Filling the legitimacy void: The value of sustainability orientation across investor segments in venture financing
Journal of Business Venturing, accepted (with F. Xia, J. Thewissen, and S. Yan)
Abstract: When and why does sustainability attract entrepreneurial funding? Drawing on legitimacy theory, we argue that sustainability’s financing value depends on whether ventures have established pragmatic legitimacy through prior institutional investor backing. In the absence of such backing, sustainability can compensate by providing moral legitimacy. In contrast, when institutional backing is present, public investors’ pragmatic expectations become more salient, making sustainability more likely to be viewed as misaligned with return-oriented goals. We examine 2,222 token-based crowdfunding campaigns, finding that sustainability orientation is positively associated with funding among non-backed ventures but negatively associated with funding among backed ventures. Consistent with this segmented valuation logic, non-backed ventures display stronger sustainability orientation. Large language model-based classification further shows that this stronger orientation is mainly concentrated in symbolic claims, which are valued similarly to substantive commitments among non-backed ventures. Our findings recast sustainability from a universally beneficial cue to a compensatory source of legitimacy whose value depends on what other types of legitimacy ventures already possess.