Creating Project Legitimacy – The Role of Entrepreneurial Narrative in Reward-Based Crowdfunding

Abstract

Purpose

This study examines how narratives and legitimacy formation affect crowdfunding capital assembly from distributed, heterogeneous investors.

Methodology/approach

The study explores a dataset of 80,181 projects from Kickstarter, a rewards-based crowdfunding platform, between 2009 and 2013. We explore the link between project-related variables, legitimacy formation and outcomes.

Findings

Entrepreneurs design narratives and create project legitimacy by exploiting crowdfunding platform-specific features. First, lower funding targets and shorter campaign durations confer positive project legitimacy. Second, entrepreneurs exploit reward-levels as narrative tools that encourage funders to engage with the project. Third, visual pitches transmit a broader sociocultural narrative, leveraging emotional rather than financial reasoning. We also note certain gender effects.

Research implications

Crowdfunding platforms allow entrepreneurs to pitch business ideas to a broad online audience. We show that project legitimacy, including both structural and narrative elements, is linked to crowdfunding outcomes. In particular, legitimacy is co-created through the generation of a persuasive narrative linking the entrepreneur and investor cohort.

Practical implications

Entrepreneurs use crowdfunding platforms to generate a coherent narrative around unfamiliar business models. Generic platform tools may be set and manipulated in online crowdfunding pitches to support project legitimacy. Ultimately, these are less important than establishing an affinity-based narrative that engages and exploits investor participation. Successful crowdfunding pitches co-author the project story with investors.

Originality/value

Crowdfunding has been traditionally understood as simply an online-mediated venture resource assembly tool. A narrative framework highlights the critical role of legitimacy formation in a disintermediated investment system.

Citation

Frydrych, D., Bock, A.J. and Kinder, T. (2016), "Creating Project Legitimacy – The Role of Entrepreneurial Narrative in Reward-Based Crowdfunding", Méric, J., Maque, I. and Brabet, J. (Ed.) International Perspectives on Crowdfunding, Emerald Group Publishing Limited, Leeds, pp. 99-128. https://doi.org/10.1108/978-1-78560-315-020151006