Abstract
ABSTRACT Startups rely on alternative forms of financing, such as crowdinvesting, as they usually miss reliable credit ratings and bank loans. We explore the role of geographical distance between investors and startups, and analyze the role of signals and the investor-startup-relationship in investment decisions. Using a unique proprietary dataset from the largest crowdinvesting platform in Mexico, we show that distance between investors and startups negatively affects the investment probability and investment amount. An investor-startup-relationship only diminishes this correlation in specific instances while observable signals do in any case. Evidence is in line with the idea that investors with a close relationship to a startup should be used as fallback options instead of exclusive investors in startups’ early development stage. Furthermore, it underscores that signals are of high importance in modern forms of financing.
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