The Crowdfunding of Altruism

Abstract

This paper introduces a machine-learning approach to quantify altruism from the linguistic style of documents. We apply our method to a central question in (social) entrepreneurship: How does altruism impact entrepreneurial success? Specifically, we examine the effects of altruism on crowdfunding outcomes in Initial Coin Offerings (ICOs). The main result suggests that altruism and ICO firm valuation are negatively related. We then explore several channels to shed some light on whether the negative altruism-valuation relation is causal. Our findings suggest that it is not altruism that causes lower firm valuation; rather, low-quality entrepreneurs select into altruistic projects, while the marginal effect of altruism on high-quality entrepreneurs is actually positive. Altruism increases the funding amount in ICOs in the presence of high-quality projects, low asymmetric information, and strong corporate governance.

Keywords: Altruism, Machine Learning, Crowdfunding, Token Offerings, Initial Coin Offering, Entrepreneurial Finance

JEL Classification: G24, L26, M13