1 research outputs found
Entrepreneurial Finance and the Flat-World Hypothesis: Evidence from Crowd-Funding Entrepreneurs in the Arts
We examine the geography of early stage entrepreneurial finance in the
context of an internet marketplace for funding new musical
artist-entrepreneurs. A large body of research documents that investors
in early-stage projects are disproportionately co-located with the
entrepreneur. Theory predicts this will be particularly true of
artist-entrepreneurs with preliminary-stage projects,
difficult-to-contract-for effort, difficult-to-observe creativity,
negligible tangible assets, and limited reputations. At the same time,
however, observers of the spatial effects of the internet and related
technologies report that many economic activities have become much less
geographically dependent. At an aggregate level, the internet
marketplace we examine does indeed demonstrate a spatial transformation
of the entrepreneurial finance process: the average distance between
investors and artist-entrepreneurs is 4,831 km. However, geography still
matters; investors are disproportionately likely to be local and,
conditional on investing, local investors invest more. This apparent
role for proximity is strongest before entrepreneurs visibly accumulate
capital. Within a single round of financing, local investors are more
likely to engage earlier in the funding cycle. However, this difference
in the timing of investment is almost entirely explained by a particular
type of investor, whom we characterize as 'family, friends, and fans.'
We conjecture that these individuals, who are disproportionately
co-located with the entrepreneur, have offline information about the
entrepreneur and therefore derive less new information from observing
the aggregate financing raised. We speculate that the path-dependent
role of this offline network in conveying information to the online
community limits the 'flat world' potential of these communication technologies