Crowdfunding and the Democratization of Access to Capital—An Illusion? Evidence from Housing Prices

Access to finance is arguably one of the most critical challenges in starting a new business. And people say that crowdfunding has the potential to democratize access to finance. In this study, we examine whether crowdfunding democratizes access to finance and, if so, how. To examine this, we obtained data on housing prices related closely to the cost of accessing bank loans and matched these data to a 2009–2013 novel data set from a leading crowdfunding market. We find an increased decline in housing prices leads to a significant increase in the creation of crowdfunding projects. However, we did not find significant differential effects in housing price changes between successful and unsuccessful projects. Finally, the effect of housing prices on crowdfunding projects was more significant for areas with low socioeconomic status. Interestingly, the increase in crowdfunding projects in these low-status areas was driven wholly by a significant increase in unsuccessful projects, whereas the effect of housing prices on successful projects was significant only in areas of high socioeconomic status. Overall, our study suggests that crowdfunding can supplement traditional sources of funding although socioeconomic status may still prevent disadvantaged people from receiving its full benefits.