Understanding online equity funding ecology: a comparison of the greater Los Angeles area and Silicon Valley
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Understanding online equity funding ecology: a comparison of the greater Los Angeles area and Silicon Valley Rong Wang1 Accepted: 19 September 2020 © Springer Nature B.V. 2020
Abstract Guided by the community ecology perspective and resource dependence theory, this study examines how organizational forms and resources co-influence the financial flow among three types of players: angel investors, venture capital firms and startups. Data from two comparable areas were collected from an online equity funding platform AngelList.com: the greater Los Angeles, and Silicon Valley. This study applies network analysis to demonstrate that the online investment networks in both markets were driven by both commensalism and symbiosis, and they both favored larger ventures. However, distinct patterns were revealed. The Los Angeles market had a higher tendency of the financial flow from angel investors to VC firms, and between angel investors; while the financial flow in the Silicon Valley market was more likely to occur from angel investors and VC firms to startups. Furthermore, the resource signals had different effects on both markets with the investors in Silicon Valley viewing online resources as negative predictors of funding flow. Implications on what value funders bring to ventures and whether online platform offers an alternative for venture investment are provided. Keywords Network analysis · Startups · Angel investors · Resource dependence · Community ecology · AngelList
1 Introduction At the center of sustainable innovation is the rapidly changing context of new information and communication technologies, which helps to reduce barriers to entry in technology fields, to provide modular building blocks for new business development and deployment, and to increase the mobility of capital and labor. The contemporary technology environment has afforded new forms of investing in startups. What is under-investigated in the literature is the structure of funding relationships on these platforms and what factors influence the financial flow among different investors and investees.
* Rong Wang [email protected] 1
Department of Communication, University of Kentucky, 234 Blazer Dining, 343 S. Martin Luther King Blvd, Lexington, KY 40526, USA
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Guided by a network perspective, this research views the investment relationships between investors and investees as a network of financial flow. Nodes in the network are angel investors, VC firms and startups. Links in the network represent instances of investment from an investor to an investee. The investment network is directional. This study differs from existing literature by laying out diverse investors and investees, which moves beyond the dominant form of investment between VC firms and startups. Furthermore, it offers a comparison of two regions: the greater Los Angeles, and Silicon Valley, which are both facing unique challenges and opportunities within the constantly evolving innovation ecosystem. Networks contribute to innovative capabili
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