The Geography of Crowdfunding
57 Pages Posted: 20 Oct 2010 Last revised: 9 Jan 2011
There are 2 versions of this paper
The Geography of Crowdfunding
The Geography of Crowdfunding
Date Written: October 29, 2010
Abstract
Perhaps the most striking feature of "crowdfunding'' is the broad geographic dispersion of investors. This contrasts with existing theories that predict entrepreneurs and investors will be co-located due to distance-sensitive costs. We examine a crowdfunding setting that connects artist-entrepreneurs with investors over the internet for financing early stage musical projects. The average distance between artists and investors is about 3,000 miles, suggesting a reduced role for spatial proximity. Still, distance does play a role. Within a single round of financing, local investors invest relatively early, and they appear less responsive to decisions by other investors. We show this geography effect is driven by investors who likely have a personal connection with the artist-entrepreneur ("family and friends''). Although the online platform seems to eliminate most distance-related economic frictions such as monitoring progress, providing input, and gathering information, it does not eliminate social-related frictions.
Keywords: Entrepreneurial finance, crowd-funding, internet, family and friends, local bias, social networks.
JEL Classification: R12, Z11, L17, G21, G24
Suggested Citation: Suggested Citation
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