. Overall, my Ph.D. program experience was greatly improved by riding the highs and lows with my cohort Josh, Eunie, Amir, and Edwin, in addition to Pyayt, Zafrin, Nara, Smita, Chandresh, Lawrence, and other students in the

Management, Information Systems, and Entrepreneurship department. A special thank you to

iii Joshua D. Maurer and Dr. Pyayt P. Oo, fellow students who have contributed to past and present

research projects of mine.

I would lastly like to thank my family. Thank you to my parents, who instilled in me the

work ethic required to complete this degree. Thank you to my sister, Kristina, for late night

conversations and last minute proof reading. Thank you to my son, Peter, for making me shut

down the computer each morning and constantly reminding me of the important things in life.

My deepest appreciation is owed to my wife, Irina, who without hesitation picked up and moved across the country to allow me to pursue my Ph.D. studies. This dissertation could not have been accomplished without her unparalleled support and positivity throughout the last four years.

iv THE DARK SIDE OF ENTREPRENEURIAL CROWDFUNDING

Abstract

by Steven Andrew Creek, Ph.D. Washington State University May 2018

Chair: Arvin Sahaym

This dissertation takes a three essay approach to examining the dark side of entrepreneurs

who use crowdfunding to finance new ventures. The first essay explores the influence of legitimacy and celebrity on some of the most successful crowdfunding campaigns. I examine the roles of supportive and challenging media frames in the twin domains of pragmatic and moral legitimacy, and their impact on crowdfunding performance. Using a content analysis of 459 news articles written about lucrative Kickstarter campaigns, I find an increase in capital raised through crowdfunding when the pragmatic or moral legitimacy of the campaign is supported in media frames. While celebrity founders attract more money overall, lesser-known founders can reduce this discrepancy when media outlets promote their moral legitimacy.

The second essay investigates the impact of funding from family members, friends, and self-backing on crowdfunding outcomes. I employ a mixed methods research design which includes a survey of crowdfunding project founders. My results highlight the importance of offline social capital and reveal that self-backing is a prevalent practice among crowdfunding campaign founders. External social capital and late-stage self-backing are found to be linked to both campaign success and total amounts raised while early-stage self-backing is not.

v Dark personality traits and their influence within the context of crowdfunding is the focus of my third essay. While prior research has examined the importance of positive psychological

traits to entrepreneurship, much less attention has been given to dark personality traits. Drawing

on social exchange and life history theories, I propose that the dark triad (comprised of the

malevolent traits narcissism, psychopathy, and Machiavellianism) affect funding levels differently contingent upon the type of crowdfunding campaign chosen by the founder. I analyze data involving 328 campaigns from a variety of web platforms to examine these differences, and find that crowdfunding narratives high in narcissism attract less funding in rewards-based campaigns while narratives high in psychopathy raise more money in equity campaigns. Overall, dark personalities were found to be beneficial to entrepreneurs utilizing equity crowdfunding but harmful to individuals using rewards-based platforms.

vi TABLE OF CONTENTS

Page

ACKNOWLEDGEMENTS ...... iii

ABSTRACT ...... v

LIST OF TABLES ...... viii

LIST OF FIGURES ...... ix

CHAPTER

1. INTRODUCTION ...... 1

2. ESSAY ONE ...... 5

“Lucrative Legitimacy: Media Influence of the Public Perception of Elite Crowdfunding Campaigns”

3. ESSAY TWO ...... 45

“Offline Social Capital and the Dark Side of Online Crowdfunding”

4. ESSAY THREE ...... 70

“The Dark Triad and Entrepreneurial Fundraising: A Comparison of Rewards-Based and Equity Crowdfunding Campaigns”

5. DISSERTATION SUMMARY AND GENERAL CONCLUSIONS ...... 103

vii LIST OF TABLES

1.1 Types of Crowdfunding……………………………………………………………………....3

2.1 Descriptive Statistics and Correlations for Essay One………………………………………30

2.2 Clustered Regression Model Results for Money Raised Post-Publication………………….32

2.3 Clustered Regression Model Results for Total Amount Raised…………………………….33

3.1 Crowdfunding Founder Descriptives……………………………………………….……….57

3.2 Funding Source Descriptives………………………………………………….…………….58

3.3 Means, Standard Deviations, and Pearson Correlations for Essay Two…………….……....59

3.4 Regression Models of Total Amount Raised and Campaign Success……………………….60

4.1 Word List and Examples for Dark Triad Traits……………………………………………..84

4.2 Descriptive Statistics and Pearson Correlations for Crowdfunding Subsamples………..….88

4.3 Regression Models of Total Amount Raised for Subsamples……………………………....89

4.4 Descriptive Statistics and Pearson Correlations for Full Sample……………………………90

4.5 Regression Models of Total Amount Raised for Full Sample…….…………………………91

viii LIST OF FIGURES

2.1 Supported Moral Legitimacy & Celebrity Founder Interaction…….…………….………...34

4.1 Dark Triad x Crowdfunding Type Interaction…………………………...………………….92

Dedication

This dissertation is dedicated to my wife, Irina. I will forever be a student of your

unwavering love and patience.

x CHAPTER ONE

INTRODUCTION

My dissertation focuses on crowdfunding, an increasingly coming method that entrepreneurs use to acquire financial capital. Crowdfunding is gaining traction in both research and practice. Unlike more traditional approaches to financing, crowdfunding involves soliciting small contributions from a large amount of people, typically via the internet. Existing research focuses primarily on legitimate techniques for getting the most out of crowdfunding campaigns.

My dissertation, which is comprised of three essays, represents the first research which examines the opposite side of the coin: illegitimate actions or gray areas that certain crowdfunding founders have tried to leverage. The essay in Chapter 2 examines how various forms of legitimacy portrayed in the media influence funding success. I suggest that celebrity founders have a large advantage, but that the advantage can be reduced through attracting legitimacy. In

Chapter 3, I seek to understand the origins of the seemingly anonymous contributions to crowdfunding campaigns. Specifically, I suggest that much of this funding actually stems from friends and family or in some cases, unapproved self-backing. The third essay (Chapter 4) focuses on dark personalities and their influence on crowdfunding outcomes. I posit that dark personalities spawn lower levels of support in rewards-based crowdfunding but higher levels of support in equity campaigns.

Taken together, this research informs the crowdfunding debate in several ways. The first essay draws upon media framing theory to explain how supportive coverage in the media can increase an entrepreneur’s legitimacy and subsequently, their crowdfunding results.

Crowdfunding campaigns are likely to receive very mixed opinions in press coverage due to the vast array of projects that are started and the wide audience. Journalists communicate their

1 opinions of certain aspects of crowdfunding campaigns while omitting others. Therefore, the

legitimacy of a campaign wavers to some extent based upon the way in which authors frame

their material. One of my first research questions involves celebrity crowdfunding founders and

their acceptance in the media. While some reporters may be excited to see famous musicians or

actors interacting with the public via crowdfunding, others may wonder about the validity of a

wealthy individual asking the common man for start-up funds.

In the first essay I hypothesize that media frames which support a campaign’s pragmatic

or moral legitimacy increase crowdfunding outcomes while media frames which challenge

legitimacy hinders campaign success. Furthermore, I suggest that despite some negative press,

celebrities are able to raise considerably more funding than others. Lastly, I posit that because

celebrities have already established a high level of legitimacy, positive media frames are more

beneficial to unknown campaign founders.

The research questions in my second essay encompass the impact of external social capital and self-backing on crowdfunding. External social capital is dependent upon personal relationships with other people, especially family and friends. Therefore, I surveyed 135 crowdfunding founders to determine the extent to which family and friends are involved in backing campaigns. While external social capital has received some attention in crowdfunding literature, previous measures may be less accurate (e.g., number of friends of LinkedIn). The impact of self-backing, on the other hand, has never been empirically tested. Thus, essay two introduces new theory about why entrepreneurs may resort to the dark act of self-funding, an action that is prohibited on most platforms.

Specifically, moral licensing theory suggests that individuals allow themselves to behave in morally unacceptable ways by recalling their previous morally acceptable actions. In this vain,

2 they convince themselves that the good they have done outweighs the bad they’re about to do.

Morally unacceptable behaviors are especially prevalent online since internet users are relatively

anonymous. I therefore suggest that the self-backing of crowdfunding campaigns is relatively common, and may provide benefits when done at the early or late stages of a campaign. Early-

stage self-backing may encourage others to also fund the project (i.e., create a herding effect) while late-stage self-backing could make up the difference between already contributed funds

and the goal amount. In an all-or-nothing crowdfunding format, where money is forfeited if goals

are not reached, self-backing could be especially tempting.

Table 1.1. Types of Crowdfunding 2017 Global Leading Type Descriptiona Amount Raisedb Platform (1) Debt (Peer-to-peer lending) Lenders give loans expecting their $25 Billion LendingClub principal plus interest in return. (2) Donation-Based or Donors give small amounts of money to $5.5 Billion Kickstarter Rewards-Based support a cause with no returns expected (donation-based) or in exchange for a reward such as a product upon its completion (rewards-based). (3) Equity Investors give large amounts of money $2.5 Billion Crowdcube in exchange for a piece of equity in the company. a Descriptions published June 2, 2015. http://crowdfundinghacks.com/different-types-of-crowdfunding/, accessed March 31, 2018. b Source: https://blog.fundly.com/crowdfunding-statistics/#nonprofit, accessed March 31, 2018.

Table 1.1 shows the three predominant types of crowdfunding. While research on

crowdfunding is relatively scant, each type has received a limited degree of attention. However,

research has yet to incorporate multiple types of crowdfunding into a single empirical study. My

third essay examines how dark personalities can influence crowdfunding outcomes differently

depending on the type of campaign launched. Specifically, I examine differences between

rewards-based and equity campaign outcomes when founders exhibit dark traits.

3 I rely upon social exchange theory to suggest that dark personalities are detrimental to crowdfunding outcomes in rewards-based campaigns. I make this assertion because effective social exchange involves reciprocal benefits and while reciprocation is important to backers, it is much less of a concern to individuals with dark personalities. However, in equity campaigns, entrepreneurs and investors share the desire to make money. Therefore, I hypothesize that the leadership and entrepreneurial abilities associated with darker personalities may benefit equity campaign founders.

Overall, my research provides several contributions to entrepreneurship theory and crowdfunding practice. While some dark aspects of crowdfunding may be disadvantageous to entrepreneurs, I show that others can be beneficial (and legal) in certain situations. In the chapters that follow, I address these aspects of the dark side of crowdfunding in greater detail.

4 CHAPTER TWO

ESSAY ONE

LUCRATIVE LEGITIMACY: MEDIA INFLUENCE ON THE PUBLIC PERCEPTION

OF ELITE CROWDFUNDING CAMPAIGNS

ABSTRACT:

This study examines the influence of pragmatic and moral legitimacy on elite crowdfunding campaigns. Drawing on legitimacy, media framing, and celebrity literatures, I examine the role of both supportive and challenging media frames in the twin domains of pragmatic and moral legitimacy, and their influence on crowdfunding performance. I posit that both pragmatic and moral legitimacy are crucial to funding performance. I also hypothesize that celebrity status moderates the relationship between legitimacy and crowdfunding success such that positive media frames are more impactful for lesser-known entrepreneurs. I test my hypotheses based upon a content analysis of 8,501 sentences from 459 news articles written about Kickstarter campaigns. I draw a purposive sample of high profile/highly successful crowdfunding campaigns to capture campaigns that will be noticed by media sources. I find an increase in capital raised through crowdfunding when the pragmatic or moral legitimacy of the campaign is supported in media frames. I also find that while celebrity founders attract more money overall, lesser-known founders can reduce this discrepancy when media outlets promote their moral legitimacy.

Keywords: crowdfunding, legitimacy, media, celebrity entrepreneurs

“[I’ve] got a great investment opportunity for you. You come up with X amount of money, with a guaranteed loss of 100 percent of whatever you put in. All of the cash goes to an Upper East Side zillionaire. Interested? Spike Lee’s operators are standing by...” (An example of a negative quote about a campaign involving a celebrity. Written by Kyle Smith, 7/26/2013, New York Post1)

INTRODUCTION Crowdfunding is an entrepreneurial financing method whereby an entrepreneur seeks to

raise funds from a group of individuals for specific project or purpose—though not necessary,

this method is often internet-based and funding is mostly solicited in return for some type of

reward or equity (Belleflamme et al., 2014; Bruton et al., 2015; Davis et al., 2017; Mollick,

2014). Crowdfunding is becoming an increasingly important method for venture financing with

the World Bank estimating that levels of crowdfunding will reach $90 billion by 2020 (c.f.,

Barnett, 2015). However, “despite the importance and growth of crowdfunding, little scholarly

knowledge exists about the topic” (Short et al., 2017, p. 149).

Prior research has primarily advanced the understanding of this phenomenon by

exploring the role of select determinants on crowdfunding success (Davis et al., 2017; Short et

al., 2017). Though scholars have suggested that legitimacy could be important in this context

(Mollick, 2014; Frydrych et al., 2014), there is scant empirical research on the nuanced influence

of different types of legitimacy on crowdfunding performance or the relevant time-frames surrounding such influence. Given that crowdfunding mostly garners funds for products or processes that are relatively unfinished or unproven (Davis et al., 2017), I build on the premise that a potential funder’s or backer’s perception about the project, media coverage, and legitimacy

1 Quote published July 26, 2013 about “The Newest Hottest Spike Lee Joint” Kickstarter campaign. http://nypost.com/2013/07/26/why-multimillionaire-spike-lee-is-begging-for-funding-on-kickstarter, accessed December 14, 2016.

may play a critical role in her or his decisions, which subsequently influences crowdfunding

performance.

Moreover, the nascent literature on legitimacy and crowdfunding has mostly focused on

the role of internal legitimacy on crowdfunding success (e.g., Frydrych et al., 2014). Though

these studies have advanced our understanding regarding the relationship between generic

legitimacy and crowdfunding performance, there is a gap in our understanding on the role of

legitimacy from diverse sources, particularly external sources such as media, on crowdfunding

performance. Extant research has mostly relied on internal sources such as the crowdfunding

campaign’s own website/page to assess legitimacy as opposed to ascertaining legitimacy as

evaluated by external sources. I build on the notion that external sources arguably play a more

important role in granting legitimacy because legitimacy is socially constructed based on the

perceptions and views of broader groups of observers (Deephouse and Suchman, 2008;

Suchman, 1995, p. 574).

This is one of the first studies to account for the effect of legitimacy generated through

media coverage for a specific crowdfunding campaign on the campaign’s performance. Further, I

explore the effect of founders’ celebrity status on crowdfunding campaign performance. This is because one important driver of media coverage of any project or firm is its association with

celebrities. Media and celebrities often feed each other, generating emotional responses among

their audience with effects such as increased sales (Hayward, Rindova, and Pollock, 2004; Kelly

et al., 2008; Malmendier and Tate, 2009; Tom et al., 1992; Zauner et al., 2012). On one hand,

media creates and validates celebrities’ personas. On the other hand, celebrities develop their

own brand identity over time, which serves as an asset for media, firms, and products they

7 endorse. However, association with celebrities is considered a ‘double edged sword’ and results are mixed2 (Cho et al., 2016). Crowdfunding research has yet to explore the effect of celebrity.

To address these issues my study examines three questions: (1) How do different types of legitimacy (specifically, pragmatic and moral legitimacy) attained through media coverage influence a crowdfunding campaign’s success? (2) Does founder celebrity status enable their crowdfunding campaigns to raise more money as compared to those campaigns who do not have celebrity founders? (3) How does a founder’s celebrity status influence the relationship between legitimacy attained through media coverage and crowdfunding success?

I draw on media framing, legitimacy, and status perspectives to argue that legitimacy attained through media framing facilitates crowdfunding performance and celebrity status enhances the level of success in terms of raising more funds. I test my assertions using content analysis of a sample of 459 articles, totaling 8,501 sentences written about 110 campaigns.

Campaigns in my sample raised funds ranging from over $1 million to just under $13.3 million dollars. My findings using clustered regression suggest that pragmatic and moral legitimacy attained through media coverage substantially increase the funds raised by a campaign, and a founder’s celebrity status helps in raising higher amounts. My results contribute to research on media framing, legitimacy, and status perspectives. I believe that the role of external legitimacy gained from media coverage as well as celebrity endorsements of campaigns will play an increasingly important role in crowdfunding literature with the growth in mass communication as well as crowdfunding in this information age.

2 One success story is about actress Kristen Bell, who raised two million dollars on Kickstarter in hopes of making a movie similar to her hit TV show Veronica Mars. The campaign nearly tripled her original goal. On the other hand, a dismal failure story is that of the cast members of the television sitcom Good Times who got inspired by Kristen Bell’s success and attempted to raise a million dollars. The group raised less than one percent of their million-dollar target.

I organize the rest of the paper as follows. First, I discuss legitimacy, media framing, and

celebrity literatures and develop theory and hypotheses. Second, I explain the methodology used

to test the hypotheses and present the results of my analysis. Finally, I discuss the results, future

research directions, and some limitations of my study.

THEORY AND HYPOTHESES

Legitimacy through Media’s Framing and Crowdfunding Success Legitimacy. According to Suchman (1995: 574), legitimacy is “a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions.” Legitimacy is socially constructed and is based on the perceptions of external parties or observers (Suchman, 1995:

574). Of the three types of legitimacy discussed by Suchman (1995)—pragmatic, moral, and

cognitive—pragmatic and moral are salient to the context of my study and their influence on

crowdfunding success is my focus3. Pragmatic legitimacy “rests on the self-interested

calculations of an organization’s most immediate audiences” (Suchman, 1995: 578). Moral

legitimacy depends “not on judgments about whether a given activity benefits the evaluator, but

rather on judgments about whether the activity is ‘the right thing to do’” (Suchman, 1995: 579).

Legitimacy is crucial for firms trying to secure capital during their early years. For ventures to establish legitimacy, it is important that potential investors view a venture’s actions as socially valuable and appropriate (Higgins and Gulati, 2006). New ventures specifically seek to demonstrate both pragmatic and moral legitimacy to potential or current stakeholders

(Suchman, 1995). However, pragmatic and moral legitimacy are distinct constructs and may not

3 I do not include cognitive legitimacy because it takes many years to establish (Suchman, 1995). Further, in the context of crowdfunding, which deals with relatively new projects that are visible for only 30 days on average, it is especially difficult to gain cognitive legitimacy.

9 be obtained simultaneously. Sometimes one may diminish the other, for example, when Yahoo cooperated with Chinese censorship regulations it likely gained them pragmatic legitimacy in

China while simultaneously diminishing their moral legitimacy in the United States (Stevens,

Xie, and Peng, 2015). In sum, it is possible that when an entity strives to enhance one type of legitimacy based on certain actions in a given context, it may decrease the same or other type of legitimacy in another context.

Media Frames. According to Entman (1993: 52) “Framing essentially involves selection and salience. To frame is to select some aspects of a perceived reality and make them more salient in a communicating text, in such a way as to promote a particular problem definition, causal interpretation, moral evaluation, and/or treatment recommendation for the item described.

Typically frames diagnose, evaluate, and prescribe.” Frames are “schemata of interpretation” of situations that can influence behavior (Goffman, 1974, p. 21). According to Barsalou (1992, 21)

“frames can represent conceptual combinations, event sequences, rules and plans” making them richer than mental schemas—they incorporate relationships of hierarchy, temporality, or modality. Research has established that frames exist on diverse levels (collective, social, individual, and psychological etc.; Humphreys and Latour, 2013). A common theme across levels is that they are “mental structures that allow human beings to understand reality—and sometimes to create what we take to be reality” (Lakoff, 2006: 25). Agents such as media help both in the understanding or interpreting of reality and in the social construction of reality.

Framing and Legitimacy. Prior research shows that media frames play a role in the legitimation process by framing how the public or consumers categorize products, industries, various groups, movements, activities, among others through the language used in reporting

(Elsbach 1994; Humphreys and Latour, 2013; Schultz, Marin and Boal, 2014; Tucker, 1998).

Media frames and coverage provide legitimacy by disseminating knowledge and are “central in both disseminating knowledge about new organizational practices and in influencing the behaviors of individual actors like potential investors or entrepreneurs” (Schultz et al., 2014: 37).

In my context, media frames direct attention to a particular aspect of a crowdfunding project and can present different interpretations of the usefulness of proposed products. They also help backers identify what needs a product could fulfill and differentiate it from other products while helping them to view the frame within the realms of their existing beliefs.

Humphreys and Latour (2013) find that frames present in the media affect the implicit associations of people and influence their normative judgments and behavioral intentions.

Legitimacy also involves the level of public knowledge about a novel phenomenon or entity

(Aldrich and Fiol, 1994: 648). In the context of crowdfunding, when the product is partially complete, media frames help create linkages between the product and backers by educating them, which in turn provides legitimacy.

Given that media framing involves the selection and emphasis of the information covered by news outlets, journalists have the discretion to select and emphasize various aspects of events as they see fit (Entman, 1993; Liebler, Schwartz, and Harper, 2009). They have control over what events obtain scant attention or even get omitted from press releases entirely. Media framing can therefore sway levels of support received from the general public and could influence legitimacy both positively and negatively4 (Bronstein, 2005).

4 For example, at the industry level, lotteries and casinos have been shown to receive legitimating frames pertaining to business and entertainment while online gambling tends to receive delegitimizing frames which links it to criminality and regulation (Humphreys and Latour, 2013). Similar disparities are seen at the individual level. The media has framed Oprah Winfrey’s journey from a life of poverty to that of an extraordinarily wealthy businesswoman as a model for others, even though Winfrey herself has suggested that such an expectation is unrealistic (Kendall, 2011, p. 41).

Overall, media coverage is a vital means of establishing legitimacy for firms, entrepreneurs, and even industries. Young firms with positive media coverage are more likely to radiate legitimacy and attract venture capital investors (Petkova, Rindova, and Gupta, 2013).

Moreover, increased volumes of entrepreneurial stories in the media leads to higher amounts of people running a young businesses (Hindle and Klyver, 2007). This is similar to the finding that increased numbers of new ventures are formed when the volume of media coverage is high

(Schultz, Marin, and Boal, 2014). This is also consistent with Pollock's and Rindova's observation on media coverage, legitimacy, and new venture performance, “in performing its functions of informing, highlighting, and framing, the media presents market participants with information that affects impression formation and the legitimation of firms” (2003: 632). Given that media framing is generally more positive (supportive) or negative (challenging) than merely informative, media framing also influences reputation5 of the venture, entrepreneur, or product

(e.g., Deephouse, 2000; Fombrun and Shanley, 1990; Kotha, Rajgopal, and Rindova, 2001;

Wartick, 1992).

Supportive Media Framing, Pragmatic Legitimacy and Crowdfunding Success

I begin by proposing that pragmatic legitimacy attained via articles written in media channels regarding a crowdfunding campaign will be positively associated with not only the total amount of money raised but also with the financing that occurs immediately following media coverage. Pragmatic legitimacy is evaluated by stakeholders based upon how an institution’s decisions directly affect them. This represents the most basic form of legitimacy and is primarily

5 Firm evaluations are also a socially constructed attribute that stem from the process of legitimation (Rao, 1994). The notion of media reputation incorporates theory from mass communication and resource-based literature, and is defined as “the overall evaluation of a firm presented in the media” (Deephouse, 2000). Because a new venture’s reputation is crucial to acquiring key resources (Yamakawa et al., 2013), the way in which these ventures are framed in the media has important implications.

driven by self-interest (Dart, 2004). Pragmatic legitimacy can also be established when people

feel that a company shares their values (Suchman, 1995) or benefits a certain group to which

they belong (Lee and Hung, 2014). I build on the assumption that resource acquisition by a new

venture is generally related to its level of legitimacy (Zimmerman and Zeitz, 2002) and argue

that pragmatic legitimacy will impact campaign financing even more because it is self-interest oriented and associated with not only investors’ perceptions of shared values, norms, and meanings but also potentially direct benefits.

Media coverage over time helps a campaign by informing the public about its culture and

norms as well as by making its actions be perceived as appropriate and proper in context

(Lindblom, 1994, Suchman, 1995, Deephouse and Carter, 2005). Prior research has shown that

campaigns which send positive signals attract attention from crowdfunding backers (Ahlers et

al., 2015). Ventures have sent positive signals in the form of qualified key executives and board

members, thoroughly explaining risks, and setting modest expectations such as lower fundraising

goals or shorter campaign durations to establish legitimacy6 (Ahlers et al., 2015; Frydrych et al.,

2014).

In a rewards-based crowdfunding context, it is obvious that backers would actively seek

pragmatic benefits from the campaign in the form of some return (e.g., supporting a campaign

may entitle backers to receive an entrepreneur’s product). This is because constituents view

pragmatic legitimacy as “if we get anything out of this, then we consider it to be legitimate”

(Dart, 2004). Further, articles written in media channels regarding the campaign spawn a general

6 Most of the prior research on crowdfunding evaluates legitimacy granted to the venture based on the data provided by the platform’s pages or narratives that are endorsed by the founders or potential backers—that is, legitimacy is arguably evaluated based on self-portrayal. Our study advances the literature by noting the signals of legitimacy stemming from outside of crowdfunding platforms—that is, I evaluate legitimacy based on articles by third parties such as news articles written during the days in which a campaign is actively seeking funds. This approach is relatively novel and more nuanced.

13 interest about the campaign and motivate herd behavior, or people’s tendency to follow the decision making of others rather than relying on information at hand to make their own decisions

(Banerjee, 1992; Burtch, 2011).

Regarding the timing and levels of funding, behavioral and social psychology scholars have suggested that under dynamic, uncertain, and complex conditions, investors seek the most recent information from diverse sources, including media, and make strategic investment decisions sooner rather than later (Cyert and March, 1963; Zajac and Westphal, 2004; Schijven and Hitt, 2012). This strategy reduces cognitive burdens on them and follows the axiom of strategy as ‘simple rules,’ routines, or heuristics (Eisenhardt and Sull, 2001; Haleblian et al.,

2006; Schijven and Hitt, 2012). Media’s framing, coverage, and dissemination of information are relatively fleeting, short-term events (Fang and Peress, 2009; Scheufele, Haas, and Brosius,

2011; Tetlock, 2007). Behavioral theory suggests that the impact of such events can be best assessed by the money raised during a period surrounding the event; for example, immediately after the media coverage (Haleblian et al., 2006; Pollock and Rindova, 2003; Schijven and Hitt,

2012). As such, I predict spikes in funding in the days immediately following such coverage.

Moreover, the benefits of positive media coverage in the short term may continue over time in the form of spillover effects that drive herd behavior among crowdfunders. Such herd behavior delivers subsequent funding for the crowdfunding project (Colombo et al., 2015;

Kuppuswamy and Bayus, 2017). Indeed, information cascades research has shown that investors often imitate others’ prior actions (Banerjee, 1992; Colombo et al., 2015). As such, prior funding would motivate subsequent contributions resulting in higher total amounts raised by the campaign.

In sum, I propose that articles written in media channels about crowdfunding campaigns facilitate favorable impressions, legitimation, and subsequent backing of a campaign resulting in not only higher levels of financing that occurs immediately following the media coverage but also in higher total amounts raised. Formally:

Hypothesis 1a: Media framing which supports a crowdfunding campaign’s pragmatic

legitimacy positively impacts the money raised immediately following the media

coverage.

Hypothesis 1b: Media framing which supports a crowdfunding campaign’s pragmatic

legitimacy positively impacts the total money raised for the campaign.

Challenging Media Frames, Pragmatic Legitimacy and Crowdfunding

Challenging media frames in the form of negative media coverage of a project can sow the seeds of doubt in the eyes of potential backers and dent its legitimacy. Durand and Vergne

(2015) suggest that negative media coverage that vilifies a firm can have severe consequences:

“Attacked firms may lose legitimacy and reputation (Hudson and Okhuysen, 2009) and

face increasing difficulties in acquiring resources (Weber, Rao, and Thomas, 2009) and

maintaining relationships with interlock board members (Sullivan et al., 2007), suppliers

(Jensen, 2006), or customers (Jonsson, Greve, and Fujiwara-Greve, 2009). Whereas a

court of law will typically take 4–7 years after the start of an investigation to establish a

firm’s guilt, media attacks can produce negative consequences immediately.” (pp. 1207).

In the context of rewards-based crowdfunding, negative media coverage will make pragmatic backers doubtful of getting anything of self-interested value out of the campaign; that is, they would no longer be certain about getting an expected reward in return. Second, they could become apprehensive about whether their money is legitimately being used for the stated product

15 or cause. They will become reluctant to back the project, as their self-interest may not be protected.

Further, due to uncertainty and information asymmetry with regard to promised rewards, negative media coverage would encourage bystander behavior: potential backers waiting on the sidelines for others to invest first. Worse, negative media coverage could damage legitimacy to the extent that some investors could start withdrawing or canceling prior pledged funds.

Information cascades and herd behavior could drive others to keep withdrawing their money subsequently rather than remaining invested based on their own rational decisions (Banerjee,

1992; Burtch, 2011).

Taken together, I suggest that the consequences of negative media coverage or attacks could be dire in terms of loss of pragmatic legitimacy to extent that backers may no longer support the project. This would particularly be the case for pragmatic legitimacy, because pragmatic legitimacy is diminished via negative press more quickly than other forms of legitimacy. Pragmatic legitimacy suffers this effect because it results primarily from the public scrutiny of actions, primarily based on the perception of whether self-interest will be fulfilled

(Black, 2008; Suchman, 1995). Formally:

Hypothesis 2a: Media framing which challenges a crowdfunding campaign’s pragmatic

legitimacy negatively impacts the money raised immediately following the media

coverage.

Hypothesis 2b: Media framing which challenges a crowdfunding campaign’s pragmatic

legitimacy negatively impacts the total money raised for the campaign.

Moral Legitimacy attained via Supportive Media Framing, and Crowdfunding Success

Next, I argue that moral legitimacy attained via positive evaluations in media articles regarding a campaign’s norms, propriety, and behavior will be positively associated with both the total amount raised and the funding that occurs immediately following media coverage. I build on the premise that public perception of entrepreneurs involves a moral underpinning

(Anderson and Smith, 2007). Research shows that a crowd’s behavior often adheres to certain norms prevalent in a social or demographic group or in society as a whole (Bitektine, 2011; Dart,

2004; Scott and Davis, 2007: 260). As such, I expect moral legitimacy to be very germane to fundraising efforts that appeal to the crowd. Unlike pragmatic legitimacy, moral legitimacy has less to do with self-interest and more to do with the extent to which an entity adheres to norms and benefits the evaluator’s social group or society as a whole (Bitektine, 2011; Dart, 2004).

Prior research suggests that moral legitimacy is the affirmative backing of a company when society considers its organizational activities to be correct (Suchman, 1995). Here, companies are judged based on external norms in the industry that are considered to be proper

(Dart, 2004). Thus, moral legitimacy is credited most to organizations that acquire the largest amount of positive normative evaluation (Brown and Toyoki 2013) within their industry. It is important to note that one of the key methods of gaining moral legitimacy is through positive evaluations of individual organizational leaders (Suchman, 1995). In an entrepreneurial setting, this might include the founder, CEO, or top executives. As such, moral legitimacy can be established relatively quickly when well-known leaders are involved.

Moral legitimacy gets enhanced through media stories that stress how ventures use the

“right way” to solve the problems (Miller et al., 2012; Short, Moss, and Lumpkin, 2009). For example, a collection of firms gained moral legitimacy via positive media attention by deciding

to establish factories in remote areas, which assisted in improving local economies (Ahlstrom

and Bruton, 2001).

Building on the above, I suggest that similar positive outcomes of media generated moral

legitimacy exist in a crowdfunding context because multiple endorsements of a campaign’s

norms, propriety, and behavior through media-provided information bolster potential backers’ faith in the project in terms of the project providing benefits to the whole society (e.g., Bitektine,

2011; Pollock and Rindova, 2003).

When portrayed in the media, a crowdfunding campaign’s moral legitimacy will influence funding relatively quickly. Investors respond to the most recent information gleaned from news outlets, which typically provide short-term coverage since media spotlights keep shifting and media coverage has short-term impact (Fang and Peress, 2009; Scheufele, Haas, and

Brosius, 2011; Tetlock, 2007). Moreover, both editors and audiences have short attention spans and get fatigued quickly. Relatively quick decision-making based on simple heuristic will reduce investors’ cognitive burdens and they will tend to finance those projects having moral legitimacy in the period surrounding media coverage (Haleblian et al., 2006; Pollock and Rindova, 2003;

Schijven and Hitt, 2012). Given that herd behavior takes place close to the influential event, I contend that investors who believe that the project is associated with societal welfare and is in

harmony with norms and values shared by the group may display herd behavior temporally

proximate to the media coverage. This would not only result in funding generated immediately

following the media coverage but also deliver higher levels of subsequent contributions

following early funding close to media coverage.

In essence, I posit that crowdfunding outcomes, both funding generated immediately

following the media coverage as well as the total funding raised, will be more favorable when

articles are written in a manner that supports the campaign’s moral legitimacy—that is, the campaign is associated with societal welfare and acts in accordance with norms and values shared by the group. Formally:

Hypothesis 3a: Media framing which supports a crowdfunding campaign’s moral

legitimacy positively impacts the money raised immediately following the media

coverage.

Hypothesis 3b: Media framing which supports a crowdfunding campaign’s moral

legitimacy positively impacts the total money raised for the campaign.

Moral Legitimacy challenged by Media Framing, and its impact on Crowdfunding Success

Negative media coverage will particularly hurt moral legitimacy because moral

legitimacy “is socially constructed by giving and considering reasons to justify certain actions,

practices, or institutions” (Palazzo and Scherer, 2006: 73) and is a result of "explicit public

discussion" (Suchman 1995: 585). Moral legitimacy can also be questioned by publics and media

when entrepreneurs are considered to focus on their own interests rather than focusing on a

“normative dignity” (Berger and Luckmann, 1966) or the greater good (David, Sine, and

Haveman, 2013).

In the context of crowdfunding, moral legitimacy can be questioned, resulting in negative

media coverage for the following reasons. First, backers and other stakeholders may not view

certain founders as legitimately deserving help from crowdfunding. This could be a function of

entrepreneur’s status (e.g., billionaire) or the project itself. For example, if a very rich celebrity

asks for small amounts of money for an entrepreneurial project, it may be viewed as illegitimate

(as seen in the quote at the beginning of this paper). Second, campaigns involving idiosyncratic

products or activities may also result in negative press if they are too far outside of the norms

(for example, in certain sociological groups or context, adult entertainment products may not have moral legitimacy and indeed, Kickstarter itself followed a prohibition on self-defined

“pornographic materials”). In this case, negative media coverage questioning moral legitimacy will make potential backers doubtful of the values, actions, and behavior of the project; that is, they would no longer be able to justify and trust the actions, practices, and behaviors of the entrepreneur (Palazzo and Scherer, 2006: 73; Reast et al., 2013).

Such conditions of negative media framing regarding moral issues could aggravate into stigmatization of the project. Potential backers will find it difficult to identify with both the project’s raison d'être and the entrepreneur’s value system to the extent that they may stay out as bystanders. An extreme outcome of loss of legitimacy, trust, and consequent stigma could be that investors could withdraw funds, again resulting in herd behavior (Banerjee, 1992; Burtch, 2011).

Taken together, I suggest that press which challenges a campaign’s moral legitimacy has severe negative implications for crowdfunding outcomes. Moreover, because moral legitimacy is more resilient than pragmatic (Black, 2008), I also anticipate smaller effect sizes for the following hypotheses than for hypotheses 2a and 2b:

Hypothesis 4a: Media framing which challenges a crowdfunding campaign’s moral

legitimacy negatively impacts the money raised immediately following the media

coverage.

Hypothesis 4b: Media framing which challenges a crowdfunding campaign’s moral

legitimacy negatively impacts the total money raised for the campaign.

Celebrity Crowdfunding and Total Money Raised Finally, I draw on research in management and finance literatures, which shows that celebrity status serves as a key intangible asset for firms and helps provide an increased number

of opportunities, has a positive impact on a company’s stock market performance, improves

company image, and boosts employee morale (Ketchen, Adams, and Shook, 2008; Ranft et al.,

2006). I propose that a crowdfunder’s celebrity status will have a positive influence on their

venture’s crowdfunding performance.

Indeed, prior research shows that media coverage of the celebrity not only brings

visibility to the product or firm but also brings attributions to the firm resulting in superior

performance (Hayward, Rindova, and Pollock, 2004; Wade et al., 2006). I draw on this research

in the context of crowdfunding and suggest that the celebrity founder of a project will bring

visibility to the project and his or her fame would serve to attract backers. Indeed, management

and marketing literature has well established that celebrities can help organizations draw interest

from consumers. For example, celebrities are leveraged for endorsements due to their likeability,

trustworthiness, or attractiveness (Erdogan, 1999). When spokespersons have celebrity status,

attention and sales levels increase (Tom et al., 1992). Recently, this appears to be especially true

for adolescent consumers, as more than 80% of the food and beverage celebrity endorsers have

had at least one Teen Choice Award nomination (Bragg et al., 2016). Moreover, teenagers and

young adults are online more than any other demographic (Lenhart et al., 2010).

Second, it is increasingly common for celebrities to not only advertise and endorse

products, but also to become involved as founders or part owners in new ventures (Hunter and

Davidsson, 2007). As they become more well-known, celebrity entrepreneurs develop a brand identity which can in turn be leveraged to promote a wide array of products or new ideas (Boyle and Kelly, 2010). As a result, celebrity entrepreneurs have a more positive impact on a new venture’s reputation than a celebrity endorser (Hunter, Burgers, and Davidsson, 2009).

Taken together, these findings suggest that celebrities may be able to obtain unusually

high levels of financing via online crowdfunding. Many celebrities have already completed

lucrative crowdfunding campaigns. For example, Bill Nye, known for his educational television

program Bill Nye the Science Guy, was able to raise nearly 1.25 million dollars on Kickstarter to

fund a spacecraft project. The project is currently being carried out by a nonprofit company

called The Planetary Society, where Nye serves as CEO. Other celebrities that have successfully

used crowdfunding to raise capital include musician Neil Young, actor Zac Braff, and film

director Spike Lee, who combined, raised over ten million dollars on Kickstarter7.

Due to causality issues, I am unable to test the effects of celebrity status on spikes in

contributions post media coverage. Therefore, I limit my next hypothesis to only one outcome

variable. Specifically, I solely posit that celebrity campaigns raise more money through

crowdfunding than non-celebrity campaigns. Formally:

Hypothesis 5: Crowdfunding campaigns with a celebrity founder raise more total money

those with a non-celebrity founder.

Supported Moral Legitimacy, Crowdfunding, and the Moderating Role of Celebrity Status

Celebrities are known for spectacular performances in their field and are subsequently

glorified in the media (Hayward, Rindova, and Pollock, 2004; Malmendier and Tate, 2009;

Wade et al., 2006). The use of celebrity marketing is also apparent on the internet. Online,

organizations use celebrities to promote their websites (Kelly et al., 2008) or target specific

consumers through social media networks involving celebrity fan groups (Zauner et al., 2012). I

suspect that the same notoriety that drives celebrity advertising campaigns will also drive

7 Kickstarter lists the most funded projects to date at: https://www.kickstarter.com/discover/most-funded. Accessed April 17, 2016.

celebrity crowdfunding campaigns. Evidence of this is suggested by quotes such as, “With less

than three days until its Kickstarter comes to an end, famous science educator Bill Nye and The

Planetary Society’s LightSail project has successfully surpassed over $1 million thanks to nearly

20,000 backers8.”

Though numerous celebrities have successfully raised millions of dollars via

crowdfunding, celebrity status or sponsorship does not always equate to desirable fundraising

outcomes. The relationships between celebrities and fans has been suggested as an explanation of

this difference (Coleman, 2015). In recent years, celebrities are increasingly likely to

communicate directly with fans through social media websites such as Twitter, both individually

and as groups (Stever and Lawson, 2013). To the extent that these types of social groups feel

connected to the celebrity, moral legitimacy should rise (Bitektine, 2011; Dart, 2004).

I suggest that because moral legitimacy is closely associated with positive normative

evaluations by the public (Suchman, 1995), it plays a more important role in the success or

failure of campaigns that do not involve celebrities. This is because celebrities’ moral legitimacy

is already well known whereas others are still trying to get it established. I propose that the

relationship between moral legitimacy and crowdfunding success will be influenced by the

presence of a celebrity founder. That is, when the level of media coverage which supports a

founder’s moral legitimacy is relatively low, the presence of a celebrity founder compensates for

the level of moral legitimacy resulting in high levels of funding. At high levels of supportive

moral legitimacy, a celebrity would only notice marginal gains from the increased publicity

while the non-celebrity would realize vast improvements in total earnings. Formally:

8 Quote published June 23, 2015 about “LightSail: A Revolutionary Solar Sailing Spacecraft” Kickstarter campaign. https://www.crowdfundinsider.com/2015/06/70098-bill-nyes-lightsail-scores-over-1m-during-the-final-days-on- kickstarter/. Written by Samantha Hurst, Crowdfund Insider. Accessed June 4, 2017.

Hypothesis 6a: Founder celebrity status moderates the positive relationship between

supported moral legitimacy and the total money raised for a crowdfunding campaign

such that the effect of moral legitimacy is more positive when founders are not

celebrities.

Challenged Moral Legitimacy, Crowdfunding, and the Moderating Role of Celebrity Status Finally, I propose that founders’ celebrity status will serve as an asset for the project and compensate for lack of moral legitimacy highlighted by the negative media coverage. Prior research shows that celebrity founders develop a brand identity that has a positive influence on all their affiliations including products, firms, and other entities (Boyle and Kelly, 2010). They also have positive impact on a company’s stock market performance, image, and employee morale (Ketchen, Adams, and Shook, 2008; Ranft et al., 2006).

As such, I expect that when media framing is negative with regard to moral legitimacy of entrepreneurial projects in question, celebrities’ status would soften the blow to the project.

Despite negative coverage, potential backers would still be lured due to the celebrity’s image, reputation, and trust. Stated differently, celebrity status mitigates negative framing to a certain extent.

Thus, founder celebrity status would assuage or mitigate the hurt from negative media on funding by potential backers such that the total money raised for a project will be relatively greater for celebrity founders than for non-celebrity projects of similar stature. Because journalists tend to have general knowledge spanning a variety of subjects rather than specialized expertise (Gitlin, 1980: 99), celebrities’ actions are often artificially bolstered by the media

(Hayward, Rindova, and Pollock, 2004). Therefore, celebrity reputations are harder to diminish.

Since reputation has been linked to resource acquisition (Yamakawa et al., 2013), I expect

celebrity status to partially counter the negative effects of media which challenges moral

legitimacy. Non-celebrities on the other hand, having no such counter measure, would lose

funding more rapidly. Formally:

Hypothesis 6b: Founder celebrity status moderates the negative relationship between

challenged moral legitimacy and the total money raised for a crowdfunding campaign

such that the effect of moral legitimacy is more negative when founders are not

celebrities.

METHODS Content analysis is commonly used to investigate media frames (Matthes, 2009). I test

my hypotheses using a content analysis of articles written during the campaign periods of

crowdfunding projects that have eclipsed one million dollars in funding. I use the million dollar

cutoff in an effort to focus on only the most successful of crowdfunding campaigns, which are

likely to receive the highest levels of press coverage. This is consistent with Ragozzino and

Blevins (2015) who limited their study to new ventures that received more than one million

dollars of venture capital (VC) funding. The companies in their study were found to be more

likely to go through an initial public offering than firms with less VC backing.

Data and Sample

My data stems from articles written about campaigns started on the crowdfunding

platform Kickstarter. Kickstarter is the largest rewards-based crowdfunding platform. Rewards-

based crowdfunding is unique in that it views backers as early customers (Mollick, 2014).

Individuals are enticed by various rewards such as pre-order of the product, hand-written thank

you notes, or getting to meet the founder. In contrast, equity-based crowdfunding involves backing in exchange for sharing in some prearranged amount of future profits (Belleflamme et

al., 2014). An exhaustive Lexis Nexis search was conducted for each campaign within the date range in which founders were actively seeking funds. The results of these queries made up my sample, which includes 459 articles. Within the articles, every sentence was coded by two raters as either pragmatic, moral, or non-legitimizing. Each sentence containing legitimacy was also coded to either support or challenge the project’s legitimacy. Inter-rater reliability (IRR) was

0.75 or better for each of the four types of legitimacy: supported pragmatic (IRR = 0.84), supported moral (IRR = 0.75), challenged pragmatic (IRR = 0.89), and challenged moral (IRR =

0.78). In total, 8,501 sentences were analyzed by each coder.

I tested my hypotheses using a series of clustered regression analyses. The use of clustered regression allows for non-independent observations, which is essential for my study given that the 459 articles in my sample are written about 110 campaigns. The amount of media coverage per campaign in my sample ranges from zero to 59, with an average around four.

Dependent Variables

Since I am analyzing articles published at various times during campaigns, I not only use

the total amount raised as a dependent variable, but also the money raised immediately following

the publication. The first dependent variable, total amount raised, is measured as the natural log

of the total amount of funding that the campaign received. At the time of data collection, the

campaign which gained the most money raised nearly $13.3 million. Thus, campaign totals in

my sample range from just over $1 million to just under $13.3 million dollars. The five projects

in my sample that were in a currency other than U.S. dollars were converted to dollars based on

exchange rates at the time of campaign closing.

The second dependent variable, money raised post-publication, is measured as the natural

log of the sum of the amount raised in the four days following the publication of a news article

referencing a given campaign. Daily gains were gathered from Kicktraq.com, a website devoted

to providing deeper insight into past and present crowdfunding campaigns. The four-day window includes the amount raised on the day of publication and the three subsequent days. I ran my analyses using similar windows (e.g., day 0 to 1, day 0 to 2, day 1 to 2) and any changes in the results were trivial. The four-day window totals varied significantly, since in some cases funding had been retracted. Specifically, these totals range from a mere $155 to slightly over $4.6 million.

Independent Variables

My first four independent variables are the four categories of legitimacy outlined earlier

in the methods section. Each type of legitimacy (supportive pragmatic, supportive moral,

challenging pragmatic, and challenging moral) were coded at the sentence level. For each article,

the sentences containing legitimacy were then summed together in each of the four categories.

The counts of legitimacy ranged from zero to nine. In an effort to apply consistent weighting to

the sentences containing legitimacy, I next divided the legitimacy counts by the total number of

sentences in the article. This serves to correct for the overall level of attention the campaign

receives, as well as the focus of the article. I conducted my analyses using the z-scores of the resulting figures.

The final independent variable is celebrity status. Since some celebrities are more renowned than others, I measure the degree of celebrity as the number of times each founder’s name had appeared in newspapers in the previous year (van de Rijt, et al., 2013). The results of a newspaper search on Lexis Nexis were used to establish the count. This measure takes into account not only traditional celebrity (e.g., musicians, movie stars, or famous athletes), but also celebrity with respect to entrepreneurship or product invention. For example, Jake Bronstein,

who raised over $1.05 million on Kickstarter with his 10-Year Hoodie sweatshirt may not be a

household name but does have some degree of crowdfunding celebrity with five successful

campaigns to his credit and over 30,000 total backers. Of the 459 articles in the sample, 192

involved campaign founders with no degree of celebrity. Using this measure, Neil Young had the

most celebrity in my sample with his name appearing 4,378 times.

Control Variables

I control for several variables relating to the Kickstarter campaign. First, I control for

founder gender. This is a dichotomous variable where a one represents a female founder.

Secondly, I control for the country of residence of the project founder. Since the majority of

Kickstarter founders reside in the United States, the variable is coded dichotomously, where a

one represents a founder residing inside the U.S. and zero otherwise. The U.S. accounted for 93

of the 110 founders in my sample. Third, I control for amount requested. This is the natural log

of the dollar amount that the founder sought on Kickstarter. Fourth, I control for the founder’s

number of Facebook friends. This is an important control because having numerous Facebook

friends is predictive of increased capital when raising money via crowdfunding (Mollick, 2014).

Moreover, as I note in the hypothesis development, it is important to separate celebrity’s effect from the social network connections that tend to accompany celebrity status. Campaign length is also important to crowdfunding outcomes. Campaign lengths of 30 days are considered to be ideal (Kuppuswamy and Bayus, 2017) and are recommended by Kickstarter (Mollick, 2014).

Thus, I control for the number of days each campaign was actively seeking funds. This data is

made available and was collected at Kicktraq.com. Campaign lengths in my sample range from

20 to 60 days. Lastly, I control for prior crowdfunding success. I define prior crowdfunding

success as whether or not a founder had previously reached a target amount on Kickstarter. This

28 information is indicated in each founder’s “about” section on the website. Accordingly, prior crowdfunding success is a dichotomous variable where one represents that the founder has had at least one other successful campaign and zero otherwise.

Results

Means, standard deviations, and correlations are presented in Table 2.1. Although celebrity status and many of types of legitimacy are shown to be positively correlated with total money raised and money raised port-publication, I found that multicollinearity is unlikely since all variance inflation factor (VIF) scores were less than four. For purposes of clarity, industry effects are not individually shown in my tables but were included in all analyses.

Tables 2.2 and 2.3 show the results of my hypothesis testing for the money raised post- publication and total money raised dependent variables, respectively. Because my sample involves hundreds of articles written about only 110 campaigns, I ran a series of clustered regression analyses. Model 1 of Table 2.2 includes the control variables only while Model 2 shows the results of my hypotheses involving estimates of the amounts of money raised directly after news articles are published. The findings indicate that articles which challenge a crowdfunding campaign’s pragmatic legitimacy negatively impact the amount of money raised immediately following publication (p = 0.048). This supports hypothesis 2a. Similarly, articles which support a crowdfunding campaign’s moral legitimacy positively impact the amount of money raised immediately following publication (p = 0.005). This finding supports hypothesis

3a. Hypotheses 1a and 4a are not supported.

Table 2.2. Clustered regression model results for money raised post-publication Variables Model 1 Model 2 Control Variables Gender -0.502 -0.477 Country -0.068 -0.051 Amount Requested 0.119 0.100 # of Facebook Friends 0.000** 0.000* Campaign Length -0.050** -0.049** Prior Crowdfunding Success -0.613* -0.595† Celebrity Status 0.001** 0.001** Direct Effects Supported Pragmatic Legitimacy 0.082 Supported Moral Legitimacy 0.101** Challenged Pragmatic Legitimacy -0.098* Challenged Moral Legitimacy 0.054 Constant 12.890 13.013 R2 0.263 0.279 Note: Industry is also controlled for in the analysis. † < 0.10; *p < 0.05; **p < 0.01 N = 459

Table 2.3 displays the results of my hypotheses involving the second dependent variable, the total campaign money raised. Model 1 of Table 2.3 is the baseline model, which includes only the control variables. The baseline model explains 32.6% of the variance in amount raised.

The R2 value increases to 0.381 when the legitimacy main effects are included, as shown in

Model 2. Model 2 indicates that articles which support a crowdfunding campaign’s pragmatic (p

= 0.004) or moral (p = 0.007) legitimacy significantly increases the total amount raised. This supports hypotheses 1b and 3b. Articles which challenge legitimacy, whether pragmatic or moral, were not found to have a significant impact. Thus, hypotheses 2b and 4b are not supported. Model 3 tests the final main effect, celebrity status on the total amount raised. The results show that celebrity status significantly and positively impacts the fundraising totals (p =

0.009), as expected. Thus, hypothesis 5 is supported.

Table 2.3. Clustered regression model results for total amount raised Variables Model 1 Model 2 Model 3 Model 4 Control Variables Gender -0.493** -0.437** -0.471** -0.405** Country 0.286 0.235 0.188 0.153 Amount Requested 0.207** 0.167* 0.144† 0.116 # of Facebook Friends 0.000* 0.000* 0.000* 0.000* Campaign Length -0.012† -0.013* -0.012† -0.012* Prior Crowdfunding Success -0.347* -0.364** -0.294* -0.318* Direct Effects Supported Pragmatic Legitimacy 0.123** 0.136** Supported Moral Legitimacy 0.082** 0.068† Challenged Pragmatic Legitimacy 0.014 -0.001 Challenged Moral Legitimacy 0.050 0.081 Celebrity Status 0.001** 0.001** Interactions Celebrity Status x Supported Moral Legitimacy -0.001* Celebrity Status x Challenged Moral Legitimacy -0.001 Constant 12.528** 13.108** 13.272** 13.720** R2 0.326 0.381 0.372 0.427 Note: Industry is also controlled for in the analysis. † < 0.10; *p < 0.05; **p < 0.01 N = 459

Lastly, Model 4 in Table 2.3 tests my hypotheses involving interaction effects. Model 4

explains the most variance (R2 = 0.427) of all models, an increase of more than ten percent over the baseline model. As shown, hypothesis 6a is supported (p = 0.028) while hypothesis 6b is not.

This suggests that the significant relationship between supported moral legitimacy and the total amount of crowdfunding capital raised is moderated by celebrity. For ease of interpretation, this moderating effect is displayed in Figure 2.1 and examined in further detail in the discussion section.

33 15.05

15.00

14.95

14.90 Low Celebrity 14.85 High Celebrity

14.80 Total Raised (natural log)

14.75

14.70 Moral Legitimacy Moral Legitimacy Supported Infrequently Supported Frequently

Figure 2.1. Supported Moral Legitimacy & Celebrity Founder Interaction

DISCUSSION AND CONCLUSION

Due to the relative newness of crowdfunding, scholarly research surrounding the crowdfunding phenomenon remains very limited (Short, et al., 2017). This study empirically identifies some of the reasons that a crowdfunding campaign may flourish. There are a number of practical implications that can be taken from this research. The media plays a crucial role in establishing a venture’s legitimacy (Pollock and Rindova, 2003). I have demonstrated that legitimacy displayed in the media is also vital for those seeking to raise substantial capital via crowdfunding. Specifically, I have shown that news stories which support a crowdfunding campaign’s pragmatic legitimacy increase the total money raised for the campaign. This is in line with prior research which shows that venture capitalists are more interested in new ventures which radiate legitimacy in the media (Petkova, Rindova, and Gupta, 2013). Conversely, when pragmatic legitimacy is challenged in the media, my findings suggest that campaigns suffer in

34 the days immediately following the negative press coverage. I expect this to be due to pragmatic legitimacy’s lack or resiliency (Black, 2008).

I found that press coverage supporting a campaign’s moral legitimacy bolstered amounts of backing both directly after the publication and in total. This stresses the importance of obtaining normative founder/venture assessments from the public (Lee and Hung, 2014). My hypotheses regarding media frames which challenge a campaign’s moral legitimacy were not found to be significant. Interestingly, the beta coefficients involving this variable were all positive. Taken together, this leads me to speculate that at worst, news stories which challenge a crowdfunding campaign’s moral legitimacy have no detectible effect on fundraising outcomes.

At best, they may actually help to a limited extent. This would imply that articles which challenge moral legitimacy are better than having no press coverage at all. This is consistent with the finding that negative reviews in the New York Times lead to increased book sales for relatively new or unknown authors (Berger, Sorensen, and Rasmussen, 2010).

My findings also indicate that celebrities are likely to outperform other less renowned founders on the Kickstarter website. This has implications for celebrities and non-celebrities alike. Celebrities trying to raise funds would be wise to start a crowdfunding campaign. Their status alone provides a distinct advantage over most other founders. For those without celebrity status, soliciting celebrity endorsement may increase crowdfunding success rates.

Perhaps more exciting however, is the significant interaction between moral legitimacy and celebrity status. As depicted in Figure 2.1, celebrity status enables founders to raise more via crowdfunding than non-celebrities, regardless of how much moral legitimacy is gained through the media. However, my results show that moral legitimacy is much more important to non- celebrities. Indeed, celebrities realized a relatively small increase in funding ($45,378) between

35 low and high levels of moral legitimacy whereas non-celebrity founders experienced much

greater benefits, with an average increase of $237,500 – more than five times the return of

celebrity founders. I suggest that this this phenomenon can be explained due to celebrities’ pre-

existing glorification in the media (Hayward, Rindova, and Pollock, 2004; Malmendier and Tate,

2009; Wade et al., 2006). Non-celebrities, in contrast, can leverage the positive press to a greater

extent since they typically have little exposure prior to launching their campaigns. This is

consistent with Petkova and colleagues (2013) who point out, “receiving media attention can be

particularly beneficial for new organizations because it creates awareness about them and

increases their salience relative to peers.”

It is worth noting that my study considers cognitive legitimacy to be – for now – outside

the scope of the crowdfunding context, as it is more germane for well-established firms. This is

in line with the six-stage model of institutional change whereby cognitive legitimacy is not

established until the sixth and final stage: reinstitutionalization (Greenwood, Suddaby, and

Hinings 2002). Specifically, ventures are considered to be lacking cognitive legitimacy when

there is little knowledge about their products or services from potential supporters (Shepherd and

Zacharakis, 2003). Over time, this type of legitimacy can be achieved by normalizing activities

that were once considered to be illegitimate (Lee and Hung, 2014). Cognitive legitimacy is not

necessarily based on perceptions, but rather on the necessity, inevitability, or taken-for-granted

status of an organization (Suchman, 1995). Since most crowdfunding campaigns are not started

by these types of organizations, I have not incorporated cognitive legitimacy into my analyses.

One important limitation of this study is that it focuses on only one online crowdfunding

platform: Kickstarter. As such, the study is focused solely on rewards-based crowdfunding.

Moving forward, scholars could expand on my results by conducting research on different

36 crowdfunding websites as well as incorporating theory and data involving equity-, loan-, and donation-based platforms. These types of studies would offer additional insights into the strategy and performance of crowdfunding campaigns (Courtney, Dutta, and Li, 2017). Despite

Kickstarter’s notoriety as one of the world’s leading crowdfunding platforms (Davis, et al.,

2017), the relative newness of online crowdfunding as a means for new venture creation limits empirical research. However, crowdfunding’s popularity is expected to continue to grow

(Barnett, 2015), which will subsequently result in data becoming more readily available and results more robust. Therefore, I encourage future crowdfunding research to include some degree of replicative studies. Overall, as one of the first studies to take a legitimacy perspective on crowdfunding, my study makes contributions to theory in assessing how perceptions of legitimacy can both help and hinder crowdfunding performance.

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44 CHAPTER THREE

ESSAY TWO

OFFLINE SOCIAL CAPITAL AND THE DARK SIDE OF ONLINE CROWDFUNDING

ABSTRACT:

Recent crowdfunding literature has stressed the importance of internal social capital to

early-stage crowdfunding success. Employing novel measurements, this study examines how

friends and family as well as self-backing affect crowdfunding outcomes. Utilizing a mixed method research design which includes a survey of crowdfunding project founders, my results show the importance of offline social capital and reveal a relatively unexplored dark aspect of crowdfunding, self-backing. External social capital and late-stage self-backing are found to be linked to both campaign success and total amounts raised while early-stage self-backing is not.

Keywords: crowdfunding, social capital, moral licensing theory, self-backing, entrepreneurship

INTRODUCTION

The importance of acquiring startup capital for new ventures has long been examined in entrepreneurship research (e.g., Bates, 1990; Cooper, Gimeno-Gascon, and Woo, 1994). After personal finances have been exhausted most entrepreneurs turn to friends and family. Indeed, prior work has shown the financial importance of friends and family in new venture creation

(e.g., Bates, 1997; Gartner, Frid, and Alexander 2012). An increasingly popular method of securing new venture financing is crowdfunding. Crowdfunding raises funds, usually through online platforms, either through donations or by offering some form of reward (Belleflamme,

Lambert, and Schwienbacher, 2013). Over the past few years, crowdfunding has become a popular stream of research in the entrepreneurship literature. It is a novel means of financing new ventures as it enables capital to be raised from online and offline social networks, as well as from unknown backers on the internet. The extent to which offline social capital matters to entrepreneurs utilizing crowdfunding is the first reason for this study.

The second reason for the current research it to investigate the little known phenomenon of self-backing. Since many crowdfunding platforms have adopted an all-or-nothing format

(Kickstarter, for example), self-backing may appear advantageous either to entice additional backers (Kuppuswamy and Bayus, 2018) or to make up the difference between the current funding level and the goal amount (Mollick, 2014). Specifically, I consider the impact of both early- and late-stage self-backing on crowdfunding outcomes.

To the best of my knowledge, late-stage funding has yet to be empirically examined in the crowdfunding literature. Early-stage crowdfunding surges are highlighted by Colombo,

Franzoni, and Rossi-Lamastra (2015), who empirically show that the relationship between internal social capital and funding performance is mediated by early campaign success. The

authors also find that internal social capital is more important to fundraising success than

external social capital. In this study, I propose that external social capital can be crucial to

crowdfunding outcomes when measured by the amounts of funding generated by friends and

family members (i.e., offline members of a project founder’s social network).

The remainder of this paper flows as follows. Drawing on social capital theory, I start by

providing background on why offline social capital could be especially important to

crowdfunding. Furthermore, I suggest that moral-licensing may persuade project founders to

back their own projects, even when such actions are prohibited by many crowdfunding websites.

I then test my hypotheses using a survey completed by founders of projects posted on the online

platform, Kickstarter. To the best of my knowledge, this represents the first crowdfunding study

to contact project founders and empirically test the results of a survey. Lastly, I discuss my

findings and suggest some avenues for future research.

THEORY AND HYPOTHESIS DEVELOPMENT

Social Capital and Crowdfunding

Pennar and Mueller (1997) define social capital as “the web of social relationships that

influences individual behavior and thereby affects economic growth.” Sources of social capital

originate in the social structure within which an actor is involved (Adler and Kwon, 2002).

Social capital is vital at both the business and individual level (Nahapiet and Ghoshal, 2000). As

such, its importance has long been suggested by empirical evidence in both management and

entrepreneurship research. In the management literature, social capital has been shown to reduce

turnover rates (Krackhardt and Hanson, 1993), increase interfirm learning (Kraatz, 1998), and

help people find jobs (Granovetter, 1973; Lin and Dumin, 1986). Within entrepreneurship

research, social capital has been linked to the facilitation of entrepreneurship (Chung and

Gibbons, 1997), the survival of internet entrepreneurs (Batjargal, 2007), and the formation of

start-up businesses (Walker, Kogut, and Shan, 1997). Taken together, it is likely very important in a crowdfunding setting where entrepreneurs seek funding online.

In recent years, research has examined the differences between internal and external social capital. Internal social capital is described as “voluntary means and processes developed within civil society which promote development for the collective whole” (Thomas, 1996, p. 11).

External capital focuses more on personal relationships with others. Burt (1992, p. 9) interprets external social capital as “friends, colleagues, and more general contacts through whom you receive opportunities to use your financial and human capital.” Recent studies have empirically tested distinctions between the two. Cuevas‐Rodríguez and colleagues (2014) find that internal social capital is a better predictor of radical product innovation than external social capital.

Additionally, Sauerwald, Lin, and Peng (2014) show that firm boards with greater external social capital have higher excess CEO returns than firm boards with greater internal social capital.

In a crowdfunding context, Colombo and colleagues (2015) show that the internal social capital of entrepreneurs positively influences both the number of early backers and the amount of early funds raised more than external social capital. The authors use a proxy for external social capital that is measured by the number of connections a project founder has on the social networking site, LinkedIn.com. Social media connections represent important, yet largely indirect ties to the project founder. Though there is overlap between online and offline social networks, the overlap is imperfect (Subrahmanyam, et al., 2008). I suggest that offline social capital, largely comprised of family and close friends, has a greater impact on crowdfunding results than online social networks.

This importance of family and friends in funding new ventures is well documented (e.g.,

Bates, 1997; Cumming and Johan, 2013; Gartner, et al, 2012). Parker (2009) states that 31% of

start-up capital stems from these two sources. In a crowdfunding context, family and friends

were found to be very active at the start of campaigns and invest around three times more money

than others on average (Agrawal, Catalini, and Goldfarb, 2015). Thus, I posit that external social capital, fueled by family and friends, positively impacts both the total amount raised and the ultimate success of a campaign. Specifically, I predict the following:

Hypothesis 1: External social capital has a positive effect on the total amount raised

(H1a) and overall crowdfunding campaign success (H1b).

The Dark Side of Crowdfunding: Moral Licensing and Self-Backing

Because crowdfunding generally occurs online (Belleflamme et al., 2013), deviant

behavior becomes increasingly prevalent. The internet facilitates the likelihood of deviant

behavior due to such behaviors being generally faceless or anonymous online (Freeman and

Mitchell, 2004). Online anonymity may lead users to feel that their actions are repercussion-free.

When people do not fear repercussions, they are more likely to display unethical behavior

(Albers-Miller, 1999). Deviant online behaviors are characteristic of individuals who consider

themselves to have a moral license. Moral licensing theory proposes that “people can call to

mind previous instances of their own socially desirable or morally laudable behaviors,” causing

them to be “more comfortable taking actions that could be seen as socially undesirable or

morally questionable” (Miller and Effron, 2010, p. 118). In crowdfunding, it seems likely that

founders may issue themselves a moral license to fund their own projects, especially if they’ve

previously donated to other campaigns.

Self-backing is generally considered an unacceptable behavior by crowdfunding

platforms. For instance, Kickstarter will suspend any campaign where the founder has been

exposed as contributing funds to their own project. In addition, Kickstarter tries to prevent self-

backing by limiting individual pledge amounts and by not accepting investments from users with

the same personal information as the campaign founder (Mollick, 2014). However, I suggest that

this phenomenon could still occur without suspension in two ways. First, a project founder could

create a different account and fund their project via this secondary avatar. Second, they could

give money to a secondary party and have them contribute to the project instead. While the

former notion could potentially be realized (by using accounts with matching IP addresses, for

example), the latter scenario would be nearly impossible for crowdfunding platforms to discover.

Thus, even though the behavior is not allowed on most crowdfunding platforms, the possibility

of such actions remain.

Like other types of new venture fundraising, crowdfunding campaigns benefit greatly from reducing uncertainty among their potential supporters. A common method of reducing uncertainty is known as observational learning. Observational learning takes places when the quality of a product is unknown, leaving people to react based solely on the reaction of others

(Bikhchandani, Hirshleifer, and Welch, 1998). While this phenomenon has previously been

observed in microlending (Zhang and Liu, 2012), it is particularly germane to crowdfunding

since products are often yet to be created.

Indeed, Colombo and colleagues (2015) stress the importance of attracting funds in the early stages of the campaign. Early-stage success can have an exponential effect on future funding due to a form of observational learning known as herding. Herding occurs when decisions are made simply by looking at the decisions made by previous decision makers

(Banerjee, 1992). Thus, new decisions are simply a function of other decisions which have already been made. A herd forms whenever a multitude of people make the same decision about a product, even when quality is unknown, simply because they’re following the lead of former decision-makers. This phenomenon is especially relevant in a crowdfunding context, because the number of backers and the amount raised to date are both easily visible to potential donors. Thus, new backers often react to the actions of previous backers (Kuppuswamy and Bayus, 2018). A surge in the early-stages of a project can inspire additional members of the crowd to follow suit.

Therefore, founders may feel compelled to create an early-stage surge by self-funding their campaign within the first few days.

Hypothesis 2: Early-stage self-backing has a positive effect on the total amount raised

(H2a) and overall crowdfunding campaign success (H2b).

Self-backing could also represent an unethical, yet crucial source of funding at the end of campaigns. Similar to my second hypothesis, I suggest that in situations where funding goals are not quite reached, founders may be inclined to contribute to their own campaigns to meet the target amount. In all or nothing campaigns, this would enable a founder to have access to any capital that had already been raised, rather than losing all of it. As Mollick (2014) explains, self- backing may account for part of the reason that campaign failures typically fail by large margins.

Stated differently, individuals may self-fund any deficit in their goal amount during the late-stage of their campaign to avoid failure.

In a venture capital context, factors that affect early-stage investments have been shown to also affect late-stage investments (Cumming, 2011). Applying this premise to a moral licensing situation, self-backing that has occurred in earlier stages is likely to occur again, if

necessary, just before the campaign ends. Similar relationships have been discovered in ethics

research. For example, Carpenter and colleagues (2004) show that students who cheat in high

school are more likely to cheat in college and display unethical behavior in the workplace. Thus, it is logical to suggest that once a founder has self-backed their project, addition rounds of self-

backing become less of a moral obstacle. When projects are designed in an all or nothing fashion

(as is the case for projects on Kickstarter) and nearing funding deadlines, late-stage contributions could mean the difference between successful funding and collecting nothing. As such, it would be in the founder’s best interest to make up the difference and complete the funding themselves

(Mollick, 2014).

Hypothesis 3: Late-stage self-backing has a positive effect on the total amount raised

(H3a) and overall crowdfunding campaign success (H3b).

METHOD

Sample

The sample in this study involves survey responses from entrepreneurs that used

Kickstarter during from March 2016 to February 2018. Kickstarter is the world’s leading

rewards-based crowdfunding website, where over $3.5 billion has already been pledged resulting in nearly 141,000 successfully funded projects (Kickstarter, 2018). Since Kickstarter does not provide contact information for campaign founders, I collected email addresses in two ways prior to sending out electronic surveys. I first collected email addresses for founders which listed them on Kickstarter. Once 200 email addresses had been found, I conducted a t-test comparing

campaigns that listed an email address with a random 200 campaigns that did not. The results

suggested no significant differences among the variables of interest so I continued with my data

collection. Upon completion, only 3.16% of campaigns included a founder email address in the

52 description or biography. Given this scarcity, I secondly searched the websites listed by

Kickstarter founders. My results were more favorable using this method, as I was able to find email addresses for additional 8.27% of total campaigns. To increase the likelihood of campaign founders receiving the emails, I removed generic email addresses (e.g., [email protected], [email protected], [email protected]) from the sample. After also removing duplicates, I had collected a total of 2,355 founder email addresses from an initial 23,688 campaigns.

Survey links were sent to the identified email addresses beginning in February 2017. A

$10 online gift card was offered as an incentive to participate in the study. To reduce recall bias, survey requests were only sent to founders which had completed campaigns within the past year

(Justo, DeTienne, and Sieger, 2015). After sending the original requests, two follow up emails were also sent out to non-respondents at two and four weeks, respectively. Out of the initial

2,355 email addresses, 94 surveys were returned as undeliverable (4%). 141 of the 2,261 valid email addresses responded to the survey, for a total response rate of 6.24%. I dropped an additional 19 responses from my sample due to incomplete or unacceptable data (e.g., respondent answered one when asked, “Please select the number three if you are reading this”). After some preliminary investigation of the survey results, I discovered that the response rate was much higher for successful campaigns (9.17%) than failed campaigns (2.91%). In addition to the lack of failed campaign respondents, I expect that the low overall response rate can also be attributed to email inboxes that are no longer monitored, either because their crowdfunding campaign failed or because their business has since failed or changed.

To address the lack of failed campaigns and subsequent unrepresented crowdfunding population, I took two courses of action. First, I focused my survey efforts entirely on failed campaigns. For Kickstarter campaigns started between April 2017 and February 2018, I surveyed

53 only founders of failed campaigns, which added an additional 16 responses to my dataset.

Second, I weighted my sample to double the amount of unsuccessful campaigns. The weighted sample therefore consists of 176 crowdfunding campaigns (94 successful, 82 unsuccessful), while the unweighted sample includes 135 campaigns (94 successful, 41 unsuccessful). All analyses were conducted using the weighted sample.

Measures

Dependent Variables. The dependent variables in this study were both collected from the

Kickstarter campaigns of the entrepreneurs that responded to my survey. I consider two dependent variables for each of my hypotheses. First, campaign success is a dichotomous measure where a zero indicates a failed campaign (i.e., the goal amount was not reached) and a one indicates a successful campaign where the threshold amount was either met or exceeded.

Second, total amount raised is the cumulative money contributed on the campaign closing date.

While most campaigns in my sample raised funds in U.S. dollars, totals for campaigns using other currencies (14% of the sample) were converted to U.S. dollars. I used the natural log of these totals as my second dependent variable.

Independent Variables. Columbo, Franzoni, and Rossi-Lamastra (2015) found that internal social capital positively affects both the number of early crowdfunding backers and the amount of early funds raised. External social capital (when measured by the number of connections on the social media website LinkedIn) was also shown to have a positive early impact, but to a lesser extent. In the current research, I offer an alternative measure for external social capital which I employ as my first independent variable. Specifically, I asked crowdfunding founders, “With how many people would you estimate you discussed aspects of your crowdfunding campaign (prior to its closing date)?” In doing so, I limited the

entrepreneur’s network to only those people who were involved in conversation and

subsequently knowledge transfer (Greve and Salaff, 2003). Using the number of friends on social

media websites like LinkedIn or Facebook does not guarantee that any amount of knowledge

transfer took place.

The remaining independent variables involve self-backing. In the survey I asked

crowdfunding founders, “Did you contribute funds to your own Kickstarter campaign?” to identify direct self-backing and, “Did you give money to someone else so that they could contribute to your campaign?” to identify indirect self-backing. If respondents answered in the affirmative to either question, I also asked how many times the funding took place, how much money was self-backed, and at what stage of the campaign the self-backing took place. I considered early-stage backing to be funding that took place in the first one sixth of the campaign (Colombo, et. al., 2015) and late-stage backing to be funding in the final one sixth of the campaign. Any backing that took place between those two stages was considered to be part of the middle-stage. Accordingly, early-stage self-backing and late-stage self-backing are dummy variables where a one represents direct or indirect self-backing in the early- or late-stage of the campaign, respectively.

Control Variables. The survey design in this study provided the opportunity to control for some novel variables. Gender, age, experience, and projects backed were coded from the survey results. Gender is dichotomous, where a zero represents a female and a one indicates a male. I calculated age of founder as the campaign start date minus the entrepreneur’s birth date.

Experience is a count variable based on the survey question, “How many years of related experience do you have?” Projects backed is a count of the number of campaigns backed by the

entrepreneur prior to opening their own campaign. Specifically, I asked, “Had you backed other

projects on Kickstarter prior to your campaign?” and “If yes, how many?” in the survey.

I also controlled for other variables which I collected from Kickstarter. Kickstarter limits

the duration of campaigns to no more than 60 days. Longer durations have been found to

decrease the likelihood of success (Mollick, 2014). Thus, I controlled for campaign duration, calculated as the number of days the campaign is actively seeking funds. I also controlled for the goal amount, that is, the targeted amount to be raised by the entrepreneur. I use the natural log of these amounts in my analyses. Lastly, I controlled for the update count of founders on

Kickstarter, which have been shown to increase crowdfunding success (Mollick, 2014).

Statistical Analyses

Since my study involves two dependent variables, I used two types of regression to test my hypotheses. To test the impact of external social capital and self-backing on total amounts raised I used a series of linear regression models. Given that Kickstarter is an all-or-nothing crowdfunding platform and campaign success is subsequently binary, logistic regression models were used for testing the impact of external social capital and self-backing on overall success.

RESULTS

This study offers novel insight into relatively unknown complexities surrounding crowdfunding by employing a survey design. Thus, the descriptive statistics alone provide important contributions to crowdfunding research. Table 3.1 provides descriptive statistics surrounding the project founders. The average experience (five years) and the average founder age (35 years old) may be especially useful to crowdfunding scholars, since these statistics can’t be generated from campaign narratives and videos. Table 3.2 shows how many founders received money from family, friends, and self-backing, as well as how much money was

56 contributed. It is clear that most campaigns get some amount of funding from family and friends

(70% of founders had family backers while 83% had support from friends). While family members tend to give more money individually than friends, because friends are generally more plentiful they provide a larger amount of overall funding. In regards to self-backing, 16% of founders admitted to self-funding their own campaigns to some extent. On average, founders who self-backed contributed $1,189 to their campaigns.

Table 3.1 Crowdfunding Founder Descriptives. Count Percentage Average Campaign Success 70% Male Founders 76 56% Experienced Founders 78 58% 5 years Projects Backed (yes = 1) 90 67% 11.86 U.S. Campaigns 113 84% Age 35 years Goal $23,145 Total Amount Raised $6,022 Backers 90 Campaign Duration 31 days N = 135

I checked for the possibility of multicollinearity before empirically testing my hypotheses. Variance inflation factor values were well below five (max = 1.36), suggesting that multicollinearity is an unlikely problem (Studenmund, 2017) in my analyses. Table 3.3 shows the means, standard deviations, and correlations of the variables included in my study. Update count is shown to be the most highly correlated variable to both overall crowdfunding success and the total amount raised. The positive correlation is consistent with the findings of Mollick

(2014), as is the negative correlation between the goal amount and success. Update count and the number of projects backed by the founder was also highly correlated (r = 0.42), which seems

57 logical to me given that both are representative of a founder’s integration within the crowdfunding community.

Table 3.2. Funding Source Descriptives. % of Founders Avg. Times Backed Funding per Back Avg. Total Funding Backing from Family 70% 3.81 $189 $720 Backing from Friends 83% 26.60 $81 $2,155 Direct Self-Backing 13% 1.82 $704 $1,281 Indirect Self-Backing 6% 1.50 $261 $392 Total Self-Backing 16% 2.05 $580 $1,189 N = 135

Table 3.4 shows the linear and logistic regression models that I used for testing my hypotheses. Model 1 includes only control variables and accounts for 30% of the variance in total amounts raised. Model 2 shows that neither projects backed nor the number of LinkedIn friends was significant in predicting total amounts raised. Model 3 tests hypotheses 1a, 2a, and

3a. The inclusion of the external social capital and self-backing variables increases the variance explained by 5% (R2 = 0.35) over the baseline model. Both external social capital and late-stage self-backing were found to be positively related to the total amount raised. The impact of early- stage self-backing was insignificant. Model 6 tells a similar story using logistic regression to test hypotheses 1b, 2b, and 3b. Campaign success was found to be positively impacted by external social capital and late-stage self-backing, but not early-stage self-backing. Taken together, hypotheses 1 and 3 were supported while hypothesis 2 was not.

DISCUSSION

This study aimed to explore the origins of crowdfunded dollars and their impact on campaign success. Specifically, I suggested that high levels of external social capital and self-

backing are advantageous to crowdfunding outcomes. Overall, the results support the notion that

external social networks, heavily influenced by offline friends and family, increase both the

likelihood of success and the total amount raised. Furthermore, late-stage self-backing appears to help individuals meet funding goals while self-backing in the early-stage does not. Next, I discuss the results in greater detail and provide implications, limitations, and future research directions.

Social Capital’s Role in Crowdfunding

The results of this research add to the discussion surrounding social capital’s importance to crowdfunding. Model 2 of Table 3.4 shows that neither the amount of projects backed nor the number of LinkedIn friends was significant in predicting total amounts raised. This is intriguing since the same variables were used by Colombo and colleagues (2015) to proxy internal and external social capital, respectively. Their findings showed both types of social capital to positively influence early-stage funding. For robustness, I tried to replicate these findings but found neither relationship to be statistically significant. Interestingly, projects backed and the number of LinkedIn friends were both negatively related to overall campaign success. The unexpected finding might be due to the inclusion of the control variable update count, which was not controlled for in the prior study. The inclusion of update count in the analysis may take away variance that was once explained by projects backed or LinkedIn friends. Updates have been found to increase funding success (Wu, Wang, and Li, 2015; Xu, et al., 2014), and may be a better indicator of a founder’s integration within the crowdfunding community than the number

of projects backed. There is some support for this notion empirically, since removing the update

count variable from Model 5 in Table 3.2 flips the sign of the projects backed variable from

negative to positive (though it is not statistically significant; p = 0.55).

Contrary to Colombo and his coauthors (2015), this study finds external social capital to

be more important to crowdfunding than internal social capital. Specifically, external social

capital was found to be positively related to total amounts raised and funding success while

internal social capital was not. This is largely in part to the influence of donations by family and

friends (Agrawal, Catalini, and Goldfarb, 2011). As the largest survey of crowdfunding founders

to date, the results of this research reinforce social capital’s role in entrepreneurial fundraising

and sheds light on a darker source of funding, self-backing.

The Dark Side of Crowdfunding

The results of the survey indicate that around one in six Kickstarter users fund their own

campaigns. This is a large percentage given that self-backing is not permitted and can result in

suspension from the website. While 6% of founders reported giving money to another person to

donate on their behalf, most individuals (13%) simply contributed directly to their own

campaigns. In this study I have contended that due to moral licensing (Kouchaki, 2011) and the

anonymity of online actions (Freeman and Mitchell, 2004), founders can authorize themselves to

overlook Kickstarter’s policy against self-backing.

Moral licensing theory has only recently been applied to an organizational setting (Klotz

and Bolino, 2013). This study extends its usefulness to entrepreneurship research. Drawing on

moral licensing theory, I suggested that self-backing can bolster campaign success when the prohibited activity is done early or late in campaigns. However, my results indicate that self- backing helps primarily in the late-stages of crowdfunding campaigns whereas early-stage results

were found to be insignificant. The non-significant early-stage finding may be explained, in part,

by the inability for a single self-pledge to attract a significant amount of additional investments.

A closer look at the survey responses supports a moral licensing rationale for late-stage self-backing. Individuals who had self-backed also reported backing other campaigns on

Kickstarter. Self-backers had donated to 15 other campaigns on average, with 62% of self-

backers contributing to at least one other campaign. Thus, individuals may give themselves a

moral license to self-back due to the fact that they had already helped so many others (Miller and

Effron, 2010) in the crowdfunding community. Second, nearly half (48%) of individuals who self-backed did so more than once. This is consistent with Carpenter and colleagues (2004) who found that immoral acts were likely to spawn future immorality. This is especially relevant in the late-stages of crowdfunding projects where additional funding can mean the difference between a successful campaign and losing everything.

Implications for Crowdfunding Survey Research Design

This study also helps to inform scholars how to effectively survey founders of

crowdfunding campaigns. Due to unmonitored email inboxes and individual’s lack of interest to

give input regarding their failures, response rates for crowdfunding surveys are likely to be lower

than other studies. The response rate of my study may have been especially low since it involves

self-backing, a subject which some founders may wish to avoid.

The experiences described earlier in the manuscript suggest that researchers should not

rely on crowdfunding platforms alone to collect contact information. In the current study,

response rates were more than twice as high using email addresses collected from founder

websites or social media sites like Facebook. Though this study solicited responses from email

only, other forms of contact such as Facebook, LinkedIn, or Twitter may increase response rates

even further.

Limitations and future research directions

This study has some limitations which offer possibilities for future research. First, I

acknowledge that my results, especially those involving late-stage self-backing, may only hold

true for all or nothing crowdfunding campaigns. Thus, platforms beyond Kickstarter should be

examined in order to determine the generalizability of my findings. Future research should

investigate both platforms designed to allow founders to keep 100% of contributions regardless

of goals (e.g., GoFundMe) and equity-based platforms (e.g., WeFunder).

Second, my proxy for external social capital is limited to people who discussed the

project with the campaign founder. While I have argued in support of this measure, I acknowledge that alternative measures may produce different results. Furthermore, I encourage

future research to explore additional types of social capital. For example, relational capital (De

Carolis, Litzky, and Eddleston, 2009) and cross-cultural social capital (Jacobs and Tillie, 2004) may uniquely affect the distribution of crowdfunding contributions.

Survey designs similar to the one utilized in this study can produce unique datasets which

offer the opportunity for future research to address a variety of interesting questions. For

example, are other forms of resource acquisition attempted prior to starting a crowdfunding

campaign and which is the most effective? What are the long-term goals of crowdfunding founders (e.g., self-employment, contributions to society, sellings the company)? Does the personality of a founder displayed through crowdfunding campaign narratives and videos accurately reflect the founder’s true personality?

CONCLUSION

This study investigates the extent to which crowdfunding campaigns are affected by offline social capital and self-backing. In doing so, I am able to offer a distinction between campaigns which are bolstered through offline networks or self-backing, and those which are entirely supported by the crowd. While some crowdfunding campaigns appear to gain backing quickly, I suggest that these spikes may stem from a founder’s offline network rather than from the online crowd. As one of the first empirical papers evaluating the roles of family and friends in a crowdfunding context, this study extends both crowdfunding and social capital literature.

Since over 90% of successfully funded crowdfunding campaigns become new ventures (Mollick and Kuppuswamy, 2014), my study offers contributions to theory as well as practicing entrepreneurs.

The current research informs social capital theory by showing that external social capital is crucial to online crowdfunding success despite it being largely comprised of offline family members and friends. My research also has implications for moral licensing theory by introducing it into the domain of entrepreneurship. Practicing entrepreneurs should leverage support from close ties like family and friends even when raising funds online. This crucial support is likely to promote additional backing from more distant ties and from those with no prior ties whatsoever due to herding effects. Self-backing, while unlikely to influence herding behavior, can serve as a means to illicitly reach campaign targets.

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CHAPTER FOUR

ESSAY THREE

THE DARK TRIAD AND ENTREPRENEURIAL FUNDRAISING: A COMPARISON OF

REWARDS-BASED AND EQUITY CROWDFUNDING CAMPAIGNS

ABSTRACT:

While a number of previous studies have examined how positive psychological traits influence entrepreneurship, much less attention has been given to dark personality traits.

Drawing on social exchange and life history theories, I propose that narcissism, psychopathy, and Machiavellianism (the dark triad) affect funding levels differently depending on the type of crowdfunding campaign. I analyze data from 328 campaigns from a variety of web platforms to examine these differences, and find that crowdfunding narratives high in narcissism attract less funding in rewards-based campaigns while narratives high in psychopathy raise more money in equity campaigns. Overall, dark personalities were found to be beneficial to entrepreneurs utilizing equity crowdfunding but harmful in rewards-based campaigns.

Keywords: crowdfunding, dark triad, dark personalities, social exchange theory, life history theory

INTRODUCTION

Recent research on the dark side of organizations has shifted the idea that the source of darkness is external to the firm (Linstead, Maréchal, and Griffin, 2014). Rather, darkness can originate from inside of organizations stemming from the personalities of key leaders. New venture founders are especially likely to exude dark characteristics since entrepreneurship necessitates a high degree of self-confidence, agentic leadership, and involves high levels of uncertainty (Mathieu and St-Jean, 2013). While dark traits are generally perceived negatively by others, there are also times when they can be advantageous (Judge, Piccolo, and Kosalka, 2009).

Thus, in entrepreneurship, the line that separates good and bad traits can sometimes become blurred (Haynes, Hitt, and Campbell, 2015). Entrepreneurs with dark personalities are likely to have confidence, a lack of fear, and comfort within uncertain environments (Jonason, Li, and

Teicher, 2010). Although these qualities can be beneficial to new ventures, when taken to the extreme, they can result in unrealistic optimism (Kuratko, 2007) or even venture failure (Beaver and Jennings, 2005). To the best of my knowledge, dark personalities have yet to be examined in crowdfunding.

Crowdfunding is a method of financing whereby an entrepreneur seeks to raise a large amount of funds from a small group of individuals in return for some type of reward or equity

(Belleflamme et al., 2014; Davis et al., 2017; Mollick, 2014). This paper considers how dark personality traits can influence crowdfunding outcomes and when they are likely to help or hurt campaigns. Specifically, I investigate the question, “are entrepreneurs high in the dark triad

(comprised of three malevolent traits: narcissism, psychopathy, and Machiavellianism; Jonason and Webster, 2010) likely to raise more funding via rewards-based or equity-based crowdfunding?” This is an important and timely question given that crowdfunding has seen a

rapid rise in popularity over the past decade (Short, et al., 2017) and since personalities are

known to greatly affect entrepreneurial performance (Brandstätter, 2011). Moreover, the very

limited existing research on personality in crowdfunding (e.g., Davidson and Poor, 2015; Thies,

et al., 2016) focuses only on positive personality traits. Therefore, this study represents the first

which examines the impact of the dark triad within a crowdfunding context.

The findings of this study are expected to make two contributions to entrepreneurship

literature and crowdfunding practice. First, I intend to identify which dark traits affect

fundraising levels most. These traits have received limited empirical investigation in

entrepreneurship research, which is surprising given their relevance to new ventures (Kets de

Vries, 1985) and existing firms (O’Boyle, et al, 2012) alike. Second, by compacting the dark triad traits, I aim to reveal that different contexts (i.e., rewards-based or equity-based platforms)

significantly change the impact of dark personalities. Thus, my current research answers the

recent call of scholars (e.g., Klotz and Neubaum, 2016; Miller 2015) who suggests a need for

entrepreneurship research to devote more attention to the interplay of context and personality.

THEORY AND HYPOTHESIS DEVELOPMENT

Background on the Dark Triad

Narcissism, psychopathy, and Machiavellianism make up the three socially aversive personality traits known as the dark triad. The three characteristics are individually distinguishable (Hmieleski and Lerner, 2016), but also share features such as self-promotion, a lack of emotion, duplicity, and aggressiveness (Paulhus and Williams, 2002). Not surprisingly, most research involving the dark triad concludes that dark personality traits are generally viewed unfavorably by others. For example, Paulhus and Williams (2002) find that individuals high the dark triad typically display disagreeableness. They have emotional deficits and have trouble

identifying emotions in others (Jonason and Krause, 2013). Furthermore, dark triad traits have

been shown to correlate with low levels of self-control and the tendency to disregard future consequences (Jonason and Tost, 2010). In a study involving gambling tendencies, Jones (2013) finds that persons high in the dark triad are willing to risk other people’s money but not their own.

While the dark triad is often generally considered disadvantageous, dark personalities have been shown to be beneficial in certain contexts. One such context is politics, where the dark triad traits have been linked to a variety of achievements. For example, performance ratings were found to be higher for presidents who displayed narcissism (Deluga, 1997) as well as

Machiavellianism (Deluga, 2001). The same two traits have been shown to facilitate leadership emergence (Judge, et al., 2009). Psychopathy, on the other hand, has been linked to superior entrepreneurship abilities (Akhtar, Ahmetoglu, and Chamorro-Premuzic, 2013).

As a whole, the dark triad is heavily represented in corporations among CEOs (Hmieleski and Lerner, 2016). Mathieu and St-Jean (2013) suggest that because entrepreneurs and CEOs share many similar characteristics, entrepreneurs are probably also higher in the dark triad than most other people. Dark personalities are therefore likely to appear in crowdfunding campaigns launched by entrepreneurs.

The Dark Triad and Rewards-Based Crowdfunding

Rewards-based crowdfunding backers invest because they like or enjoy the campaign and want to show their support (Schwienbacher and Larralde, 2010). Backers in this context receive rewards in two ways. First, they may receive an intangible benefit such as input into product development, a meeting with the entrepreneur, or a movie credit (Mollick, 2014). Second,

backers are often treated as early customers, receiving products upon their completion (Frydrych

et al., 2014). No financial returns are expected.

I leverage social exchange theory to help explain how the dark triad traits influence

rewards-based crowdfunding outcomes. Social exchange is most germane “in domains where

markets do not exist or are at best incomplete, such as in interpersonal relationships and in

nascent organizing” (Hmieleski and Lerner, 2016, p. 9). A key tenet of social exchange theory is

that people are more likely to help others when a reciprocal benefit is expected sometime in the

future. However, reciprocal exchange is generally less important to those scoring high in the dark

triad. Indeed, such entrepreneurs consider relationships to be maximized by taking without

giving (O’Boyle et al., 2012).

In the remainder of this section, I suggest that rewards-based campaigns are negatively impacted by narratives that display the “taking without giving” traits which comprise the dark triad. In the next section, I further suggest that due to increased regulations and contractual obligations (Cholakova and Clarysse, 2015), equity campaigns are unlikely suffer the same negative consequences of the dark triad.

Narcissism. People with high levels of narcissism tend to be arrogant, self-absorbed, entitled, and hostile (Rosenthal and Pittinsky, 2006). Narcissists are inclined to behave in an egotistical manner, believing that they are superior to others and deserving of praise and admiration (Judge et al., 2009). For these reasons, most extant research portrays narcissism in a negative light. Prior research has found that while narcissistic leaders are likely to be able to enhance people’s perception of their leadership capabilities, attractiveness, and abilities to influence others, these same leaders are generally viewed negatively by their peers (Judge,

LePine, and Rich, 2006).

Narcissists are associated with a desire for money (Watson, Jones, and Morris, 2004). As

such, I expect narcissism to have a negative impact on rewards-based fundraising levels since

backers of these types of campaigns are far less concerned with making money than backers of

equity campaigns. Rather, they are more interested in special perks or the opportunity to buy pre-

sale products (Mollick, 2014). Rewards-based backers share a sense of community via the pre- ordering mechanism (Belleflamme, Lambert, and Schwienbacher, 2014). Since narcissists are less inclined to care about these relationships and a fair exchange, their personality may adversely impact their effectiveness raising money via rewards-based crowdfunding.

Psychopathy. The central characteristics of psychopathy include high levels of impulsivity and thrill-seeking combined with low levels of empathy and anxiety (Paulhus and

Williams, 2002). Those high in psychopathy are known for being reckless, often taking needless risks in pursuit of minimal gains (Cleckley, 1976). They don’t care about the needs of other people but are willing to work with others when it maximizes their own individual gains

(Hmieleski and Lerner, 2016).

When evidence of psychopathy is apparent in campaign narratives, it may alert potential backers to the entrepreneur’s ability to take advantage of others (Jonason and Krause, 2013) or their disregard for other people’s money (Jones, 2013). In equity crowdfunding where there are more regulations and contractual obligations (Cholakova and Clarysse, 2015), the apprehensions tied to psychopathy may be less of a concern. However, on rewards-based platforms where far fewer protections exist, the reciprocal benefits expected in the social exchange are not guaranteed. Indeed, Mollick (2014) found that the majority of successfully funded rewards-based campaigns are delayed in delivering rewards to backers while some never deliver at all. Taken

together, I suggest that rewards-based fundraising efforts are negatively impacted by the

presence of psychopathy in campaign narratives.

Machiavellianism. Unlike those with high levels of psychopathy, Machiavellians only

take from others when there is maximal gain from little risk (Jones, 2013). They resist the

influence of other people while striving to control personal interactions and situations (Deluga,

2001). Indeed, Paulhus and Williams (2002) equate Machiavellianism to having a manipulative

personality. Given the opportunity, individuals high in Machiavellianism will abuse the power

they’ve already achieved and ignore ethical standards in an effort to further increase their power

(Judge et al., 2009). Their manipulations are likely to subject others to the same reduction in

ethical principles.

In a rewards-based crowdfunding context, Machiavellianism is likely to have a negative impact from a social exchange perspective. Machiavellians believe that people aren’t concerned about their well-being (Zettler and Solga, 2013) and respond by not caring about others

(Hmieleski and Lerner, 2016). Under these conditions, a mutually beneficial exchange is highly

improbable. Once an individual has been exploited, Machiavellians fail to reciprocate in social

exchanges (Côté et al., 2011). Without regulations in place to protect rewards-based backers, they may have less incentive to invest in campaigns led by Machiavellians.

Taken together, I have argued that the dark triad personality traits have a detrimental impact for entrepreneurs attempting to raise capital via rewards-based crowdfunding. Backers’

lack of financial stake combined with the minimal legal protections available on rewards-based platforms makes reciprocally beneficial social exchange difficult, especially for those high in the dark triad. Thus, I posit that the dark triad characteristics are negatively related to amounts raised on rewards-based platforms. More formally:

Hypothesis 1: Rewards-based crowdfunding narratives’ levels of narcissism (1a),

psychopathy (1b), and Machiavellianism (1c) will be negatively related to total amounts

raised.

The Dark Triad and Equity Crowdfunding

Unlike rewards-based crowdfunding, entrepreneurs using equity crowdfunding must adhere to far more regulations and contractual obligations (Cholakova and Clarysse, 2015).

Backers of equity campaigns are typically motivated by the potential return on their investment. I suggest that the increased legal measures combined with alternate backer motivations produces different crowdfunding outcomes for equity campaign narratives high in the dark triad. This is consistent with Judge and colleagues (2009) who state that dark traits can have a brighter side under certain conditions. I draw on life history theory to explain the predicted relationship.

Life history theory contends that because energy is finite, it must be distributed with trade-offs in mind (Buss, 2009). Originally, the theory was used to compare differences across species. For example, some animals (e.g., fish or insects) invest little to no time with their young instead opting to produce many offspring hoping that some survive. Other animals (e.g., bears or kangaroos) have very few offspring but invest many years to ensure their survival. Rushton

(1985) extends life history theory by showing that it can also be used to explain behavioral differences within people.

Specifically, behavioral life history theory suggests that individuals in intensive environments with uncertain futures are likely to adopt a fast-life strategy which emphasizes immediate needs and short-term relationships (Hmieleski and Lerner, 2016). In order to live the fast-life, traditional careers which stretch several decades are traded in favor of the potential for quick gains via entrepreneurship. People with high levels of the dark triad have been shown to

77 exude this fast-life strategy (Carter, et al., 2015) and are likely to take on new ventures regardless of risk (Jonason, Koenig, and Tost, 2010). Their confidence, lack of fear, and comfort within uncertain environments entices them to become entrepreneurs (Jonason, Li, and Teicher, 2010).

While the fast-life strategy is typically viewed as counterproductive it can be superior in certain situations, particularly in the short-term (Jonason, Koenig, and Tost, 2010). Early stage resource acquisition, which focuses on short-term relationships with investors, may be a situation where the dark triad traits become advantageous. Building on life history theory, I next consider how each of the dark triad traits might be viewed more positively in the context equity-based crowdfunding.

Narcissism. Despite some negative connotations, narcissism also includes features that can be viewed positively, such as grandiosity, dominance, and superiority (Paulhus and

Williams, 2002). Narcissists have even been found to be considered popular and attractive

(Campbell & Campbell, 2009; Küfner, Nestler, & Back, 2013), and capable of attaining status quickly (Deluga, 1997). For example, in a field study of military personnel, cadets with high levels of narcissistic qualities like egotism and self-esteem were found to be the top rated leaders

(Paunonen et al., 2006).

Narcissists are skilled at acquiring resources and getting others to adopt their ideas

(O’Reilly et al., 2014). This could be especially germane for entrepreneurs raising money via equity crowdfunding since overcoming information asymmetries is a key consideration for equity backers (Ahlers et al., 2015). Entrepreneurs are likely to be living the fast-life (Jonason,

Li, and Teicher, 2010), so narcissists should be commonly found among entrepreneur-driven crowdfunding campaigns. Convincing equity backers to invest is more difficult than convincing investors in more traditional financing methods (Vismara, 2016). Given their persuasiveness,

78 preeminence, and aptitude for gathering resources, I suggest that narcissists may be able to raise more money through equity crowdfunding than others since their objective of making money is shared by potential investors.

Psychopathy. Individuals high in psychopathy can succeed when they’re able to manipulate others without being found out (Mullins-Sweatt, et al., 2010). Many high-level positions within corporations are held by these ‘successful psychopaths’ (Babiak and Hare,

2006). Additional research in a corporate setting showed high levels of psychopathy to be positively correlated with peer ratings of communication skills, strategic thinking, and innovation abilities (Babiak, Neumann, and Hare, 2010). Such capabilities are of crucial importance to entrepreneurs as well.

Indeed, psychopathy has been found to be positively related to entrepreneurial tendencies and abilities, although negatively related to social entrepreneurship (Akhtar et al., 2013). For- profit entrepreneurship is appealing to individuals high in psychopathy due to the potential for rapid gains. Thus, entrepreneurs high in psychopathy are likely to use equity crowdfunding in their quest for the fast-life. Equity backers, protected by regulations and contracts (Cholakova and Clarysse, 2015), may view psychopathy favorably due to its association with novel ideas and innovation. Some negative aspects of psychopathy, such as not caring about others’ needs, would be less distressing in equity crowdfunding since the entrepreneur is contractually obligated to return funds to investors upon success.

Machiavellianism. The Machiavellian personality, while often considered undesirable, has beneficial attributes as well. For example, Machiavellians are capable of creating desired images like charisma (Deluga, 2001; Gardner & Avolio, 1995). They are motivated to be leaders, have high aspirations, and are willing to invest their own social capital in order to achieve their

79 goals (Judge et al., 2009). Machiavellians are likely to demonstrate an extreme competitiveness.

Though excessive competitiveness can be viewed as counterproductive in a more traditional business setting (Lu, Tjosvold, and Shi, 2010), it is admired and even considered necessary in an entrepreneurial setting (Hmieleski and Lerner, 2016; Robinson, 2014).

Driven by the fast-life, Machiavellians have a need for immediate gratification (Jonason and Tost, 2010). Entrepreneurship can serve as a means to fulfill this need since substantial amounts of money can be made quickly and leadership can be assumed from the onset of the new venture. This is consistent with Klotz and Neubaum (2016), who suggest that

Machiavellianism is especially relevant in entrepreneurship and that it can often produce positive outcomes. I argue that in equity crowdfunding, Machiavellians can raise higher levels of funding due to their positive image, lofty aspirations, and competitive nature. Though Machiavellians are known for a lack of reciprocation (Côté et al., 2011), the contracts involved with equity crowdfunding should alleviate concerns about investments not being repaid.

In sum, I posit that the dark triad can produce positive results in equity crowdfunding.

Many of the adverse facets of the dark triad can be neutralized through the regulations and contracts involved in equity campaigns. This allows the beneficial facets, such as leadership capabilities and communication skills, to become more relevant. Therefore, I suggest that higher levels of the dark triad traits found in campaign narratives will allow entrepreneurs to raise more money via equity crowdfunding. Accordingly, I offer my second hypothesis:

Hypothesis 2: Equity crowdfunding narratives’ levels of narcissism (2a), psychopathy

(2b), and Machiavellianism (2c) will be positively related to total amounts raised.

The Dark Triad’s Overall Impact on Crowdfunding

I now turn to the more general question of how crowdfunding results are impacted by entrepreneurs with dark personalities. To answer this question, I consider the interplay of personality and context as suggested by Miller (2015). Specifically, I posit that personalities high in the dark triad will affect fundraising levels differently depending on whether the capital is being raised in a rewards-based or an equity context. This is in line with the notion that traits which once were beneficial may become irrelevant or even counterproductive in different situations (Judge, et al., 2009).

When considering the interaction of personality and entrepreneurial context, both positive and negative outcomes should be considered (Klotz and Neubaum, 2016). In a rewards-based context, personalities high in the dark triad are likely to stifle fundraising levels. Entrepreneurs high in the dark triad show little concern with future consequences (Jonason and Tost, 2010), which might prompt rewards-based backers not to invest for fear they may never be recompensed. Moreover, the sense of community in rewards-based crowdfunding (Belleflamme, et al., 2014) doesn’t fit with the dark triad personality. Dark entrepreneurs are more likely to disagree with the crowd (Paulhus and Williams, 2002).

Conversely, in an equity-based context where backers have more legal protections ensuring their interests (Cholakova and Clarysse, 2015), the advantages of a dark personality may actually incentivize people to invest. Since equity backers purchase bond-like shares in a new venture (Ahlers, et al., 2015), they are more concerned with financial returns than the product itself and the relationships that rewards-based backers enjoy. Thus, equity backers may be more willing to overlook the emotional deficits and disagreeableness of entrepreneurs high in

81 the dark triad, in favor of their leadership (Judge, et al., 2009) and entrepreneurial abilities

(Akhtar, et al., 2013).

Taken together, I posit that the dark triad personality traits and the type of crowdfunding chosen by the founder (rewards-based versus equity-based) jointly impact a campaign’s results. I suggest that rewards-based campaigns launched by entrepreneurs with dark personalities are likely to receive less funding while equity campaigns are more likely to receive funding.

Specifically, I propose my third and final hypothesis:

Hypothesis 3: Dark triad personality traits and the type of crowdfunding will have an

interaction effect on total amounts raised, such that high levels of the dark triad are

detrimental for rewards-based campaigns but positive for equity campaigns.

METHODS

Sample

My study is unique in that requires data from both rewards-based and equity crowdfunding platforms. While rewards-based data is plentiful, data on equity campaigns is harder to collect since markets are relatively young (Hornuf and Schwienbacher, 2017).

Moreover, the equity crowdfunding market is largely dependent on the legislation of its home country (Ahlers et al., 2015). Therefore, I began by constructing an equity dataset using only campaigns started in the United States.

The Wefunder website is the largest platform for regulation crowdfunding, a new form of crowdfunding in the United States wherein entrepreneurs are governed by the Securities and

Exchange Commission (SEC). Wefunder tracks successful regulation crowdfunding efforts, both by entrepreneurs using Wefunder and by those using various other platforms (see Wefunder,

2017). I collected data on all campaigns listed by Wefunder through 2017. Since regulation

crowdfunding became legal in the United States on May 16, 2016 (Bradford, 2018), my sample

contains just under 20 months’ worth of data. At the time of collection, Wefunder listed 200

campaigns from seven different platforms. I discarded 36 campaigns which were not equity-

based, leaving 164 campaigns in my equity sample. Platforms represented in the equity sample

include Wefunder (n = 82), StartEngine (n = 47), Indiegogo (n = 19), Republic (n = 14),

Flashfunders (n = 1), and SeedInvest (n = 1). Data was collected from these platforms as well as

Form C filings on the SEC website. The Form C is an offering statement required by the SEC for

all regulation crowdfunding campaigns in the United States.

A matching sample of rewards-based crowdfunding campaigns was then constructed

using Kickstarter, the world’s largest rewards-based platform. I collected data on successful

Kickstarter campaigns during the same period as the equity sample (May 16, 2016 through

December 31, 2017). I then randomly sampled 164 of these campaigns for the rewards-based

sample.

Measures

Dependent Variable. The majority of equity-based regulation crowdfunding campaigns are successful. For example, at the time of writing the platform StartEngine had a failure rate of less than 3% (StartEngine, 2018) while Republic had a failure rate of only 5% (Republic, 2018).

Thus, it would not be appropriate to use a binary dependent variable of failed versus successful campaigns. Instead, I focus on the total amount raised (in U.S. dollars) by each campaign. Values in the rewards-based sample range from $158 to $385,710 while the equity sample ranges from

$12,417 to $1,070,000. I use the natural log of these amounts in my statistical analyses.

Independent Variables. Recent research has developed dictionaries for narcissism, psychopathy, and Machiavellianism by surveying Twitter users about their dark triad traits and then subsequently analyzing the user’s posts on the social media site (Preoţiuc-Pietro et al.,

2016). The authors’ work is germane to this study since social media outlets like Twitter and

Facebook are embedded into many crowdfunding websites (Colombo, Franzoni, and Rossi-

Lamastra, 2015). Table 4.1 provides the word lists from each dark trait dictionary as well as

examples from my sample where rhetoric was consistent with the three traits. I employed the

computer-aided text analysis (CATA) software CAT Scanner (McKenny, Short, and Newman,

2012) using the three dictionaries to identify the extent to which the crowdfunding narratives in my sample displayed dark triad characteristics. Specifically, CAT Scanner detected the total number of words per narrative that were included in the word clouds for each of the three dark triad traits. I then standardized these figures by dividing them by the total number of words in the corresponding narrative. This standardization approach is recommended (McKenny, Short,

Zachary, and Payne, 2012; Zachary et al., 2017) because the length of narratives varies significantly among crowdfunding campaigns.

The resulting values for narcissism ranged from 0.81% to 10.58%, psychopathy values

ranged from zero to 5.47% and Machiavellianism ranged from zero to 10.77%. As a fourth

independent variable, I summed the percentages of the three traits to determine an overall dark

triad score per campaign. Dark triad scores ranged from 3.13% to 21.15%.

Control Variables. While the standardization of the independent variables controls for the

length of the campaign narratives, I also controlled for the number of fundraising days, location,

gender, and ethnicity in all statistical tests. The number of fundraising days is limited to no more

than 60 days on Kickstarter and is recorded on the campaign page upon closing. For equity

85 campaigns, I calculated fundraising days as the target deadline date minus the date of the Form C

filing. The location variable is a dichotomous measure where firms in Silicon Valley are coded

as one and zero otherwise. I included this control because Silicon Valley is a hub for

entrepreneurship in the United States and often provides early-stage capital for new ventures

(Agrawal, Catalini, and Goldfarb, 2016). Prior research has found that men are more likely to

start businesses than women (Gupta, Turban, and Bhawe, 2008) and that ethnic minorities

engage in higher levels of new business activity (Levie, 2007). Moreover, males have been

shown to exude higher levels of all three dark triad traits (Paulhus and Williams, 2002).

Accordingly, I included controls for both gender and ethnicity by coding biography pictures and

campaign videos. Gender is coded as a one if the lead entrepreneur is a male and zero if female.

Ethnicity is coded a one if the lead entrepreneur is Caucasian and zero otherwise. The sample

contains 249 males (76%) and 277 Caucasians (84%).

Statistical Analyses

I used regression analysis to empirically test my hypotheses. The first two hypotheses test

the impact of the dark triad traits using the rewards- and equity-based subsamples. Separate correlation matrices for each subsample are included in Table 4.2. The combined sample was used for testing hypothesis three.

RESULTS

Prior to testing hypotheses 1 and 2, I checked for the possibility of multicollinearity.

Variance inflation factor (VIF) values were all near one for each model used to test these hypotheses (maximum VIF = 1.08), indicating that multicollinearity is an unlikely threat to my results. This is important given that some of the dark triad variables are significantly correlated as shown in Table 4.2. In addition, Table 4.2 shows a positive correlation between the number of

86 days of fundraising and the total amount raised for rewards-based campaigns (r = 0.26). This is

contrary to prior research which has found that longer campaign durations decrease the

likelihood of meeting funding targets (Mollick, 2014).

Models 1 through 3 of Table 4.3 test the prediction that narcissism (H1a), psychopathy

(H1b), and Machiavellianism (H1c) would be negatively associated with total amounts raised in

rewards-based crowdfunding. While the coefficients are negative for each of the dark triad traits,

only the narcissism coefficient is statistically significant (β = -16.10; p < 0.01). These results

support H1a, and fail to support H1b or H1c.

H2 predicted that the dark triad traits would be positively related to fundraising levels in

equity crowdfunding. Models 4 through 6 of Table 4.3 test these hypotheses. The results show

that narcissism (H2a) and Machiavellianism (H2c) are not significantly related to total amounts

raised. Psychopathy (H2b) however, is positively related to fundraising levels as predicted (β =

16.54; p < 0.05). Taken together, H2b is supported while H2a and H2c are not.

To test the interaction effect of the type of crowdfunding and the dark triad on funding

levels, I combined the two subsamples used for hypothesis 1 and 2. I retested for

multicollinearity and again found all VIF scores to be less than two (maximum VIF = 1.95).

Therefore, I continued with the regression analysis since multicollinearity was unlikely to distort

my results. Table 4.4 shows the descriptive statistics and correlations for the full dataset. As

expected, crowdfunding type and total amounts raised were negatively correlated (r = -0.82) since equity campaigns tend to ask for and receive higher amounts than rewards-based campaigns.

Table 4.5. Regression Models of Total Amount Raised for Full Sample. Model 1 Model 2

Controls Days Raising Funds 0.02** 0.00 Location (Silicon Valley = 1) 0.22 0.16 Gender (Male = 1) 0.25 -0.14 Ethnicity (Caucasian = 1) -0.08 0.19

Main Effects Crowdfunding Type (Equity = 1) 1.56* Dark Triad -8.28*

Interaction Crowdfunding Type x Dark Triad 15.81*

Constant 8.78** 9.34** R2 0.36 0.68 Note: *p < .05; **p < .01; N = 328

Table 4.5 shows the results of my regression analysis using the full sample. Model 1

includes only the control variables and explains 36% of the variance in the total amounts raised

(R2 = 0.36). Model 2 shows the complete model which includes the main effects of

crowdfunding type and the combined dark triad variable, as well as their interaction. This model

explains considerably more variance (R2 = 0.68), increasing by 32% compared to Model 1. Both

the main effects and the interaction in Model 2 are statistically significant. The significant

coefficient for the interaction term (β = 15.81; p < 0.05) supports hypothesis 3. As expected,

entrepreneurs with high levels of the dark triad attract above average funding levels in equity

crowdfunding, but below average gains in rewards-based crowdfunding. For ease of interpretation, a graph of the interaction is shown in Figure 4.1.

12.50

11.00

Equity CF Rewards-Based CF Amount RaisedAmount 9.50

8.00 Low in Dark Triad High in Dark Triad

Figure 4.1. Dark Triad x Crowdfunding Type interaction for amount raised.

DISCUSSION

The main purpose of this study was to examine how dark personalities influence fundraising capabilities in crowdfunding. Overall, the findings suggest that dark personalities are a hindrance in rewards-based crowdfunding but can actually be advantageous in equity campaigns. In analyzing the dark triad traits individually, the findings suggest that narcissism is detrimental to rewards-based crowdfunding while psychopathy is advantageous to equity crowdfunding. Machiavellianism was insignificant in both models, indicating that in a crowdfunding context, it is likely the least influential of the dark triad traits.

Dark Personalities in Rewards-Based Crowdfunding

I applied social exchange theory to suggest that entrepreneurs high in the dark triad would be less successful raising money in rewards-based campaigns. Given that backers in this context are aren’t driven by financial incentive, relationships with project founders are more

92 likely to be considered an important aspect of the exchange (Belleflamme, et al., 2014). People with dark personalities lack relationship building skills (Jonason and Krause, 2013; Paulhus and

Williams, 2002), which may explain the negative impact the dark triad has in rewards-based crowdfunding campaigns. Although all three of the dark triad main effects were found to have negative coefficients in the rewards-based models of Table 4.3, only the effect of narcissism was statistically significant.

Indeed, narcissism was found to have a negative relationship with total amounts raised via rewards-based campaigns. This is consistent with the finding that despite some associations with narcissism being favorable, narcissistic leaders remain negatively perceived by others

(Judge, LePine, and Rich, 2006). Narcissists have high aspirations for attaining money (Watson, et al., 2004), which may be fine with or even favorable to equity backers, but appears to be viewed undesirably by rewards-based backers. As such, narcissistic entrepreneurs would be wise to avoid rewards-based platforms in favor of other forms of raising capital.

In regards to the nonsignificant findings, personalities high in psychopathy or

Machiavellianism were shown to have less of an impact in reward based crowdfunding.

Consistent with the idea of ‘successful psychopaths’ (Babiak and Hare, 2006), it is possible that while entrepreneurs have dark triad personalities, they are able to keep them to themselves when writing campaign narratives. Comparing entrepreneurs’ dark triad survey results to their crowdfunding narratives offers an interesting avenue for future research.

Dark Personalities in Equity Crowdfunding

Drawing on life history theory, I advocated that unlike rewards-based campaigns, equity campaigns might benefit from founders high in the dark triad. In doing so, I suggested that entrepreneurs using equity crowdfunding were likely to be living the fast-life, seeking a quick

method of earning money. Stated differently, entrepreneurs take an alternate approach to

accumulating wealth when compared to a more traditional career, which provides a steady

income over a long period of time. Both entrepreneurs (Jonason, Li, and Teicher, 2010) and

individuals high in the dark triad (Carter, et al., 2015) have been shown to employ the fast-life strategy. Thus, I hypothesized that equity backers, who share an entrepreneur’s goal of maximizing wealth, may be more likely to invest when dark traits are present in campaign narratives. However, my results did not find each trait to predict funding levels individually.

Psychopathy was the only dark trait that significantly influenced equity funding levels.

The results support the notion that high levels of psychopathy in equity crowdfunding narratives

increase total levels of campaign funding. While I propose that the increase is due to individuals

high in the dark triad having exceptional entrepreneurial abilities (Akhtar et al., 2013), I also

acknowledge the possibility of the manipulation of others without their knowledge (Mullins-

Sweatt, et al., 2010) accounting for some variance. More research is needed to fully understand

the reasons driving this phenomenon.

Narcissism and Machiavellianism were not found to be statistically significant predictors

of equity crowdfunding levels. It is possible that in equity crowdfunding, the dark triad

personality is commonly found among campaign founders and backers alike, since both are

driven by monetary incentives. Dark personality traits may lose their advantages when pitted

against other people who also have dark personalities. Thus, the competing egos fueled by

narcissism (Judge et al., 2009) and the impossibility of two Machiavellians both taking more

than they give (Jones, 2013) may explain the lack of support for H2a and H2c.

The Dark Triad’s Opposing Contextual Effects

I lastly examined how crowdfunding type and dark personalities interact to impact

crowdfunding results. As hypothesized, entrepreneurs high in the dark triad realized above

average fundraising in equity campaigns and below average returns in rewards-based campaigns.

A number of conclusions can be drawn from the interaction shown in Figure 4.1. First, it is clear

that equity campaigns raise substantially more funds, on average, than rewards-based campaigns.

Though I expect this observation to be generalizable across countries, it is important to recall that my sample involves only U.S. campaigns, warranting additional research to verify such a claim.

Second, as anticipated, dark personalities were found to limit rewards-based fundraising efforts

but help equity campaigns. The reciprocal benefits associated with social exchange (O’Boyle et

al., 2012) are more important to community-oriented rewards-based backers. In equity

crowdfunding, backers and entrepreneurs share the common goal of monetary gains. This is not

the case in rewards-based crowdfunding, where backers are more interested in simply becoming

early customers (Frydrych et al., 2014). Thus, the disagreeableness which stems from darker

personalities (Paulhus and Williams, 2002) is less of a problem in an equity crowdfunding

setting.

The collective findings of this study indicate that the dark triad as a whole (i.e., measured

as the sum of the three individual traits) may be especially relevant to entrepreneurship research.

The interaction as well as the main effect of the dark triad were significant (as shown in Model 2

of Table 4.5). When the traits were separated, only one-third of the main effects were significant.

Thus, a generally dark personality may be a better indicator of crowdfunding success, and

perhaps other entrepreneurial outcomes, than individual dark traits.

Limitations and future research directions

I now address some limitations associated with this study and offer proposals regarding

avenues for future research. As mentioned earlier in the manuscript, one limitation of my study is

that it is limited to campaigns launched from the United States. The U.S. provided a novel equity

sample since at the time of writing regulation equity crowdfunding had been legal in the United

States for less than two years (Bradford, 2018). Prior to 2016 however, most equity

crowdfunding occurred in Europe and Australia (Ahlers et al., 2015), opening the possibility for

different results given the older crowdfunding markets.

An additional limitation involving my sample is that it only contains successful

campaigns. Subsequently, my empirical testing was restricted to using the total amount raised as

the dependent variable of interest. Equity crowdfunding scholars should consider including failed

campaigns in their analyses and test successful versus unsuccessful campaigns using logistic

regression. This should become increasingly feasible as equity crowdfunding markets mature,

particularly in the United States.

Another potential limitation is the lack of control variables applied to the models in my

study. Given that the study includes data from Kickstarter and six different equity crowdfunding

platforms, certain sought after controls could not be collected for both rewards-based and equity campaigns. For example, though controlling for the number of years in business and the number of employees could be important (Ahlers et al., 2015), this data can typically be gathered for equity campaigns but not on Kickstarter or other rewards-based platforms.

This study represents one of the first to empirically test the impact of the dark triad in an entrepreneurial setting. Moreover, I am one of the first to respond to the call for consideration of the interaction of personality and context (Miller, 2015). Taken together, these research gaps

96 pose a number of interesting questions for future research. For instance, how do dark personalities influence an entrepreneur’s ability to attract venture capital verses angel investment? Does the dark triad have implications for family operated startups? Or finally, does the dark triad impact crowdfunding outcomes differently given opposing cultural dimensions

(e.g., Hofstede or GLOBE)?

CONCLUSION

This study pointed to the dark triad as helpful or harmful to crowdfunding depending on the entrepreneur’s choice of campaign type. This is in line with prior research suggesting that dark traits can have a brighter side under certain conditions (Judge, et al., 2009). In this study, equity crowdfunding is shown to be such a condition. My findings suggest that while equity campaigns with narratives emphasizing dark personalities result in higher levels of fundraising, rewards-based campaigns suffer from narratives highlighting dark personalities.

Social exchange and life history theory are the two most commonly used frameworks applied to dark triad research (Jonason, Koenig, and Tost, 2010). Thus, this study advances their practicality in entrepreneurship research and extends their usefulness to a crowdfunding context.

Lastly, I contribute to practice by showing crowdfunding campaign founders which types of campaigns might fit best with their personalities and how narrative verbiage can lead to increased or decreased funding levels.

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Ahlers, G. K., Cumming, D., Günther, C., & Schweizer, D. (2015). Signaling in equity crowdfunding. Entrepreneurship Theory and Practice. 39(4), 955-980.

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CHAPTER FIVE

DISSERTATION SUMMARY AND GENERAL CONCLUSIONS

In sum, my research has identified several factors involved in the dark side of

entrepreneurial crowdfunding. First, I find that celebrities use their fame to generate much higher

than average crowdfunding returns. Furthermore, bad press is unlikely to harm moral legitimacy,

implying that articles which challenge a campaign’s moral legitimacy may be better than no

press at all. Second, my survey results reveal prohibited self-backing to be commonplace on

Kickstarter. Of the 135 survey respondents, 16% of them had contributed money to their own

campaigns. While this is unlikely to help in the early days of a campaign, self-backing in the

late-stage of a campaign does increase the likelihood of success. Third, I find that narcissistic

entrepreneurs raise less money in rewards-based crowdfunding while entrepreneurs with high levels of psychopathy raise more money in equity campaigns. By compacting the dark triad traits, I show that dark personalities are beneficial to equity crowdfunding but disadvantageous to

rewards-based campaigns.

Taken together, the three essays of my dissertation offer important contributions to both

entrepreneurship theory and to crowdfunding practice. My first essay incorporates media framing

theory into a crowdfunding context. In doing so, I tie media frames to crowdfunding campaign

legitimacy and subsequent campaign success. This research also has implications for literature

on celebrity entrepreneurs. My second essay informs both social capital and moral licensing

theories. In regards to social capital, I show that offline social networks are crucial for

fundraising success even within an online environment. Moreover, I suggest that self-backing may occur due to moral licensing. The prevalence of self-backing combined with the finding that

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most self-backers had previously contributed to other campaigns supports this notion. That is,

individuals that feel morally superior from backing other people’s campaigns may fund their

own projects with greater moral ease, despite the action being against platform regulations. In

essay three, I contribute to social exchange theory in demonstrating narcissism’s negative impact

on crowdfunding due to a lack of reciprocal exchange. Furthermore, I introduce life history

theory to crowdfunding research for the first time. Because entrepreneurs with high levels of

psychopathy and equity investors are both likely to be living the fast-life, the negative associations of psychopathy are overlooked by equity backers in favor of positive associations like entrepreneurial ability.

My dissertation also helps crowdfunding practitioners better understand effective campaign strategy. Celebrity entrepreneurs would be wise to leverage crowdfunding due to their pre-established legitimacy. Even for lesser known entrepreneurs, media coverage is an important

tool by which campaign founders can gain (or lose) legitimacy. Publicity that supports pragmatic

or moral legitimacy is likely to increase total fundraising levels. Media coverage that challenges

pragmatic legitimacy has negative implications, but only in the days immediately following

publication. I have also shown that practitioners can benefit from realizing the importance of

offline social networks, despite crowdfunding generally occurring online. Specifically, I have

demonstrated that external social capital, largely comprised of family and friends, is crucial to

crowdfunding success. As such, entrepreneurs should discuss their crowdfunding campaigns

with as many family and friends as possible to maximize their success. Lastly, I have shown that

entrepreneurs should consider their personalities before choosing which type of crowdfunding to

utilize. Dark personalities raise below average money in rewards-based campaigns but realize

above average investments in equity campaigns.

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