The evolution of equity crowdfunding: Insights from co-investments of angels and the crowd

Equity crowdfunding platforms are at the center of the digital transformation of early-stage venture funding. These digital platforms were originally heralded as a democratizing force in early stage finance, due to their role in facilitating the exchange between entrepreneurs and a multitude of non-professional small investors ("the crowd"). Equity crowdfunding platforms have experienced considerable growth and now attract professional investors including business angels. The presence of angels alongside the crowd on equity crowdfunding platforms has raised questions whether these digital platforms can continue to play their role in democratizing access to capital. Using data from a leading equity crowdfunding platform, we examine the interplay between the investment decisions of angels and the crowd. We find evidence of information flows in crowdfunding platforms between angels, and from angels to the crowd. We find angels play an important role in funding of large ventures, whereas the crowd not only fill the funding gaps for such large ventures but also play a pivotal role in the funding of small ones. The complementarity between angels and crowd investors seems to increase the overall efficiency in an otherwise highly asymmetric and uncertain market, confirming that digitization can indeed bring important benefits to venture investment.