Why Crowdfunding Projects Can Succeed: The Role of Proponents’ Individual and Territorial Social Capital
20 Pages Posted: 25 Apr 2013
Date Written: April 24, 2013
Purpose – Crowdfunding implies mobilizing the crowd to finance projects which are posted on dedicated websites, known as crowdfunding platforms. Funding is provided by web users in exchange for some claims on the project revenues, or for a reward, or simply for donation. In this paper, we aim at learning more on what determines the probability of a project to reach the target funding. We apply the lens of social capital, defined by the goodwill available to her/him from the structure and content of his/her social relations (Adler and Kwon 2002). In particular we distinguish between ‘individual’ (exclusive) and ‘territorial’ (locally shared) social capital.
Design/methodology/approach – We test our hypotheses by running Probit estimates on a sample of 461 crowdfunding projects posted by 699 proponents and hosted on 11 Italian crowdfunding platforms. The focal dependent variables deal with the individual social capital and geographically localized social capital. The former is proxied by the number of contacts of proponents on digital social networks (i.e. Facebook). To account for the latter, we refer to the municipality of residence of each proponent and resort to the traditional measure of localized social capital used in the literature. We control also for a set of project-specific variables.
Originality/value –This methodology puts in evidence that in a framework with information asymmetry individual social capital (ISC) is positively and significantly correlated with the probability of success of a crowdfunding project, providing a positive signal to crowdfunders. On the contrary, we do not find any significant correlation with the diffused territorial social capital (TSC). By jointly considering the impact of ISC and TSC, we find that TSC weakens the signal provided by ISC. We posit that such result is a consequence of an ‘adverse-selection’ problem. Good-quality projects may more easily collect money on a territorial basis if TSC is large. Therefore crowdfunding projects originated in large-TSC milieus ceteris paribus are less easily financed by crowdfunders.
Practical implications – Our work has interesting managerial implications. Individual social capital impacts on the success of crowdfunding projects and interacts with geolocalized territorial social capital. Accordingly, proponents, funders and managers of crowdfunding platforms who are interested in selecting potentially successful projects must consider such interaction, and carefully evaluate both individual and territorial social capital.
Keywords: crowdfunding, social capital, entrepreneurship
JEL Classification: G20, M13
Suggested Citation: Suggested Citation