The Role of Trust in Equity-based Crowdfunding Investment Decisions

Abstract

Scholars are increasingly exploring crowdfunding, a novel and rapidly growing source of new venture financing. A key part of this research has sought to explain what factors are important to the crowdfunding investment decision. In this study, we seek to contribute to research concerning investor decision-making by exploring how a founder’s ability to communicate reasons for investors to trust them influences equity-based crowdfunders’ investment likelihood. Specifically, we consider the research question: “Do founders’ assertions about their competence and integrity persuade crowdfunders to contribute capital to their venture in exchange for equity?” We also incorporate founders’ demographic characteristics as boundary conditions that may influence whether investors can form competence- and integrity-based trust with founders. We develop theory and arguments to uncover how founders’ assertions about their trustworthiness influence investment likelihood and if those assertions influence certain types of people more than others.