Three Key Insights from the Third Annual Academic Symposium on Crowdfunding
By Jonathan Porat, Regulatory Economist
Economists from the Office of Advocacy’s Office of Economic Research recently attended the Third Annual Academic Symposium on Crowdfunding held at the University of California-Berkeley. The symposium brings together top academics to discuss cutting edge crowdfunding research. Presentations covered everything from more conventional reward-based crowdfunding to new developments in the peer-to-peer lending space. The research yielded some fascinating insights on how entrepreneurs can more easily get access to capital.
1. Syndicates may be the solution
Agrawal, Catalini, and Goldfarb presented research on the rise of syndicates, or vehicles allowing equity crowdfunding investors to fund small parts of deals led by more experienced investors. Similar to startup accelerators, syndicates can alleviate the risk inherent in investing in novel and innovative ventures. As a result, startups that may traditionally be kept out of venture capital or other funding mechanisms may be able to more easily access capital by receiving a syndicate’s “stamp of approval.”
2. Crowdfunding is developing new kinds of entrepreneurs
Research by Mollick and Kuppuswamy observed that entrepreneurs who successfully complete a crowdfunding campaign may glean unique benefits and possess different skills than other entrepreneurs. The customer-focused nature of crowdfunding tends to encourage and reward the development of entrepreneurial customer service and customer interaction skills. Consequently, crowdfunding may yield benefits beyond financial capital. Unlike many conventional funding mechanisms which focus on harder productivity metrics, crowdfunding is funding entrepreneurs that would otherwise go unsupported.
3. Social media matters
Berea, Goldfarb, and Kirsch found that increased social networking activity is related to success in crowdfunding campaigns. Therefore, social networking may become an important tool for entrepreneurs to expand the scope and magnitude of their network of potential investors.
Even though some of this research is still at an early stage, it is laying the groundwork towards addressing meaningful barriers to capital acquisition. Moving ahead, Advocacy economists look forward to continuing to research this changing landscape of access to capital.