Using comprehensive data on new ventures (402 crowdfunded and 7,000 VC-funded), the project compares intermediate outcomes and eventual success of equity crowdfunded (CF) and VC-funded startups.

The study finds that relative to low-quality VC-funded ventures, CF ventures do at least as well with a greater likelihood of raising subsequent capital from investors with a better track record, pointing to certification effects of the crowd. Our study sheds light on the trade-off between the benefits of VC financing and crowdfunding, important downstream consequences of the type of early-stage funding received, and implications for crowdfunding platforms and nascent firms.

In the matched sample of more than 1,800 startups, we find that the CF startups underperform compared to VC startups. In the round following CF funding, they raise less money and are less likely to be funded by more successful investors. The study did not find any difference in the performance of CF startups that are funded on the platform by VCs and VC-affiliated individuals vis-à-vis the performance of those crowdfunded by unaffiliated individuals.

Comparing the CF investors to VCs, the study finds the former to be less experienced and with a worse track record of success. Both CF and startups funded by less experienced (successful) VCs perform worse than those supported by more experienced (successful) VCs. The study affirms that CF startups are more likely to attract successful investors in the next round. Thus, CF platforms expand the reach of more successful investors.

Taken together the study results indicate that the distinctive benefits that CF funding may offer – timely capital, autonomy, input into product design, a better public profile for the startup – compare favourably to mentoring and monitoring that less successful VCs may provide. However, the value-added services of more successful VCs dominate the benefits of equity crowdfunding.