• CFRED CUHK Law

Clustering and Knowledge Spillover in Crowdfunding

Sofia Johan - Florida Atlantic University;

Jon Taylor - Florida Atlantic University


-- Crowdfunding through platforms such as Kickstarter, Indigogo and Crowdcube is a cheap and effective way for individuals or firms to raise capital at their earliest stages of innovation and to meet their goals. Besides democratizing fundraising by allowing entrepreneurs to gather small contributions from a large number of people, crowdfunding has the added benefit of reducing market frictions associated with geographic distance as entrepreneurs are theoretically able to raise funding from anyone around the World with access to internet connection. Prior research by Guenther, Johan and Schweizer (2018) suggests however that among domestic equity crowdfunding investors, there is still a home bias effect, and that technological advances may not necessarily have alleviated distance-related frictions. The focus of our recent paper, "Does Crowdfunding Democratize Success? Revisiting the Effects of Agglomeration and Localized Knowledge Spillover on Creative Projects," is to examine potential explanations for this failure and we thus analyze how crowdfunding and Michael Porter’s Cluster Theory (2000) interact. Porter identifies clusters as critical masses of unusual competitive success in particular fields. It is thought that it is easier for new companies to evolve within an existing cluster of interconnected companies and institutions rather than at isolated locations and this may be due to being part of a positive feedback loop. We test this theory by looking at crowdfunding success within clusters of like-minded interconnected people instead of interconnected firms.


Our identification strategy relies on Richard Florida’s “Creative Class Hypothesis” (2002) which suggests that creatives belong to specific job types, including science, engineering, education, arts, design and others is changing the economy. Florida suggests that the “Creative Class” is attracted to certain geographic areas based on quality of life measures, namely the Natural Amenity Rank developed by David McGranahan (1999). These studies give us the ability to take measures of creative class job and also control for industry clustering and the propensity for the Creative Class to be more “geographical fluid” between urban and rural settings (McGranahan et al., 2011; Florida, 2002) to measure the relative fundraising success of art projects specifically. We believe that although natural amenities may mediate the effect of Cluster theory by attracting creative persons to an area, regardless of transaction costs, localized creative capital is still key in the development and success of art crowdfunding and that the knowledge generated still tend to be locality bounded.


By examining art projects specifically, we can measure how creative projects benefit from agglomeration or clustering, measured by the proportion of individuals employed in creative class jobs in a county, and find that crowdfunding success among metro and non-metro counties is not homogenous, and that clustering among Creative Class workers leads to greater fundraising amounts. Our findings also suggest a mitigating effect of knowledge spillover or rather support for the positive feedback loop. We find that projects originating from high natural amenity counties without high concentrations of Creative Class workers raise less money, supporting the Localized Knowledge Spillover Theory of Entrepreneurship.


While our results demonstrate that crowdfunding platforms may not necessarily be not providing equal access for all, our research also suggests that policy surrounding entrepreneurial development should foster not only interconnected companies and institutions, but also interconnected social networks, given the importance of expertise clustering on crowdfunding outcomes.

Recent Posts

See All

Copyright © 2018 All Rights Reserved. Faculty of Law, The Chinese University of Hong Kong

The Chinese University of Hong Kong