Success Factors in Reward based and Equity based Crowdfunding in Finland

Master’s Thesis 
31 
funders wish to improve their social standing within their online networks. (Saxton 
and Wang, 2013) 
Social network ties have a significant impact on crowdfunding due to the “unprofes-
sional” nature of it. Crowdfunders rely more on social dynamics, because they possess 
less knowledge and managerial skills compared to professional investors (Frydrych et 
al., 2014). Herding behavior drives decision-making due to lack of individual infor-
mation and the costliness of acquiring relevant information. Acquisition of relevant 
information is usually costly, because of information overload. This makes funders 
use the actions of other funders as a source of relevant knowledge. (
Ward & Rama-
chandran, 2010) 
Crowdfunding platforms cannot eliminate these effects emerging from socially con-
nected individuals (
Agrawal et al., 2015)
. They can reinforce herding behavior and 
alleviate stress from information overload by narrowing the amount of choices. Intro-
ducing popularity data, such as short-lists and staff-picks, regarding available funding 
initiatives helps direct the attention of funders. (
Frydrych et al., 2014) Funders are 
more affected by information aggregating tools like top-5 lists than more fragmented 
information sources (
Ward & Ramachandran, 2010)
. 
However, it should be noted that this herding behavior does not always translate to 
number of funders. According to Saxton and Wang (2013), there is a large discrepan-
cy between how many people promote and how many people fund donation-based 
initiatives online. Social media users will easily “like” a cause and promote a cause, 
but it is more difficult to convert to donate for the cause. Clearly herding behavior 
drives people to associate with similar ventures as their peers. But this herding also 
comes with a high percentage of people that are not willing to financially contribute to 
the venture.