Business angels, crowdinvesting and the start-up financing funding gap

Abstract

This study provides comparative empirical evidence on the fundraising outcomes and the post-funding performances of ventures supported by either business angels or crowdinvestors. Building on a multiyear original dataset combining repeated annual surveys on both the angel and the equity crowdfunding markets in Italy, we find that ECF-backed ventures raise less capital than BA-backed ones and crowd-investors acquire a smaller percentage of capital than BAs. Moreover, ventures that successfully raised ECF, subsequently, are less likely to raise follow-on equity financing compared to BA-backed companies. As a major contribution of the paper, we document the presence of systematic differences in the investigated backed ventures, in their fundraising outcomes and in their follow-on financing trajectories, supporting the view that crowd-investors and BAs, while apparently addressing the same need in the pre-VC financial ecosystem, act as substitutes: they represent different market screening mechanisms separating companies with unobservable, but intrinsically different characteristics that ultimately affect their future follow-on investment rounds and their growth potential