Understanding online equity funding ecology: a comparison of the greater Los Angeles area and Silicon Valley

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.