Online Syndicates and Startup Investment

61 Pages Posted: 14 Jul 2017 Last revised: 25 Jan 2019

See all articles by Christian Catalini

Christian Catalini

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

Xiang Hui

Washington University in St. Louis - John M. Olin Business School

Multiple version iconThere are 2 versions of this paper

Date Written: January 24, 2019


Early crowdfunding platforms were based on a premise of disintermediation from professional investors, and relied on the "wisdom of the crowd" to screen high quality projects. This becomes problematic when equity is involved, as the degree of asymmetric information between entrepreneurs looking for funding and the crowd is higher than in reward-based crowdfunding. As a result, platforms later experimented with incentives for professional investors to curate deals for crowd. We study how the introduction of such incentives influenced the allocation of capital on the leading US platform, finding that the changes led to a sizable 33% increase in capital flows to new regions. Professional investors 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 that are 37% more likely to generate above median returns. At the same time, this "democratization effect" relies on the presence of intermediaries with professional networks that bridge these new regions to California. Using a large-scale field experiment with over 26,000 investors we further unpack the frictions to online investment, and show that social networks constitute a key barrier to additional democratization, since they influence how the crowd evaluates intermediaries in the first place.

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 (January 24, 2019). 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 )

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Calibra, Inc.

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National Bureau of Economic Research (NBER) ( email )

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Xiang Hui

Washington University in St. Louis - John M. Olin Business School ( email )

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Campus Box 1133
St. Louis, MO 63130-4899
United States

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