Crowdfunding success as a quality signal to venture capital

Sunghan Ryu, Keongtae Kim

Research output: Contribution to conferencePaperpeer-review

4 Citations (Scopus)

Abstract

This study examines how venture capitals (VCs) value crowd-based decisions compared to expert decisions from the perspective of signaling theory. We collect data on both crowd-funded startups and matching angel-funded startups. We track sequential financing rounds and analyze whether VCs show different valuations of the two types of startups. Our results show no statistically significant difference in VC preference between crowd-funded startups and angel-funded startups. In terms of initial funding amount, we show that startups raising large amounts on a crowdfunding platform are more likely to attract the attention of VCs than startups obtaining similar amount of funding from angel investors. We also find that the effect of crowdfunding is stronger for startups located in startup cluster areas. Finally, our results support the view that securing funding from the crowd increases the chances of obtaining follow-on VC funding for the non-hardware startups.

Original languageEnglish
Publication statusPublished - 2016
Externally publishedYes
Event22nd Americas Conference on Information Systems: Surfing the IT Innovation Wave, AMCIS 2016 - San Diego, United States
Duration: 11 Aug 201614 Aug 2016

Conference

Conference22nd Americas Conference on Information Systems: Surfing the IT Innovation Wave, AMCIS 2016
Country/TerritoryUnited States
CitySan Diego
Period11/08/1614/08/16

Keywords

  • Angel
  • Crowd-based decision making
  • Crowdfunding
  • Signaling theory
  • Startups
  • Venture capital

ASJC Scopus subject areas

  • Computer Science Applications
  • Computer Networks and Communications
  • Information Systems

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