Impact investing is often promoted as a tool for alleviating poverty by leveraging private investment and market-based approaches to complement the limited funds made available from the public sector, foundations, and development assistance programs. Early research on impact investing often focused on gaining investor acceptance, with many studies emphasizing the investor’s perspective while ignoring the experiences of impact entrepreneurs, especially those yet to secure funding. These entrepreneurs, particularly those in developing regions, face unique challenges and resource constraints that influence whether and how they seek funding from Western impact investors. Our study, recently published in the Journal of Management Studies, sheds light on how such entrepreneurs navigate this challenging cross-cultural landscape froth with complex cultural and institutional expectations.  

The Importance of Legitimacy 

Entrepreneurs often need more than just a great product or business model to succeed—they must appear legitimate in the eyes of those who possess the resources they require. In simple terms, legitimacy is about appearing appropriate and trustworthy according to the norms and expectations of potential investors or other key supporters.  

Most of what is known about how entrepreneurs build legitimacy comes from studies of high-growth startups in the West—Silicon Valley-type ventures where everyone operates under a common “market logic” focused on profitability, scalability, and innovation. In those cases, even when audiences have slightly different goals, they tend to share basic assumptions about what makes a venture credible. 

But what happens when entrepreneurs must appeal to more than one audience, each holding distinct expectations? Specifically, what happens when entrepreneurs in non-Western countries seek to appeal to both members of their surrounding communities and impact investors from the West? 

For entrepreneurs in India, Kenya, and Mexico—the focus of this study—the situation is particularly complex. In these settings, entrepreneurs operate in environments shaped by community-based values, where relationships, trust, and local impact matter deeply. At the same time, they’re pitching their ventures to Western impact investors who, while interested in social outcomes, still apply standards and evaluation criteria grounded in Western financial norms. 

This study explores how entrepreneurs navigate perceived legitimacy tensions—the friction that arises within an entrepreneur when they perceive a conflict between the expectations of their local communities and foreign investors. This study reveals a unique tension: entrepreneurs whose ventures are deemed acceptable in one institutional context (e.g., their local communities) must still prove themselves and their ventures in another institutional context (e.g., amongst impact investors). To illustrate, Western investors might expect detailed financial projections and formal metrics of social impact, while local community leaders value cultural alignment and grassroots involvement. Trying to meet both sets of expectations isn’t just difficult, it can pull entrepreneurs in divergent and conflicting directions. 

To understand how founders deal with this challenge, the researchers studied 30 entrepreneurs in India, Kenya, and Mexico who were actively seeking impact investment between 2018 and 2019. What they found challenges conventional wisdom in the following ways: 

1. Legitimacy Conflict and Tensions are Perceived.  

Entrepreneurs possess a set of assumptions on impact investing based on their prior experiences and exposure to their local community and impact investors. Interestingly, research has often ignored individuals’ perceptions of legitimacy, instead assuming that perception and reality are the same. In contrast, this study finds entrepreneurs’ perceptions sometimes do not align with the reality of financial and non-financial resource provider expectations. By examining entrepreneurs’ perceptions of what they believe will lead to legitimacy from different audiences, this study shows how entrepreneurs’ perceptions change as they interact with investors over time.  

2. It’s not always all about the money 

This study reveals that the choice to withdraw from an investment opportunity can be enacted not only by the investor but also by the entrepreneur due to perceived misalignment. While prior research tends to emphasize the actions entrepreneurs take to acquire financial resources—such as being a skillful cultural operator or having the ability to balance the needs of different parties—this study highlights the actions entrepreneurs take to opt out of the resource acquisition process altogether. This framework reconstrues opting out of investment as a strategic choice rather than a failure, particularly when entrepreneurs choose to withdraw from investment opportunities even if they learn how to effectively gain legitimacy from investors.  

3. Contextualizing Impact Investing  

Rather than relegating the research context to a mere description in the methods, this study treats the context of non-Western entrepreneurs as theoretically distinct and important, thereby unveiling how entrepreneurs engage in different legitimacy-seeking behaviors. These differences stem from the entrepreneurs’ pluralistic institutional environments wherein they are embedded in a non-Western community logic and need to understand investors’ market-centric expectations to attain financial resources. This study suggests entrepreneurs’ legitimacy-seeking behaviors are a result of two different audiences: impact investors and their local communities. In many instances, entrepreneurs end up perceiving that they need to prioritize their community even at the expense of acquiring needed financial capital from investors.  

These findings challenge the assumption that investors hold power in the investor-investee relationship. Instead, in pluralistic institutional environments, entrepreneurs may value legitimacy with their local communities more than access to capital. Thus, in practice, it is critical for impact investors to adhere to the intersection of investor and community logics, otherwise treating impact investing as a panacea to the world’s issues is likely to be misguided and imprudent.  

So What? 

Ultimately, this study makes a strong case for broadening the construal of legitimacy in entrepreneurship. If investors and support organizations want to truly back global innovation, they must appreciate how legitimacy is shaped by culture, community, and context—not just by the bottom line. The success of impact investing rests on acknowledging this complexity.