Thank you for being a friend: The roles of strong and weak social network ties in attracting backers to crowdfunded campaigns

Abstract

This paper uses daily panel data to study the effects that entrepreneurs’ social networks have on the success of their projects seeking capital from a potentially large group of individual investors (i.e. crowdfunding). Much of the literature to date demonstrates both theoretically and empirically that the benefit of large social networks accrues at the beginning of the crowdfunding campaign and are commonly the initial contributions that the project receives. We find this is consistent with unsuccessful campaigns, however, among successful campaigns many of the benefits of large online social networks occur only after the project has met its funding goal. In particular, we find that entrepreneurs with relatively large online social networks receive a statistically significantly larger number of backers only after the project is successfully funded. It is hypothesized this result is due to the composition of strong and weak ties in the entrepreneur’s social network. Importantly, when a project reaches its funding goal a positive signal of its quality is sent to those in the entrepreneur’s social network and motivates the relatively large group of weak ties in it to contribute. As a result, it puts into question the value that strong ties can have in aiding entrepreneurs in reaching their funding goal.