Unraveling the Secrets to Startup Crowdfunding: Cognitive Legitimacy in Initial Coin Offerings (ICOs)

Securing adequate financial resources is the primary challenge of entrepreneurial ventures in their establishment and growth. Initial coin offering, an innovative entrepreneurial fundraising method, caters to this critical need, but its success depends on acceptance by the public, similar to crowdfunding. Trusting such a radical innovation faces resistance, making the initial coin offering's success, diffusion, and institutionalization contingent on legitimacy and widespread reputation. Although numerous studies have explored the success factors of Initial Coin Offering (ICO), only a few have utilized the potent legitimacy theory in cryptocurrency-based crowdfunding, which bridges societal values and financial technology. Consequently, this research aims to identify and prioritize the cognitive legitimacy sources contributing to the success of blockchain-based business token offerings, essentially examining how startups can gain legitimacy to secure capital successfully. The research is an applied study that adopted a practical and qualitative approach and was carried out through semi-structured interviews with 26 cryptocurrency investors and experts. Data was analyzed through thematic and content analysis methods by adopting the grounded theory coding approach, which led to the identification and prioritization of 13 cognitive legitimacy sources. The results reveal that "extensive information disclosure by the business" and "adequate investor knowledge of the initial coin offerings" are the most legitimizing cognitive legitimacy sources. This study's findings and recommendations offer valuable insights for academic researchers, entrepreneurs, regulators, and digital currency investors.