Blog #2 (for Week 3) Building Financial and Social Capital
Updated: Nov 23, 2020
“Building Social and Financial Capital”
There are 3 main forms of capital discussed in this chapter:
1) Human Capital
2) Social Capital
3) Financial Capital
Human capital refers to the skills, knowledge, and expertise needed to launch and build the startup. It simply means to speak and write clearly.
“Social Capital is the durable network, of social and professional relationships through which founders can identify and access resources.” (Wasserman, 2013, loc no. 806). In other words, social capital includes your social and professional relationships. It can take years to build social capital. This is why youth can be a disadvantage.
Financial Capital is any saved-up wealth used to maintain or start-up your business. “51.3% of people who had seriously considered becoming entrepreneurs could not do so because they lacked the necessary financial capital.” (Wasserman, 2013, Loc No. 825).
A well-planned pre-founding career can arm a potential founder with human capital, social capital, and financial capital appropriate to a startup (loc No. 629). People accumulate relevant capitals and gain more experience, so they become more likely to found a startup the longer they work. People who accumulate more social capital before founding attract more human capital and financial capital.
The perils of waiting to build each capital:
Some people say that founders should work a long time so they can build the capitals needed to increase the hances of becoming successful founders, but here are some dangers in choosing this route:
1) It’s not good to continually accumulate more human and social capital. There are diminishing returns and it’s counterproductive to building a successful startup.
2) By working a long time, founders may get “handcuffed” to their pre-founding positions and become less fit to become founders (Wasserman, 2013).
3) The likelihood of founding a startup does not increase with age or years of experience. Waiting to found introduces strengthened handcuffs, tying the potential founder her employer.
a. Psychological handcuffs are included in this. All these handcuffs reduce the likelihood of becoming a founder by raising the opportunity costs of leaving the employer. This lowers relative attractiveness of launching a startup and enforces the inertia of remaining an employee (loc No. 830).
Wasserman, Noam. The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup (The Kauffman Foundation Series on Innovation and Entrepreneurship). Illustrated, kindle ed., Princeton University Press, 2013.