Perhaps the most striking feature of “crowdfunding” is the broad geographic dispersion of in-vestors. This contrasts with existing theories that predict entrepreneurs and investors will beco-located due to distance-sensitive costs. We examine a crowdfunding setting that connectsartist-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 rolefor spatial proximity. Still, distance does play a role. Within a single round of financing, localinvestors 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 withthe artist-entrepreneur (“family and friends”). Although the online platform seems to elimi-nate most distance-related economic frictions such as monitoring progress, providing input, andgathering information, it does not eliminate social-related frictions
To read the full, original article click on this link: The Geography of Crowdfunding
Author: Ajay Agrawal, Christian Catalini, Avi Goldfarb
