In crowdfunding, the crowd thinks so much like VCs, it’s eerie

Memo to all those who think the crowd isn’t sophisticated enough to make startup investments: Crowdfunding isn’t all that different from raising money from venture capitalists, a new study shows.

A study by Ethan Mollick of the Wharton School of the University of Pennsylvania, brought to my attention by a post on Point of Law this morning, shows that people investing in crowdfunding campaigns have similar criteria to VCs making seed investments in fledgling companies.

Here’s Mollick:

Despite radical differences in selection environments, I find that entrepreneurial quality is assessed in similar ways by both VCs and crowdfunders.
Mollick examined 2,101 crowdfunded projects and came to the conclusion that the crowd in crowdfunding looks for similar signals of success as a venture capitalist. As in venture capital, entrepreneurs with a history of past success are more likely to get crowdfunded, as are entrepreneurs who can round up third-party endorsements and those who can demonstrate through their campaigns that they’re likely to meet the goals they set.

There are a couple of key differences Mollick found, though. Female entrepreneurs and those outside Silicon Valley, Boston, or New York are more likely to get the crowd to pay attention to their ideas. “Crowdfunding alleviates some of the geographic and gender biases associated with the way that VCs look for signals of quality,” he writes.

So, score one for the crowd.

Source: Kent Bernhard Jr., Upstart Business Journal Money & Finance Editor

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