Post by Sapphire Capital on Oct 15, 2013 0:49:49 GMT 4
The Geography of Crowdfunding
University of Toronto - Rotman School of Management; National Bureau of Economic Research (NBER)
Massachusetts Institute of Technology (MIT) - Sloan School of Management
University of Toronto - Rotman School of Management
October 29, 2010
NET Institute Working Paper No. 10-08
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.
General information only, this is no legal or financial advice or legal opinion and no solicitation or offering of services. Use of posted information should be contingent on your counsel advise on a case by case basis.