Innovation Spreads Out as Crowdfunding Backs Underserved Regions, a New Study Reveals.

A research project from Yale University’s School of Management, Fung Institute’s College of Engineering, and University of California’s Haas School of Business, identified in the period between 2009 and 2015, 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.

However, even though both crowdfunding and VC share similarities in the backed industries suggesting that

crowdfunding might simply compete with professional investors to fund the same ideas,

the entrepreneurs funded by VCs often mirror the investors in terms of their educational, social, and professional characteristics and end up concentrated in a small number of regions such as the Silicon Valley while crowdfunding has been funding innovators in a large number of places that have typically been excluded from VC, and has also been expanding the geographic reach of VC itself.

Crowdfunding and VC across the United States. Image by UC Berkeley. (Source: Mashable)

According to researchers, this is an effect of the move made by policy-makers who had hailed crowdfunding platforms to expand access to entrepreneurial finance among women and minority innovators.

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. – But crowdfunding has opened up funding to everyone else.

“Expand Innovation Finance Via Crowdfunding” was published in December 2016 on Science. 

This is in line with argument by MIT Sloan’s researcher Christian Catalini according to whom

the potential of crowdfunding is to extend capital either to segments of population or industries and verticals that haven’t been touched by regular forms of capital.

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