The Impact of Distance on the Value Invested in Equity Crowdfunding in Brazil

Objective: Studies have shown a negative correlation between distance of investors and enterprises and the capacity of new ventures raise funds. However, this pattern does not stand in Crowdfunding, where were found evidences of large geographic dispersion. This study investigates the impact of distance on the value of investments in the Equity Crowdfunding market (ECF), modality where startups sell shares for retail investors using online platforms. Methodology: To test the hypothesis that distance does not impact the value invested we used the database of investors and enterprises from Broota platform (now Kria) between 2015 and 2016 and geoeconomic data from Instituto Brasileiro de Geografia e Estatistica (IBGE) (2010). Georeferencing technics were used to calculate the distance and multiple regressions to select the variables that impact most the investment. Spatial autoregressive model (SAR) e Geographically Weighted Regression (GWR) were used to determine the impact of neighborhood on the value invested. Results: The GWR technique had the best adjustment (R-2=10,42%), 1,11% higher than the result from Multiple Linear Regression. We concluded that the geography is relevant (SAR and GWR models have similar effects), but has not a higher impact on the value invested. The ECF investor has a similar behavior to traditional investors, this means that the modality does not efficiently reach enterprises away from big cities. Theoretical contributions: This article helps understanding the behavior of brazilians investor, where ECF still new and little studied. Practical contributions: The conclusion may be used for policy making of incentives for companies away from Brazil's biggest urban centers.