(Im)perfect Substitutes: Business angels and crowd sourced start-up funding

This study provides comparative empirical evidence on the fundraising outcomes and the post-funding performances of ventures supported by either business angels or crowd-investors. Building on a multi-year original dataset combining repeated annual surveys on both angels and equity crowdfunding (ECF) markets, we find that while investing in similar companies, ECF-backed ventures raise less capital than BA-backed ones, acquire a smaller percentage of capital and are less likely to raise follow-on equity financing. These results suggest that ECF and BA are imperfect substitutes that act as screening mechanisms of unobservable heterogenous firms with different risk profiles, growth trajectories and funding needs.