Successful Crowdfunding by Lead Investors: The Role of Social Capital

We investigate an important platform-based technological innovation-equity crowdfunding syndicates-where crowd investors (co-investors) use online platforms to co-invest with lead investors in the form of syndicates into innovative startups. We concentrate on lead investors and what drives their success in drawing crowd investors to co-fund innovative startups. Based on conceptualizing internal and external social capital, we investigate the effects of lead investors' social capital developed inside and outside the crowdfunding platform on their fundraising success. Using data from a sample of 178 individual lead investors on AngelList, we find that internal social capital is, as predicted, positively associated with lead investors' fundraising success. Surprisingly, the joint use of internal and external social capital will harm lead investors' fundraising success. This paper contributes to the debate on the role of social capital in crowdfunding and innovation management more generally by unveiling its competing effects and complex nuances as part of a crowdfunding investment strategy.