HEC Research Papers Series,
HEC Paris

Abstract: The crowd is usually wise but can be subject to manipulation by insiders. We use internal administrative records from a leading European crowdfunding platform to study platform governance on two-sided crowdfunding platforms. Founders and regular investors naturally have different incentives with their investments. Consistent with model predictions, founders appear to try to exploit regular investors' sensitivity to the public history of a campaign by making anonymous self-investments. This could distort regular investors' belief formation. Founders tend to avoid and regular investors typically do not find public self-investments credible. To make crowdfunding even more attractive for early-stage financing, platforms could consider increasing the transparency of large self-investments.

Keywords: non-price strategies; platform governance; two-sided platforms; wisdom of the crowd; information manipulation

JEL-codes: D83; G24; G41; L26

41 pages, January 9, 2024

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