Complementary Funding: How Location Links Crowdfunding and Venture Capital

While Equity Crowdfunding (ECF) platforms are a virtual space for raising funds, geography remains relevant. To determine how location matters for entrepreneurs using equity crowdfunding (ECF), we analyze the spatial distribution of successful ECF campaigns and the spatial relationship between ECF campaigns and traditional investors, such as banks and venture capitalists (VCs). Using data from the two leading German platforms - Companisto and Seedmacht - we employ spatial eigenvalue filtering and negative binomial estimations. In addition, we introduce an event study based on the implementation of the Small Investor Protection Act in Germany allowing us to obtain causal evidence. Our combined analysis reveals a significant geographic concentration of successful ECF campaigns in some, but not all, dense areas. ECF campaigns tend to cluster in dense areas with VC activity, while they are less prevalent in dense areas with high banking activity, and are rarely found in rural areas. Thus, rather than closing the so-called regional funding gap, our results suggest that, from a spatial perspective, ECF fills the gap when firms in dense areas seek external financing below the minimum equity threshold offered by VCs and when there are few banks offering loans.