The Signals in the Noise: The Role of Reputable Investors in a Crowdfunding Market

May 9, 2013 Leave a comment

The Signals in the Noise: The Role of Reputable Investors in a Crowdfunding Market

Keongtae Kim University of Maryland – Robert H. Smith School of Business

Siva Viswanathan University of Maryland – Robert H. Smith School of Business

April 29, 2013

Abstract: 
This paper examines the role of reputable investors in a crowdfunding market. Using a novel data set on individual investments in a crowdfunding market for mobile applications, we investigate whether early investments serve as signals of quality for later investors and if the value of these signals differs depending on the identity of early reputable investors. We find that reputable investors – app developer investors and experienced investors – tend to invest early. Both are likely to affect later investors, although their expertise determines their influence. App developer investors tend to have a better knowledge of the product and are found to be more influential for “concept apps” (apps that are in development), whereas experienced investors – investors with a better knowledge of market performance are found to be more influential for “live apps” (apps that are already being sold in the market). Our findings show that investors in this market, although inexperienced, are rather sophisticated in their ability to identify and exploit nuanced differences between various signals within the same market. In examining the ex-post performance of apps, we find that successful funding in the market is positively associated with ex-post app sales, providing some indication of rational herding among investors. Our study offers new insights for theories of opinion leadership and signaling, and also has practical implications for the design of crowdfunding markets.

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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