Success Factors in Reward based and Equity based Crowdfunding in Finland

Master’s Thesis 
30 
community creates added value. Having community members share information with 
their own unique networks and other community members enhances the gain attaina-
ble from a network. This “social network effect” means entrepreneurs are able to tap 
into a bigger crowd than they would have originally. The larger the network is, the 
more powerful the effect is. (Saxton and Wang, 2013) Through a community the en-
trepreneur can harness their social network as a means to interact with the larger 
crowd. Building a supportive community is a critical aspect for a crowdfunding initia-
tive to be more profitable than traditional funding. (Belleflamme et al., 2014) 
5.3.1. Social Network Effect 
Entrepreneurs can increase their audience size by utilizing not only their own net-
works, but also the networks of their supporters. Organizations have the possibility to 
reach a much larger number of people through the networks of their advocates (Sax-
ton and Wang, 2013). This social network effect creates a community of participants 
that interact with each other and have an impact on each other. Peer effects and social 
dynamics are fundamental aspects of crowdfunding communities, because the ecosys-
tem is built around relationships within heterogeneous networks (Frydrych et al., 
2014). 
This interaction and influence leads to certain a type a herding behavior, where mem-
bers of the community are highly affected by the opinions and actions of other com-
munity members (
Ward & Ramachandran, 2010)
. Herding behavior is a big factor in 
online communities supporting initiatives, because of the openness of interactivity and 
discourse on social media and crowdfunding platforms (Frydrych et al., 2014). Poten-
tial funders take note of comments and feedback concerning initiatives and follow the 
community consensus. 
According to Agrawal et al. (2015) and Saxton and Wang (2013), social pressure and 
obligation play an important role in online crowdfunding. In cases where the funder is 
close to the entrepreneur seeking funding, family and friends feel obligated to con-
tribute (Agrawal et al., 2015). In donation-based crowdfunding donation are driven 
more by a cause being “socially acceptable” than it being efficient. This is because 

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