Swept Away by the Crowd? Crowdfunding, VC and the Selection of Entrepreneurs (Research)

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SSRN  Posted May 9, 2013

SSRN

Does Crowdfunding has less Gender and Geographic bias than the traditional VC selection process?

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Abstract:
Venture Capitalists (VCs) are experts in assessing the quality of entrepreneurial ventures. A long tradition of research has examined the signals of quality that VCs look for in new ventures, and the biases that result from the VC selection process. Recently, an alternative form of new venture funding has arisen in the form of crowdfunding, which relies on the judgement of millions of amateurs about which entrepreneurial projects are worth funding. Little is known about the degree to which amateurs respond to the same signals of quality as VCs, and whether they are subject to the same biases. To address this gap, I examine 2,101 crowdfunded projects that match characteristics of more traditional VC-backed seed ventures. Despite the radical differences in selection environments, I find that entrepreneurial quality is assessed in similar ways by both VCs and crowdfunders, but that crowdfunding alleviates some of geographic and gender biases associated with the way that VCs look for signals of quality.

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