Crowdfunding from friends: Tie strength and embeddedness

Abstract

Crowdfunding is a useful channel for new or inexperienced “rookie” entrepreneurs to solicit funding for their projects. This study examines the individual funding decisions arising from the heterogeneity in the tie strength and embeddedness of the dyadic relationships between social media friends and rookie project initiators (PIs). Using integrated crowdfunding-social media data, we find that friends' funding likelihood increases with a stronger tie or greater embeddedness, whereas friends' funding amount only increases with greater embeddedness. We further find early evidence that the effect of tie strength on the friend's funding decision is sensitive to the evaluation of project success potential, whereas that of embeddedness is less so. Moreover, embeddedness, but not tie strength, contributes to the project's funding success. The findings run counter to the prevailing view of strong ties in crowdfunding while shedding new light on the persistently supportive role of embedded ties.