Formal Institutions and Relaunching in Crowdfunding: Novice vs Serial Entrepreneurs

Abstract

The proliferation of international reward-based crowdfunding platforms as a popular source of financing for new ventures has spurred considerable research in recent years. Researchers have examined the individual and transaction-related factors that affect entrepreneurs’ use of crowdfunding platforms. However, they have paid limited attention to examining the effect of the country’s institutional factors on entrepreneurs’ reliance on these international platforms. They have also failed to differentiate between novice and serial entrepreneurs, ignoring the importance of experience in this regard. Using the institutional lens, we discuss the relationship between a country’s formal institutions and entrepreneurs’ campaign launching decisions on these platforms. We probe our research questions using a dataset of 177,499 Kickstarter campaigns launched by entrepreneurs located in the top 25 countries represented on the platform. We complement Kickstarter data with macro-level data from the World Banks’s Doing Business reports and World Development Indicators to perform our multi-level analyses. Our results show that novice entrepreneurs factor policies governing local credit conditions and resolving insolvency in their decision to finance their venture when using international crowdfunding platforms. However, the effect of local credit conditions no longer persists after developing a record of accomplishment on these platforms, becoming serial. As for laws protecting minority investors and resolving insolvency, its effects on the relaunching decision is amplified for serial entrepreneurs. Our findings offer insights into entrepreneurial finance and serial entrepreneurship, which is useful for designing and guiding public policies focused on promoting entrepreneurship.