According to research, the number of a founder’s social network connections is associated positively with the capital raised from a project. In many cases, investors’ connections with fundraisers predate crowdfunding campaigns. Most backers give funds to those they know at least by reputation.
It is already known that personal connections are usually the source of financing the capital requirements of early-stage companies. The importance of their contributions early on in an equity crowdfunding facilitate campaign success. This is because it helps promote the assessment of investment opportunities amongst the other investors. This phenomenon establishes the relevance of six degrees of separation in social networking.
The influence of 6° of Separation
In contemporary context, six degrees of separation is shrinking social distance by connecting people, notwithstanding physical distance, with advance technologies. The idea has influenced the connection discovery concept on social networking sites. The sites facilitate networking by making introductions along with a chain of ‘friend of a friend’ within a maximum of six steps. In other words, you may end up knowing every individual by a maximum of six jumps in a friendship chain.
Lets put this theory to test mathematically. Assume that everyone knows 40 people, and that each of them knows another 40, and so on. According to the six degree of separation logic, everyone will know almost half of the world’s population. And if they had 44 contacts instead, then everyone will everyone in the world.
However, the fact is people often prefer friends with mutual acquaintances and common interests. So another individual’s 40 or 44 friends might not be completely unique from the person before.
The theory, although sees an overlap yet it does warrant merit in the potential of growing your network by familiarising prospects along with a chain of the network of a network.
Funding and its relationship with social ties
Social and professional network ties are positives associates with the success of crowdfunding. The more the network, the more successful a crowdfunding campaign is. And this isn’t limited to the personal contacts, but extended to include the contacts build within the professional communities.
The social ties could be strong, weak or absent.
- Strong ties of social network are usually close connected – family, friends, and acquaintances. Strong ties are characterised with high interactions, often repetitive and redundant messages. Trust is an undertone – members think the business will work out despite the absence of sufficient evidence.
- Weak ties are contact of contacts who just have information about the quality of project and not enough about the capability of the entrepreneur. Weak ties imply an exchange of non-repetitive information among different connections. These connections tend to have homogeneous opinions and share many common traits.
While raising funds for start up, the nascent entrepreneur should turn to both strong ties and weak ties. In the initial phase of a funding campaign, most contributors are often strong ties of the entrepreneur who support their friends’ initiative. This often sets a precedence and triggers more participation.
The weak social ties action take effect or follow after strong ties. More early backers may talk about the project to their friends, and the friends spread the news among their friends. So weak ties will have a powerful influence in promoting the project – effect of word-of-mouth.
The availability and use of networks are highly relevant for the success of equity funding campaigns.