Crowfunding and the Currency of Social Capital
Similar to crowdfunding, within real estate crowdfunding, there is a strong correlation between a project and its social ties. The strongest ties usually come from immediate relationships, i.e. friends and family. While friends and family is a broad term, many early stage investors have either a relationship and/ or “trust” the founder of the project. According to a Cambridge University study, 31 % of a startups capital is provided by friends and family.
A study of entrepreneurs by Michigan University stated that the lion’s share of initial (startup) capital comes from individual savings, friends and family. While this connection facilitates immediate access to both capital and information, the early investment participation may also signify confidence in the project, facilitating future involvement by outside backers via social influence.
The involvement of both social ties and social influence can positively or negatively affect the outcome of a real estate crowdfunding project. Within the complex real estate relationship structure between, owner(s), operator(s), and investor(s), the social science behind why investors back a project can be linked to the Reinforcement Theory.