Social Capital is not Real Capital
Social capital has its uses buts its not a silver bullet when it comes to equity crowdfunding success. Too many people in the crowdfunding industry focus on the crowd you have rather than the crowd you need to fund your business. Founders are encouraged to lean heavily on their social networks, family, friends, business colleagues, Facebook friends and LI followers as potential investors. That’s where they make their first mistake; they fail to understand what social capital truly is. Consider it as “street cred” whereby respect has been earned and along with it a certain level of recognition.
Social capital refers to the resources, networks, and connections that individuals or groups have within a social structure. It encompasses the value derived from social relationships, trust, cooperation, and social interactions in a community or society. Social capital is an intangible asset that can facilitate individual and collective actions, promote collaboration, and contribute to overall well-being.
There are two primary forms of social capital:
- Bonding Social Capital: This form of street cred refers to the connections and relationships within homogenous groups or communities. It involves strong ties between individuals who share similar backgrounds, interests, or identities. Bonding social capital strengthens social cohesion within these specific groups, leading to increased solidarity, support, and cooperation among members.
- Bridging Social Capital: Bridging social capital focuses on the connections and relationships between diverse groups or individuals. It involves weaker ties but spans across different social, cultural, or economic backgrounds. Bridging this kind of street cred facilitates the exchange of information, ideas, resources, and opportunities between different groups, fostering cooperation, diversity, and social integration. This is a perfect fit for equity crowdfunding.
Social capital can have various benefits and implications, including:
- Trust and Cooperation: Street cred promotes trust and cooperation among individuals and groups, as it establishes a foundation of mutual understanding and shared norms. Trust enables collaboration, reduces transaction costs, and facilitates the smooth functioning of social interactions.
- Resource Access and Support: Social capital provides individuals with access to resources, information, and support through their social networks. Strong social connections can help individuals find employment opportunities, access financial resources, obtain advice, or receive emotional support during challenging times.
- Community Development: Social capital plays a crucial role in community development by fostering collective action and participation. It enables communities to address common problems, implement initiatives, and work together towards shared goals, leading to positive social change and improved quality of life.
- Health and Well-being: Research suggests that social capital has positive effects on individual health and well-being. Strong social connections and support networks can enhance mental health, provide emotional support, and promote a sense of belonging and social integration.
- Economic Development: Street cred can contribute to economic development by facilitating entrepreneurship, innovation, and knowledge exchange. Networks of trust and collaboration foster economic opportunities, attract investments, and enhance the overall competitiveness of a region or society. See what I mean about this being so natural to equity crowdfunding?
Building and nurturing street cred requires active engagement, investment in relationships, and the development of trust. Activities such as community involvement, volunteering, networking, and participation in social organizations can help individuals and communities strengthen their social capital.
Obviously, very few people bother to go to all that trouble which is why so many entrepreneurs – and pretty much everybody else – has very little actual street cred. In theory, you can just tell your network that you are raising money for your new business, provide some details about what you hope to achieve, sit back and wait for the checks to start rolling in. After all, these people are all “connected” to you.
It works if 1) you are raising a small amount, 2) your network is very large or 3) your friends and associates are all members of the same County Club.
In practice, crowdfunding works if you send the right message to the right people; investors not friends or social contacts.
If you are serious about raising capital you need a professional marketing company to craft your message and present it to a highly targeted group of investors. If you are crowdfunding for the first time, hire a professional to help