Abstract
This paper examines the role of internal social capital on the composition of the crowd of backers attracted by US-born vis a vis immigrant entrepreneurs. Our estimates are based on an original dataset of 2,231 Kickstarter campaigns and show that immigrant entrepreneurs attract comparatively fewer backers located in the host country but receive more contributions from backers located in other countries. Overall, this allows immigrant entrepreneurs to achieve a fundraising performance similar to that of local-born entrepreneurs. We show that entrepreneurs’ social capital developed within the reward-based crowdfunding platform positively moderates the previous relationships.
Plain English Summary
Crowdfunding helps immigrants mobilising their home-county network and collect funding for their business ideas. Immigrants who supported other campaigns before launching their own attain better fundraising performance than local-born entrepreneurs We analyse 2,231 campaigns launched on Kickstarter and show that immigrant entrepreneurs attract comparatively fewer backers located in the host country but receive more contributions from backers located in other countries, and particularly in their home country. Overall, this allows immigrant entrepreneurs’ campaigns to be as successful as those launched by local-born entrepreneurs. Immigrant entrepreneurs that have been active on the crowdfunding platform by supporting others’ campaigns before the launch of their own campaign attract more backers and have higher likelihood of success compared to local-born entrepreneurs. The paper highlights an effective channel of financing for immigrant entrepreneurs seeking external capital.
Similar content being viewed by others
Notes
According to Fairlie (2008), foreign-born entrepreneurs are responsible for 17% of all new businesses founded in the USA, and represent 13% of all business owners. Saxenian (1999) found that 24% of Silicon Valley start-ups founded between 1980 and 1998 had a CEO with a Chinese or Indian surname. At the national level, Wadhwa et al. (2007b) show that 25% of high-tech companies established between 1995 and 2005 had a foreign-born CEO or CTO, and that 25% of engineering and technology companies that have entered the market since the late 2000s were founded by immigrants (Wadhwa et al., 2007a, b). Kerr and Kerr (2018) show that around 25% of US firms were founded by immigrants who have a particularly large presence in states such as California and New York.
We also consider city names, country names and nationality using information from the World Cities Database which includes data on over 3.9 million unique cities and towns across the world. The database reports the city name in both English and the national language (e.g. Rome and Roma). We used both in our queries.
Our analysis did not consider second- and third-generation migrants who might suffer from discrimination but were born and grew up in the USA and cannot be fully considered as outsiders.
The data was collected from the migration policy institute. https://www.migrationpolicy.org/data/state-profiles/state/demographics
The theoretical assumption supporting the use of this instrument is that previous migration tended to be associated more with current migration through network effects than with crowdfunding performance (see Miguelez, 2016; Özden et al., 2011 for these types of instruments in immigration studies). Also, there is no reason to believe that past migration is related directly to the quality of the crowdfunding project and its chances of success. If a relationship between past migration and the entrepreneur’s underlying probability of success exists, it is based on the wealth of the state and country.
References
Agrawal, A., Catalini, C., & Goldfarb, A. (2015). Crowdfunding: Geography, social networks, and the timing of investment decisions: Crowdfunding. Journal of Economics and Management Strategy, 24, 253–274. https://doi.org/10.1111/jems.12093
Alhorr, H. S., Moore, C. B., & Payne, G. T. (2008). The impact of economic integration on cross-border venture capital investments: Evidence from the European Union. Entrepreneurship Theory and Practice, 32, 897–917. https://doi.org/10.1111/j.1540-6520.2008.00261.x
Allison, T. H., McKenny, A. F., & Short, J. C. (2013). The effect of entrepreneurial rhetoric on microlending investment: An examination of the warm-glow effect. Journal of Business Venturing, 28, 690–707. https://doi.org/10.1016/j.jbusvent.2013.01.003
Allison, T. H., Davis, B. C., Short, J. C., & Webb, J. W. (2015). Crowdfunding in a prosocial microlending environment: Examining the role of intrinsic versus extrinsic cues. Entrepreneurship Theory and Practice, 39, 53–73. https://doi.org/10.1111/etap.12108
Bhattacharya, U., & Groznik, P. (2008). Melting pot or salad bowl: Some evidence from US investments abroad. Journal of Financial Markets, 11, 228–258.
Bi, S., Liu, Z., & Usman, K. (2017). The influence of online information on investing decisions of reward-based crowdfunding. Journal of Business Research, 71, 10–18. https://doi.org/10.1016/j.jbusres.2016.10.001
Block, J. H., Colombo, M. G., Cumming, D. J., & Vismara, S. (2018). New players in entrepreneurial finance and why they are there. Small Business Economics, 50, 239–250. https://doi.org/10.1007/s11187-016-9826-6
Block, J. H., Groh, A., Hornuf, L., Vanacker, T., & Vismara, S. (2020). The entrepreneurial finance markets of the future: A comparison of crowdfunding and initial coin offerings. Small Business Economics. https://doi.org/10.1007/s11187-020-00330-2
Borjas, G. (1986). The self-employment experience of immigrants. Journal of Human Resources, 21(4), 487–506.
Brouthers, K. D., Geisser, K. D., & Rothlauf, F. (2016). Explaining the internationalization of ibusiness firms. Journal of International Business Studies, 47, 513–534. https://doi.org/10.1057/jibs.2015.20
Brubaker, R. (2004). Ethnicity without groups. Harvard university press.
Brzozowski, J., Akademia Ekonomiczna (Kraków), Centrum Przedsiębiorczości Strategicznej i Międzynarodowej. (2015). Immigrant and ethnic entrepreneurship. Cracow University of Economics. Faculty of Economics and International Relations. Centre for Strategic and International Entrepreneurship, Kraków.
Butticè, V., Colombo, M. G., & Wright, M. (2017). Serial crowdfunding, social capital, and project success. Entrepreneurship Theory and Practice, 41, 183–207. https://doi.org/10.1111/etap.12271
Butticè, V., Franzoni, C., Rossi-Lamastra, C., & Rovelli, P. (2018). The road to crowdfunding success: A review of extant literature.
Butticè, V., Colombo, M. G., Fumagalli, E., & Orsenigo, C. (2019). Green oriented crowdfunding campaigns: Their characteristics and diffusion in different institutional settings. Technological Forecasting and Social Change, 141, 85–97.
Bonardo, D., Paleari, S., & Vismara, S. (2011). Valuing university–based firms: The effects of academic affiliation on IPO performance. Entrepreneurship Theory and Practice, 35(4),, 755–776.
Cai, W., Polzin, F., & Stam, E. (2021). Crowdfunding and social capital: A systematic review using a dynamic perspective. Technological Forecasting and Social Change, 162, 120412. https://doi.org/10.1016/j.techfore.2020.120412
Calic, G., & Mosakowski, E. (2016). Kicking off social entrepreneurship: How a sustainability orientation influences crowdfunding success: Kicking Off Social Entrepreneurship. Journal of Management Studies, 53, 738–767. https://doi.org/10.1111/joms.12201
Cameron, C. A., & Miller, D. L. (2015). A practitioner’s guide to cluster-robust inference. Journal of Human Resources, 50, 317–372. https://doi.org/10.3368/jhr.50.2.317
Carpenter, R. E., & Petersen, B. C. (2002). Capital market imperfections, high‐tech investment, and new equity financing. The Economic Journal, 112(477), F54–F72.
Certo, S. T., Busenbark, J. R., Woo, H. S., & Semadeni, M. (2016). Sample selection bias and Heckman models in strategic management research. Strategic Management Journal, 37(13), 2639–2657.
Chemmanur, T. J., & Fulghieri, P. (2014). Entrepreneurial finance and innovation: An introduction and agenda for future research. Review of Financial Studies, 27, 1–19. https://doi.org/10.1093/rfs/hht063
Colombo, M. G., Franzoni, C., & Rossi-Lamastra, C. (2015). Internal social capital and the attraction of early contributions in crowdfunding. Entrepreneurship Theory and Practice, 39, 75–100. https://doi.org/10.1111/etap.12118
Cumming, D. J., Leboeuf, G., & Schwienbacher, A. (2017). Crowdfunding cleantech. Energy Economics, 65, 292–303. https://doi.org/10.1016/j.eneco.2017.04.030
Cumming, D., Meoli, M., & Vismara, S. (2019). Does equity crowdfunding democratize entrepreneurial finance? Small Business Economics. https://doi.org/10.1007/s11187-019-00188-z
Dellarocas, C. (2003). The digitization of word of mouth: Promise and challenges of online feedback mechanisms. Management Science, 49, 1407–1424. https://doi.org/10.1287/mnsc.49.10.1407.17308
Earley, P. C., & Ang, S. (2003). Cultural intelligence: Individual interactions across cultures. Stanford University Press.
Ellison, N. B., Steinfield, C., & Lampe, C. (2007). The benefits of Facebook “friends:” Social capital and college students’ use of online social network sites. Journal of Computer-Mediated Communication, 12, 1143–1168. https://doi.org/10.1111/j.1083-6101.2007.00367.x
Fairlie, R.W. (2008). Estimating the contribution of immigrant business owners to the U.S. economy. U.S. Small Business Administration, Office of Advocacy, Washington, D.C.
Fairlie, R. W. (2012). Immigrant entrepreneurs and small business owners, and their access to financial capital. Small Business Administration, 1–46.
Fairlie, R., & Woodruff, C. M. (2010). Mexican-American entrepreneurship. The BE Journal of. Economic Analysis & Policy, 10.
Fairlie, R.W., Robb, A.M., Agency, U.S.M.B.D. (2010). Disparities in capital access between minority and non-minority-owned businesses: The troubling reality of capital limitations faced by MBEs. U.S. Department of Commerce, Minority Business Development Agency.
Fisch, C., Meoli, M., & Vismara, S. (2020). Does blockchain technology democratize entrepreneurial finance? An empirical comparison of ICOs, Venture Capital, and REITs. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3693802
Fisher, G., Kuratko, D. F., Bloodgood, J. M., & Hornsby, J. S. (2017). Legitimate to whom? The challenge of audience diversity and new venture legitimacy. Journal of Business Venturing, 32, 52–71. https://doi.org/10.1016/j.jbusvent.2016.10.005
Foley, C. F., & Kerr, W. R. (2013). Ethnic innovation and U.S. multinational firm activity. Management Science, 59, 1529–1544. https://doi.org/10.1287/mnsc.1120.1684
Gafni, H., Marom, D., Robb, A., & Sade, O. (2021). Gender dynamics in crowdfunding (Kickstarter): Evidence on entrepreneurs, backers, and taste-based discrimination*. Review of Finance, 25, 235–274. https://doi.org/10.1093/rof/rfaa041
Giudici, G., Guerini, M., & Rossi-Lamastra, C. (2018). Reward-based crowdfunding of entrepreneurial projects: The effect of local altruism and localized social capital on proponents’ success. Small Business Economics, 50, 307–324. https://doi.org/10.1007/s11187-016-9830-x
Hart, D. M., & Acs, Z. J. (2011). High-tech immigrant entrepreneurship in the United States. Economic Development Quarterly, 25, 116–129. https://doi.org/10.1177/0891242410394336
Hatton, T. J. (2014). The economics of international migration: A short history of the debate. Labour Economics, 30, 43–50. https://doi.org/10.1016/j.labeco.2014.06.006
Heckman, J. J. (1979). Sample selection bias as a specification error. Econometrica: Journal of the econometric society, 153–161.
Hornuf, L., & Schwienbacher, A. (2018). Market mechanisms and funding dynamics in equity crowdfunding. Journal of Corporate Finance, 50, 556–574. https://doi.org/10.1016/j.jcorpfin.2017.08.009
Hornung, E. (2014). Immigration and the diffusion of technology: The Huguenot diaspora in Prussia. American Economic Review, 104, 84–122. https://doi.org/10.1257/aer.104.1.84
Hsu, D. H. (2007). Experienced entrepreneurial founders, organizational capital, and venture capital funding. Research Policy, 36, 722–741. https://doi.org/10.1016/j.respol.2007.02.022
Hunt, J., & Gauthier-Loiselle, M. (2010). How much does immigration boost innovation? American Economic Journal: Macroeconomics, 2, 31–56. https://doi.org/10.1257/mac.2.2.31
Jackson, M. O. (2008). Social and economic networks. Princeton Univ. Press.
Jin, L., Madison, K., Kraiczy, N. D., Kellermanns, F. W., Crook, T. R., & Xi, J. (2017). Entrepreneurial team composition characteristics and new venture performance: A meta–analysis. Entrepreneurship Theory and Practice, 41, 743–771. https://doi.org/10.1111/etap.12232
Johan, S., & Zhang, Y. (2021). Investors’ industry preference in equity crowdfunding. Journal of Technology Transfer (in press).
Johanson, J., & Vahlne, J.-E. (2009). The Uppsala internationalization process model revisited: From liability of foreignness to liability of outsidership. Journal of International Business Studies, 40, 1411–1431. https://doi.org/10.1057/jibs.2009.24
Johnson, J. P., Lenartowicz, T., & Apud, S. (2006). Cross-cultural competence in international business: Toward a definition and a model. Journal of International Business Studies, 37, 525–543. https://doi.org/10.1057/palgrave.jibs.8400205
Kabilan, M. K., Ahmad, N., & Abidin, M. J. Z. (2010). Facebook: An online environment for learning of English in institutions of higher education? The Internet and Higher Education, 13, 179–187. https://doi.org/10.1016/j.iheduc.2010.07.003
Kerr, S. P., & Kerr, W. R. (2018). Immigrant entrepreneurship in America: Evidence from the survey of business owners 2007 & 2012. National Bureau of Economic Research.
Kerr, W. R., & Nanda, R. (2009). Democratizing entry: Banking deregulations, financing constraints, and entrepreneurship☆. Journal of Financial Economics, 94, 124–149. https://doi.org/10.1016/j.jfineco.2008.12.003
Kleinert, S., & Mochkabadi, K. (2021). Gender stereotypes in equity crowdfunding: The effect of gender bias on the interpretation of quality signals. Journal of Technology Transfer (in press).
Kushnirovich, N. (2015). Economic integration of immigrant entrepreneurs. Entrepreneurial Business and Economics Review, 3, 9–27. https://doi.org/10.15678/EBER.2015.030302
Lin, M., & Viswanathan, S. (2016). Home bias in online investments: An empirical study of an online crowdfunding market. Management Science, 62, 1393–1414. https://doi.org/10.1287/mnsc.2015.2206
Lin, M., Prabhala, N. R., & Viswanathan, S. (2013). Judging borrowers by the company they keep: Friendship networks and information asymmetry in online peer-to-peer lending. Management Science, 59, 17–35. https://doi.org/10.1287/mnsc.1120.1560
Lofstrom, M., & Wang, C. (2006). Hispanic self-employment: A dynamic analysis of business ownership. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.900377
Makela, M. M., & Maula, M. V. J. (2006). Interorganizational commitment in syndicated cross-border venture capital investments. Entrepreneurship Theory and Practice, 30, 273–298. https://doi.org/10.1111/j.1540-6520.2006.00121.x
Mata, J., & Alves, C. (2018). The survival of firms founded by immigrants: Institutional distance between home and host country and experience in the host country. Strategic Management Journal. https://doi.org/10.1002/smj.2945
McPherson, M., Smith-Lovin, L., & Cook, J. M. (2001). Birds of a feather: Homophily in social networks. Annual Review of Sociology, 27, 415–444. https://doi.org/10.1146/annurev.soc.27.1.415
Medina-Molina, C., Rey-Moreno, M., Felício, J. A., & Romano Paguillo, I. (2019). Participation in crowdfunding among users of collaborative platforms: The role of innovativeness and social capital. Review of Managerial Science, 13, 529–543. https://doi.org/10.1007/s11846-019-00329-4
Mendes-Da-Silva, W., Rossoni, L., Francisco, E., & Gattaz, C. (2018). Geographic distance and reward crowdfunding donation., in: Individual behaviors and technologies for financial innovations (pp. 189–214). Springer.
Miguelez, E. (2016). Inventor diasporas and the internationalization of technology. The World Bank Economic Review, lhw013.
Mollick, E. (2014). The dynamics of crowdfunding: An exploratory study. Journal of Business Venturing, 29, 1–16. https://doi.org/10.1016/j.jbusvent.2013.06.005
Morgan, H. M., Sui, S., & Malhotra, S. (2020). No place like home: The effect of exporting to the country of origin on the financial performance of immigrant-owned SMEs. Journal of International Business Studies. https://doi.org/10.1057/s41267-020-00360-8
Onnela, J.-P., Arbesman, S., González, M. C., Barabási, A.-L., & Christakis, N. A. (2011). Geographic constraints on social network groups. PLoS One, 6, e16939. https://doi.org/10.1371/journal.pone.0016939
Ordanini, A., Miceli, L., Pizzetti, M., & Parasuraman, A. (2011). Crowd-funding: Transforming customers into investors through innovative service platforms. Journal of Service Management, 22, 443–470. https://doi.org/10.1108/09564231111155079
Özden, Ç., Parsons, C. R., Schiff, M., & Walmsley, T. L. (2011). Where on earth is everybody? The evolution of global bilateral migration 1960–2000. The World Bank Economic Review, 25, 12–56.
Paschen, J. (2017). Choose wisely: Crowdfunding through the stages of the startup life cycle. Business Horizons, 60, 179–188. https://doi.org/10.1016/j.bushor.2016.11.003
Peterson, R. A., & Berger, D. G. (1975). Cycles in symbol production: The case of popular music. American sociological review, 158–173.
Piva, E., & Rossi-Lamastra, C. (2018). Human capital signals and entrepreneurs’ success in equity crowdfunding. Small Business Economics, 51, 667–686. https://doi.org/10.1007/s11187-017-9950-y
Polzin, F., Toxopeus, H., & Stam, E. (2018). The wisdom of the crowd in funding: information heterogeneity and social networks of crowdfunders. Small Business Economics, 50, 251–273. https://doi.org/10.1007/s11187-016-9829-3
Reuber, A. R., Knight, G. A., Liesch, P. W., & Zhou, L. (2018). International entrepreneurship: The pursuit of entrepreneurial opportunities across national borders. Journal of International Business Studies, 49, 395–406. https://doi.org/10.1057/s41267-018-0149-5
Rhue, L., & Clark, J. (2016). Who gets started on Kickstarter? Racial disparities in crowdfunding success. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2837042
Saxenian, A. (1999). Silicon Valley’s new immigrant entrepreneurs. Public Policy Institute of California.
Siering, M., Koch, J.-A., & Deokar, A. V. (2016). Detecting fraudulent behavior on crowdfunding platforms: The role of linguistic and content-based cues in static and dynamic contexts. Journal of Management Information Systems, 33, 421–455. https://doi.org/10.1080/07421222.2016.1205930
Skirnevskiy, V., Bendig, D., & Brettel, M. (2017). The influence of internal social capital on serial creators’ success in crowdfunding. Entrepreneurship Theory and Practice, 41, 209–236. https://doi.org/10.1111/etap.12272
Sobel, M. E. (1982). Asymptotic confidence intervals for indirect effects in structural equation models. Sociological Methodology, 13, 290. https://doi.org/10.2307/270723
Stanko, M. A., & Henard, D. H. (2017). Toward a better understanding of crowdfunding, openness and the consequences for innovation. Research Policy, 46, 784–798. https://doi.org/10.1016/j.respol.2017.02.003
Stoermer, S., Davies, S., & Froese, F. J. (2020). The influence of expatriate cultural intelligence on organizational embeddedness and knowledge sharing: The moderating effects of host country context. Journal of International Business Studies. https://doi.org/10.1057/s41267-020-00349-3
Sundararajan, M., & Sundararajan, B. (2015). Immigrant capital and entrepreneurial opportunities. Entrepreneurial Business and Economics Review, 3, 29–50. https://doi.org/10.15678/EBER.2015.030303
Thies, F., Wessel, M., & Benlian, A. (2016). Effects of social interaction dynamics on platforms. Journal of Management Information Systems, 33, 843–873. https://doi.org/10.1080/07421222.2016.1243967
United States Bureau of Labor Statistics. (2021). Current Employment Statistics.
United States Census Bureau. (2017). American Community Survey.
Useche, D., Miguelez, E., & Lissoni, F. (2020). Highly skilled and well connected: Migrant inventors in cross-border M&As. Journal of International Business Studies, 51, 737–763. https://doi.org/10.1057/s41267-018-0203-3
Uzzi, B. (1997). Social structure and competition in interfirm networks: The paradox of embeddedness. Administrative Science Quarterly, 42, 35. https://doi.org/10.2307/2393808
Uzzi, B. (1999). Embeddedness in the making of financial capital: How social relations and networks benefit firms seeking financing. American Sociological Review, 64, 481. https://doi.org/10.2307/2657252
Vismara, S. (2016). Equity retention and social network theory in equity crowdfunding. Small Business Economics, 46, 579–590. https://doi.org/10.1007/s11187-016-9710-4
Vismara, S. (2018). Information cascades among investors in equity crowdfunding. Entrepreneurship Theory and Practice, 42, 467–497. https://doi.org/10.1111/etap.12261
Vismara, S. (2021). Expanding corporate finance perspectives to equity crowdfunding. The Journal of Technology Transfer, 1–11.
Wadhwa, V., Rissing, B.A., Saxenian, A., Gereffi, G., 2007a. Education, entrepreneurship and immigration: America’s new immigrant entrepreneurs, Part II. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.991327
Wadhwa, V., Saxenian, A., Rissing, B. A., & Gereffi, G. (2007b). America’s new immigrant entrepreneurs: Part I. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.990152
Walthoff-Borm, X., Schwienbacher, A., & Vanacker, T. (2018). Equity crowdfunding: First resort or last resort? Journal of Business Venturing, 33, 513–533. https://doi.org/10.1016/j.jbusvent.2018.04.001
Xu, A., Yang, X., Rao, H., Fu, W., Huang, S.., Bailey, B. (2014). Show me the money!: An analysis of project updates during crowdfunding campaigns. In: Proceedings of the SIGCHI conference on human factors in computing systems (pp. 591-600). ACM.
Younkin, P., & Kuppuswamy, V. (2018). The colorblind crowd? Founder race and performance in crowdfunding. Management Science, 64, 3269–3287. https://doi.org/10.1287/mnsc.2017.2774
Zaheer, S. (1995). Overcoming the liability of foreignness. Academy of Management Journal, 38, 341–363.
Author information
Authors and Affiliations
Corresponding author
Additional information
Publisher’s note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
About this article
Cite this article
Butticè, V., Useche, D. Crowdfunding to overcome the immigrant entrepreneurs’ liability of outsidership: the role of internal social capital. Small Bus Econ 59, 1519–1540 (2022). https://doi.org/10.1007/s11187-021-00591-5
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11187-021-00591-5