Can crowd wisdom - and funding - enhance regional innovation and entrepreneurship? Evidence to inform policy.

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Innovative and entrepreneurial activity tends to be clustered in a few regions due to founder locations, access to financing and venture capital networks, and differences in regulatory environment. New forms of financing, such as crowdfunding, combined with new financial regulations, have the potential to encourage entrepreneurship outside of traditional clusters, thereby increasing the spatial distribution of economic growth. In particular, aspiring entrepreneurs that are overlooked by traditional sources of finance might be more likely to receive support. Likewise, small investors that have not been allowed to invest in risky ventures can now seek a small share of the profits of successful startups. Furthermore, crowd feedback, in the form of a response to a campaign, has the potential to highlight good ideas and winnow bad ideas more quickly. After mapping and describing the distribution and characteristics of crowdfunding, this research develops theory and (causally if possible) tests the mechanisms for how crowdfunding could impact many phenomena including firm formation and survival, venture capital investment, investment between (rich and poor) regions, patenting, scientific research, employment, and industry concentration. Policy makers have supported crowdfunding in the hope that it will spread opportunity to a wider segment of society. TThis research ultimately seeks to answer the question of whether crowdfunding can reduce regional inequality in access to startup capital.Internet platforms such as Kickstarter and Indiegogo, ask for support and advice for campaigns and provide the data for this project. To establish the spread and impact of crowdfunding, this research investigates its impact on regional economies and demonstrates that crowdfunding is relatively higher outside of traditional bastions of venture capital investment such as Silicon Valley, Boston, and New York. Furthermore, regions with successful crowdfunding, where campaigns reach their funding goals, subsequently draw in greater venture capital funding. This effect is particularly strong for regions with successful technology campaigns (as opposed to art and theatre campaigns). This research considers the impact of crowdfunding on job creation, employment, venture start up, and industry concentration and informs policy by providing insight into the mechanisms, benefits, and distribution of returns from crowdfunding.