Nav: Home

Crowdfunding expands innovation financing to underserved regions

January 17, 2017

Crowdfunding platforms, such as Kickstarter, have opened a funding spigot to startups in regions that have suffered from a venture capital drought, a new UC Berkeley study shows.

Historically, funding for innovation has come from venture capitalists, which tend to fund entrepreneurs that often mirror the investors in terms of their educational, social and professional characteristics. Venture capital funding also tends to be concentrated in a small number of regions, such as Silicon Valley. The study found that crowdfunding has spread startup financing beyond these entrepreneurial bubbles.

"Most venture capital gets invested in Silicon Valley and Boston, and thus shortchanges the rest of the country for entrepreneurial financing," said study senior author Lee Fleming, faculty director of the Coleman Fung Institute for Engineering Leadership at UC Berkeley. "But crowdfunding has opened up funding to everyone else."

The article was published in a recent edition of the journal Science.

For the study, researchers analyzed data from 2009 to 2015 on successful Kickstarter campaigns and venture capital investments. Because some Kickstarter campaigns are for projects that have no real possibility of being backed by venture capitalists, such as the creation of artwork, and because venture capitalists may invest in some kinds of companies, such as biotechnology, that fall outside the scope of the Kickstarter platform, the researchers compared investments that could have reasonably been funded by either crowdfunding or venture capital.

The researchers identified 55,005 Kickstarter projects in categories similar to the industries in which venture capitalists invested, and 17,493 venture capital investments in industries engaged in activities similar to those of Kickstarter campaigns. The researchers then used this dataset to map Kickstarter projects and venture capital investments by county and by year.

Although the typical Kickstarter campaign involved a smaller amount of money, these campaigns covered a broader swath of the nation, the analysis found. Several places with the largest number of successful Kickstarter campaigns have not been magnets for venture capitalists' investments, such as Chicago, Los Angeles and Seattle.

Venture capitalists' investments were highly concentrated, the analysis found. Just four counties, located in the Boston area and Silicon Valley, account for 50 percent of all matched venture capital investments, according to the data set.

To adjust for differences in population and other factors that might produce more investments in all types of innovative activity in some places, the researchers calculated the relative intensity of Kickstarter versus venture capital dollars in each region. They found that Kickstarter allocates a much larger share of its resources than venture capitalists to the interior of the country, away from coastal population centers and traditional technology hubs. Even in the Boston area and Silicon Valley, Kickstarter investments were concentrated in different areas than venture capitalists' funding. Kickstarter funding in the Bay Area, for example, goes disproportionately to Marin and Napa counties, whereas San Francisco and the Peninsula counties received more venture capitalists' funding.

The study found that crowdfunding in a region, and in particular successful technology campaigns, appeared to cause an increase in venture capital funding in the region. This occurs as venture capitalists look for promising new ideas and a successful campaign is a very good indicator of potential.

"This effect has gotten consistently stronger over the last six years," Fleming said. "If this phenomenon continues, crowdfunding could begin to address regional inequality in entrepreneurial financing, through both direct crowdfunding investment and induced venture capital investment."
-end-


University of California - Berkeley

Related Crowdfunding Articles:

E-cigarettes, tobacco and cannabis products are littering high schools
High schools in the San Francisco Bay Area are being contaminated by plastics and toxic litter from e-cigarettes, cannabis products and combustible tobacco products such as cigarettes and cigarillos, a new study by researchers at UC San Francisco has found.
Online crowdfunding to pay for cancer care
This research letter examined crowdfunding efforts to defray expenses associated with cancer care.
How a leap of faith can take science forward
A new study by SMU Associate Professor Reddi Kotha reveals that language choices alone can influence whether inventors receive financial backing from their organizations.
New study shows scientists who selfie garner more public trust
Many scientists today have embraced social media as tools to communicate their research and to engage broader audiences in scientific discovery and its outcomes.
Human activity can influence the gut microbiota of Darwin's finches in the Galapagos
In the Galapagos Islands, Darwin's finches drawn to junk food are experiencing changes in their gut microbiota and their body mass as compared to finches that don't encounter human food, according to a new University of Connecticut study.
More Crowdfunding News and Crowdfunding Current Events

Best Science Podcasts 2019

We have hand picked the best science podcasts for 2019. Sit back and enjoy new science podcasts updated daily from your favorite science news services and scientists.
Now Playing: TED Radio Hour

Erasing The Stigma
Many of us either cope with mental illness or know someone who does. But we still have a hard time talking about it. This hour, TED speakers explore ways to push past — and even erase — the stigma. Guests include musician and comedian Jordan Raskopoulos, neuroscientist and psychiatrist Thomas Insel, psychiatrist Dixon Chibanda, anxiety and depression researcher Olivia Remes, and entrepreneur Sangu Delle.
Now Playing: Science for the People

#537 Science Journalism, Hold the Hype
Everyone's seen a piece of science getting over-exaggerated in the media. Most people would be quick to blame journalists and big media for getting in wrong. In many cases, you'd be right. But there's other sources of hype in science journalism. and one of them can be found in the humble, and little-known press release. We're talking with Chris Chambers about doing science about science journalism, and where the hype creeps in. Related links: The association between exaggeration in health related science news and academic press releases: retrospective observational study Claims of causality in health news: a randomised trial This...