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Crowdfunding: different types of legitimacy

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Abstract

It is well documented that startups struggle to obtain funding. Despite the emergence of online crowdfunding which is a financial tool that allows entrepreneurs to receive funds from a large group of individuals, startups have to gain legitimacy to overcome liability of newness and smallness in pursuit of financial resources. Building on the theory of organizational legitimacy with a focus on four different types of legitimacy, this study creates a unique dataset and investigates the effects of each type of legitimacy on projects’ crowdfunding performance. The findings suggest that various types of legitimacy are critical in crowdfunding efforts to help entrepreneurs obtain higher pledge amounts and stronger crowd support and to reach their initial goal amounts. However, some types of legitimacy are more effective than others in a crowdfunding context. This study not only contributes to the crowdfunding and organizational legitimacy literature but also provides practical strategies for startups to improve their crowdfunding success.

Plain English Summary

Trying to use crowdfunding to start a business? Building legitimacy is the key. My new study “Crowdfunding: Different types of legitimacy” explores the strategies necessary to be successful on crowdfunding.

With a novel data collection method, this study extends current legitimacy theory to the crowdfunding setting which requires entrepreneurs to gain legitimacy from the public through an accelerated process. Based on the in-depth examination of the effects of different types of legitimacy on crowdfunding performance, this study shows that moral, pragmatic, associational, and consequential legitimacy play significant roles in ventures’ crowdfunding performance.

This research makes one of the earliest attempts to investigate legitimacy theory in a broader sense. It is also the first study to connect legitimacy with crowdfunding. Furthermore, the findings provide entrepreneurs with actionable strategies to succeed in crowdfunding.

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Notes

  1. “Key Crowdfunding Statistics.” (2020). https://www.startups.com/library/expert-advice/key-crowdfunding-statistics

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Acknowledgements

I would like to thank Dr. David B. Audretsch, Dr. Alan Abramson, Dr. Stefan Toepler, and Dr. Todd Moss for their helpful feedback and support.

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  1. Department of Political Science, Texas Tech University, 113 Holden Hall, Boston & Akron Streets, Lubbock, TX, 79409-1015, USA

    Wendy D. Chen

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Chen, W.D. Crowdfunding: different types of legitimacy. Small Bus Econ 60, 245–263 (2023). https://doi.org/10.1007/s11187-022-00647-0

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