Online Syndicates and Startup Investment

71 Pages Posted: 14 Jul 2017 Last revised: 26 Jun 2018

See all articles by Christian Catalini

Christian Catalini

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Xiang Hui

Washington Univresity in St. Louis; Massachusetts Institute of Technology (MIT)

Multiple version iconThere are 2 versions of this paper

Date Written: June 23, 2018


Early crowdfunding platforms were based on a premise of complete disintermediation from traditional experts. This approach becomes problematic when equity is involved because of asymmetric information between entrepreneurs and investors. Moreover, it favors regions that already attract a disproportionate share of capital offline. We find that the introduction of intermediaries through online syndicates reverses this trend, leading to a large 33% increase in capital flows to new regions. At the same time, this "democratization effect" relies on the presence of intermediaries with professional networks that can bridge these new regions with California. Evidence from a large-scale field experiment with over 26,000 investors corroborates the idea that social networks constitute a key friction to additional democratization, since they shape how online investors screen and evaluate intermediaries. Intermediaries use their reputation to vouch for high potential startups that would otherwise be misclassified because of information asymmetry. This allows them to arbitrage opportunities across regions and shift capital flows to startups from new regions that are 36.9% more likely to generate above median returns. We discuss implications for the design of equity crowdfunding platforms.

Keywords: equity crowdfunding, angel investors, syndication, venture capital, entrepreneurship

JEL Classification: O31, L26, G24, L86, O33

Suggested Citation

Catalini, Christian and Hui, Xiang, Online Syndicates and Startup Investment (June 23, 2018). MIT Sloan Research Paper No. 5239-17. Available at SSRN: or

Christian Catalini (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
Cambridge, MA MA 02142
United States


National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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Xiang Hui

Washington Univresity in St. Louis ( email )

One Brookings Drive
St. Louis, MO MO 63130-4899
United States

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

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