Equal Opportunity For All? The Long Tail Of Crowdfunding: Evidence From Kickstarter
Crowdfunding platforms are believed to create a more equal-opportunity environment for fundraising by removing entrance barriers found in traditional entrepreneurial markets. Our work investigates whether, in creating more equal opportunities for entrepreneurs to enter the market, crowdfunding platforms also create a more equal distribution of funds across ventures. To this end, we utilize a natural experiment in the form of a policy change on Kickstarter.com that resulted in opening the market to more players. Using platform-level analysis (H1), we show that opening the platform shifted demand towards the head of the distribution: More funds and backers became concentrated in a smaller number of head-offers (a superstar effect). Using individual backer-level analysis (H2), we show that these changes in demand distribution are likely to have resulted from changes in investors' investment behavior, beyond changes in the composition of the demand side (that is, changes in the types of investors entering the market). Put together, our results suggest that efforts to level the playing field in crowdfunding platforms can ultimately result in a less equitable distribution of funds across market participants, and drive investors to focus their investments on a smaller set of campaigns.