New study shows that entrepreneurs that promise to save the world are less likely to receive investment
The strong desire among investors for impact investing is clear, but a new study has found that they are less keen on startups that go too far in pitching their ESG credentials.
Researchers at the University of Bath and Polytechnic University of Milan studied campaigns on the crowdfunding platform Kickstarter and discovered that too much of a good thing can be a negative.
"Conventional wisdom suggests that, in general, backers appreciate projects that go beyond proponents' pure self-interest. However, our results show that too much pro-social orientation may be detrimental," said Dr Daniela Defazio of the University of Bath's School of Management.
The team noted that this is true on general-audience crowdfunding platforms although entrepreneurs are able to be more extensive with their ESG pitches on those platforms that are specifically targeted at investors with a social conscience.
"Some platforms have a clear pro-social mission and the results from studies based on platforms like Kiva.org consistently show that pro-social motives are a plus. On the other side, results of the effect of pro-social framing on reward-based platforms like Kickstarter are mixed," Defazio said.
Defazio explained that even the most socially-conscious individuals still tend to be driven by self-interest.
“They appreciate products' pro-social attributes but only when they are provided in combination with - and not at the expense of - product functionality," she added.
That means that, even those with strong impact investing desires will not invest in products where social benefits appear to overshadow the value of the product. That’s because they question its credibility and financial prospects.
Because of the large range of opportunities being pitched on crowdfunding platforms, the study shows that overt ESG messages in descriptions may be a negative strategy.
"Because the title and blurb are made only of a few words - approximately 10 - placing pro-social cues in those may overshadow other project attributes," Defazio said.
