Financing sustainable entrepreneurship: ESG measurement, valuation, and performance

Sustainability orientation has a positive effect on startups' initial valuation and a negative effect on their post-funding financial performance. All else equal, improving sustainability orientation by one standard deviation increases startups' funding amount by 28 % and decreases investors' abnormal returns per post-funding year by 16 %. The results hold in a large sample of blockchain-based crowdfunding campaigns, also known as Initial Coin Offerings (ICOs) or token offerings. A key contribution is a machine-learning approach to assess startups' Environment, Society and Governance (ESG) properties from textual data, which we make readily available at www.SustainableEntrepreneurship.org . • The paper examines the economic attractiveness of Sustainable Entrepreneurship (SE) for entrepreneurs and investors in the context of Initial Coin Offerings (ICOs). • Startups with salient Environment, Society and Governance (ESG) goals raise financing at higher valuations. • However, startups with salient ESG goals underperform post-funding. • Overall, high valuations incentivize entrepreneurs to adopt ESG goals in the first place, while investors incur a relative financial loss for backing SE. • Our machine-learning approach to quantify startups' ESG properties from text data is available via an easy-to-use web application: https://sustainableentrepreneurship.org/