Social Capital, Financial Capital, or Both?

Building social and financial capital are both necessary components of establishing a business that is destined to become successful in the long run. Without them, aspiring entrepreneurs could be setting themselves up for failure right from the beginning. Many new organizations are lacking either a strong social network or essential funding or both. Seeking these assets in the early stages of planning a business venture is the best course of action.  But, what is social and financial capital, and why are they so important?

Social Capital

On the most basic level, social capital “refers to the benefits derived from one’s place in information and communication networks” (Wasserman, 2012.) It’s all about who you know when you do not have the skills or resources to achieve certain tasks or goals within a startup. Having a strong team is a priceless asset for a business. The more social capital a business possesses, the better, as this will create an avenue to abundant resources, bringing value to an organization. The market place is always changing and it is very important to develop strong interpersonal relationships which will withstand the test of time. According to Investopedia, the two most common forms of social capital are “bonding and bridging”—Bonding occurs  when a certain group of individuals with common interests form “connections to one another,” and bridging “arises when members of diverse groups forge connections to share ideas and information…” (Investopedia, 2018.)  These tools allow new startups to “gain access to many outside resources,” which is essential when it comes to making the best decisions about reaching out for extra funding or finding qualified partners or employees, for instance (Wasserman, 2012.)

Financial Capital

In the book, “The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup,” Noam Wasserman describes financial capital as “the money or other tangible resources that can be used in the founding process” (Wasserman, 2012.) A limited amount of financial resources can be a serious issue for a new business and can lead to big problems such as legal issues and possible bankruptcy down the road. In the short term, having proper funding allows a startup to do such things as “buy what they need to make their products or to provide their services to the sector of the economy upon which their operation is based, i.e. retail, corporate, investment banking, etc.” (“Financial Capital,” 2018.) There are many ways to obtain financial capital, for example, asking family and friends, applying for traditional loans, or requesting assistance from an investment company.

The Tie-In

So, how do the puzzle pieces of social capital and financial capital fit together? It could be problematic to try to get a startup off the ground without each of these tools. As we have established, social capital brings about more opportunities for growth by providing a strong foundation of human resources. The more people you have on board with launching your company can be helpful when it comes to obtaining financial backing as those people may be willing to provide financial backing or prove to be helpful in obtaining those prospective resources through other outlets. Therefore, we can conclude, although it may be possible to have one without the other, it is not very probable.

Resources

“Financial Capital.” Wikipedia, Wikimedia Foundation, 9 Sept. 2018, en.wikipedia.org/wiki/Financial_capital.

Staff, Investopedia. “Social Capital.” Investopedia, Investopedia, 5 Aug. 2018, http://www.investopedia.com/terms/s/socialcapital.asp.

Wasserman, Noam. The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. Princeton, N.J: Princeton University Press, 2012. Print.

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