Are Syndicates the Killer App of Equity Crowdfunding?

By Ajay Agrawal, Christian Catalini, Avi Goldfarb. California Management Review, 2015

157 citations recorded by the source corpus.

Information asymmetry presents a challenge to equity crowdfunding just as in other markets for equity capital. Investors are less likely to finance startups when it is difficult to assess quality. Syndicates reduce market failures caused by information asymmetry by shifting the focal investment activities of the crowd from startups to lead investors. Syndicates align the incentives of issuers, lead investors, and follow-on investors by providing incentives for lead investors to conduct due diligence, monitor progress, and exploit their reputation. Preliminary evidence foreshadows a meaningful role for syndicates in the allocation of capital to early-stage ventures.

Subfields: Accounting, Economics and Econometrics, Management Information Systems

View Paper: https://www.semanticscholar.org/paper/2ed0a381ded6ed953ae5dedb38a4f6fc36cb5059

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In Accounting

1. F. Polzin
2. Wanxiang Cai
3. E. Stam
4. Nir Vulkan
5. Catarina Sismeiro
6. Wanxin Wang
7. Ammara Mahmood
8. E. Malecki

In Economics and Econometrics

1. F. Polzin
2. Wanxiang Cai
3. E. Stam
4. Nir Vulkan
5. Catarina Sismeiro
6. Wanxin Wang
7. Ammara Mahmood
8. E. Malecki

In Management Information Systems

1. F. Polzin
2. Wanxiang Cai
3. E. Stam
4. Nir Vulkan
5. Catarina Sismeiro
6. Wanxin Wang
7. Ammara Mahmood

Citations in the corpus

• Equity Crowdfunding and Governance: Toward an Integrative Model and Research Agenda (2019, unknown): “In this case, the equity crowdinvestors may benefit from the detailed due diligence (that could limit adverse selection) and monitoring (that could limit moral hazard) by the professional (lead) investor (Agrawal et al., 2016).”
• The evolution of equity crowdfunding: Insights from co-investments of angels and the crowd (2019, background): “In this respect, some argue that professional and angel investors can play an important signaling role on these platforms (Agrawal et al., 2016), making the increasing presence of angels and VCs on ECF platforms a positive development (BBB & UKBAA, 2017; Mason and Botelho, 2014).”
• Crowdfunding and social capital: A systematic review using a dynamic perspective (2021, background): “Some equity crowdfunding platforms feature lead investors who provide an investment thesis and disclose potential conflicts of interest to attract follow-up investors (Agrawal et al., 2016; Xiao, 2019).”