Are Crowdfunding Platforms Active and Effective Intermediaries

Crowdfunding platform due diligence comprises background checks, site visits, credit checks, cross checks, account monitoring, and third party proof on listed projects. Based on data from over 70% of Canadian platforms over the years 2013-2016, we find that due diligence application is associated with busyness of platform employees, sophistication of platform service indicated by fee structure, and type or complexity of campaigns. We hypothesize that due diligence facilitates fund-raising by screening lower quality projects and mitigating information asymmetries between project issuers and funders. Regression results confirm our hypothesis: due diligence is associated with higher percentage of successful campaigns and larger amount of capital raised on a platform.