When Crowds Shape Capital: Entrepreneurial Endeavors in Crowdfunding and Venture Capital Investments
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Paper Number
ICIS2025-2368
Paper Type
Complete
Abstract
This study investigates how entrepreneurial endeavors in crowdfunding influence subsequent venture capital (VC) investments. While crowdfunding can provide signals of market validation and legitimacy, it may also indicate market saturation and heightened competition. Drawing on legitimacy and signaling theories, as well as crowdfunding literature, we examine these competing effects using Kickstarter and Crunchbase data. We employ a large language model (LLM)-based approach to identify crowdfunding campaigns related to startups. Our analysis shows that an increase in related crowdfunding campaigns is negatively associated with VC investment, suggesting that saturation and perceived lack of alternative funding outweigh legitimacy benefits. However, positive effects emerge when campaigns are high-performing or when a co-investor relationship exists in the focal funding round. Conversely, overlap with a VC’s existing portfolio accentuates the negative relationship. These findings contribute to research on crowdfunding and entrepreneurship by revealing how market-level signals shape traditional investment decisions.
Recommended Citation
Yang, Lusi and Maruping, Likoebe M., "When Crowds Shape Capital: Entrepreneurial Endeavors in Crowdfunding and Venture Capital Investments" (2025). ICIS 2025 Proceedings. 14.
https://aisel.aisnet.org/icis2025/diginnoventren/diginnoventren/14
When Crowds Shape Capital: Entrepreneurial Endeavors in Crowdfunding and Venture Capital Investments
This study investigates how entrepreneurial endeavors in crowdfunding influence subsequent venture capital (VC) investments. While crowdfunding can provide signals of market validation and legitimacy, it may also indicate market saturation and heightened competition. Drawing on legitimacy and signaling theories, as well as crowdfunding literature, we examine these competing effects using Kickstarter and Crunchbase data. We employ a large language model (LLM)-based approach to identify crowdfunding campaigns related to startups. Our analysis shows that an increase in related crowdfunding campaigns is negatively associated with VC investment, suggesting that saturation and perceived lack of alternative funding outweigh legitimacy benefits. However, positive effects emerge when campaigns are high-performing or when a co-investor relationship exists in the focal funding round. Conversely, overlap with a VC’s existing portfolio accentuates the negative relationship. These findings contribute to research on crowdfunding and entrepreneurship by revealing how market-level signals shape traditional investment decisions.
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17-Innovation