New technology assessment in entrepreneurial financing - Does crowdfunding predict venture capital investments?

Jermain Kaminski, Christian Hopp*, Tereza Tykvova

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

21 Citations (Web of Science)

Abstract

Crowdfunding is a relatively new gateway for entrepreneurs to access capital for creative and innovative ideas. It allows individuals to start experiments with new products and technologies where the outcome is distant. Yet predicting the success of hitherto unseen products and technologies is fraught with ambiguity and uncertainty. Early stage product experimentation and market access through reward-based crowdfunding, where potential customers provide funds for new unproven products, can therefore provide quality signals to subsequent financiers of new technologies. Our study investigates whether there is a long-run relationship between crowd funding and VC investments on the aggregate and the industry level. We draw on a dataset covering 77,654 projects that successfully raised funds on Kickstarter and 3260 VC investments in the US between 2012 and 2017. The results suggest that crowdfunding Granger causes VC investments. Moreover, the monthly crowd funding and VC investment time series are cointegrated. We therefore conclude that successful crowdfunding campaigns lead to a subsequent increase in VC investments. This holds at the aggregate level and particularly for hardware and consumer electronics, as well as fashion. These results enhance our understanding of the co-development between crowdfunding and VC investments. Reward-based crowdfunding helps VC investors in assessing future trends rather than crowding them out of the market.
Original languageEnglish
Pages (from-to)287-302
Number of pages16
JournalTechnological Forecasting and Social Change
Volume139
DOIs
Publication statusPublished - Feb 2019

Keywords

  • Technology prediction
  • Granger causality
  • Reward-based crowdfunding
  • Venture capital
  • TIME-SERIES
  • PRIVATE EQUITY
  • UNIT-ROOT
  • COINTEGRATION
  • EXPERIENCE
  • INFERENCE
  • DYNAMICS
  • DEMAND
  • IMPACT
  • CROWD

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