The Geography of Crowdfunding (original) (raw)

57 Pages Posted: 20 Oct 2010 Last revised: 9 Jan 2011

Ajay K. Agrawal

University of Toronto - Rotman School of Management; National Bureau of Economic Research (NBER)

Christian Catalini

Massachusetts Institute of Technology (MIT) - Sloan School of Management; Diem Association and Diem Networks US; National Bureau of Economic Research (NBER)

Avi Goldfarb

University of Toronto - Rotman School of Management

There are 2 versions of this paper

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