Crowdfunding Drives: Success May Depend on Personal Networks

By April 19, 2013 Drop a comment
Métaphore d'un réseau social

Announcing on a social network that you are providing support to a collaborative financing venture not only serves to tell everyone what you are doing. If you enjoy a high degree of influence, other network members will also be encouraged to back the initiative.

Could the surge of online social networks be partly responsible for the success of the crowdfunding phenomenon? This is the conclusion drawn by massolution, a consulting and research company which specialises in this field, in its publication ‘2013 CF – Crowdfunding Industry Report’. Pointing out that as this collective financing approach, which enables lots of people to make a small contribution to a range of projects – from the development of artistic productions and business ventures to charity initiatives – is relatively new, the underlying dynamics at work are still only vaguely understood, the report makes the connection between social links and the influence of media and networks on collective financing. In 2012, crowdfunding platforms worldwide raised $2.7 billion, the vast majority of which came from countries in Europe and North America, and massolution is forecasting a near doubling (+81%) of global crowdfunding volumes for 2013.

The importance of social links

It is quite obvious that business transactions are, at some level or other, linked to relationships and to human networks. The CF report points out, however, that very few studies have been made into the link between social networks, digital networks, and collective financing platforms. Nevertheless, Professor Ethan Mollick, from the Wharton Business School, University of Pennsylvania, USA, has already shown that there may well be a strong link between sites such as Kickstarter and Facebook. Evidence indicates that the more friends a project sponsor has on Facebook, the more likely the project is to achieve its funding objectives. In explaining the success of the crowdfunding formula, this first social influence factor may be reinforced by a second syndrome, which the psychologist Robert Cialdiani, President of Influence at Work, an international training and consulting company working on the ethical business applications of the ‘science of influence’, has dubbed ‘social proof’. Interviewed for the CF report, Cialdiani explains the theory thus: “When people are undecided, they look to the actions of others to guide their own.” This tendency seems likely to make online social networks a particularly powerful channel for project financing.

Friends of friends of friends of friends

A third syndrome – The Strength of Weak Ties, a name borrowed from the theory on the spread of information in social networks developed by American sociologist and Stanford University professor Mark Granovetter, helps to explain the reasons for the success of social networks. Professor Granovetter expounds the idea that pure acquaintances, described as ‘weak ties’, can have a greater propensity for aiding the spread of an idea through a network than friends, i.e. ‘strong ties’.  While a group of close friends can help establish the credibility and quality of a project, it is nevertheless the weak ties across social networks that have the power to give the project its business viability and bring in people who are totally external to the initial social group. These are the people who very often ensure that projects ranging from artistic ventures to business startups to charity initiatives obtain the financing they need.

Legal mentions © L’Atelier BNP Paribas