When Providing Support Can be Self-Destructive: Effect of Financial Slack on Backer Sentiments

One of the primary reasons for the death of a young entrepreneurial venture is the lack of financial capital. Extant research has been inconclusive regarding the role of excess financial capital or transient financial slack – in firm survival, profitability, growth, and stakeholder satisfaction. Drawing on VRIO and resource management framework, we argue that the presence of transient financial slack will negatively influence backer sentiments of crowdfunded firms. Availability of resources is a necessary but not sufficient condition for firm performance. Appropriate firm organization is required to exploit available resources. The presence of organizational and managerial capabilities/weaknesses can help or hinder the process of acquiring, bundling and leveraging resources. We further argue that the presence of entrepreneurial orientation is an organizational capability that can alleviate the negative influence of slack; however, its effect will be weakened if the firm is led by narcissistic entrepreneur. We find support for our arguments based on a dataset of 2055 crowdfunded firms from Kickstarter. The implication of this research for crowdfunding platforms, entrepreneurs, and backers is discussed.