Syndication in Equity Crowdfunding: Performance and the Evaluation of Experts
34 Pages Posted: 14 Jul 2017 Last revised: 22 Jan 2025
There are 2 versions of this paper
Syndication in Equity Crowdfunding: Performance and the Evaluation of Experts
MIT Sloan Research Paper No. 5239-17
Number of pages: 34
Posted: 14 Jul 2017
Last Revised: 22 Jan 2025
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Online Syndicates and Startup Investment
NBER Working Paper No. w24777
Number of pages: 62
Posted: 13 Jul 2018
Last Revised: 15 Mar 2023
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53
Date Written: January 24, 2019
Abstract
We study investment syndication on an equity crowdfunding platform where experts (syndicate leads) curate and invest in early-stage firms on behalf of other investors in exchange for shared profit. We provide evidence that this model outperforms direct investments, especially for non-Californian startups with less publicly available information. Additional analyses suggest the better performance comes from reduced asymmetric information and lower transaction costs through better access to quality deals and lower effort for evaluating and monitoring startups. Using a large-scale field experiment, we find that investors are more likely to explore syndicate leads' profiles when provided information about their network size and favorable track record, suggesting that investors value these two attributes when evaluating leads. A survey of 44 active investors shows that large networks are perceived as signals of access to quality deals, reputation, and due diligence, while track record is perceived as a signal of leads' ability and a direct measure of success. These findings suggest that the syndication model can enhance market efficiency in equity crowdfunding and that emphasizing leads' professional networks and past performance can be an effective strategy for increasing adoption of the model.
Keywords: equity crowdfunding, angel investors, syndication, venture capital, entrepreneurship
JEL Classification: O31, L26, G24, L86, O33
Suggested Citation: Suggested Citation
Catalini, Christian and Hui, Xiang, Syndication in Equity Crowdfunding: Performance and the Evaluation of Experts (January 24, 2019). MIT Sloan Research Paper No. 5239-17, Available at SSRN: https://ssrn.com/abstract=2997710 or http://dx.doi.org/10.2139/ssrn.2997710
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