What Is This Thing Called Capital In A Business?

There are many definitions in the book that could be given to describe the word capital. Money needed to start a business is the most commonly used term.

But is capital money only? Let’s find out.

According to the Corporate Finance Institute, capital refers to anything that can be put to use to increases a person’s ability to generate value. With this in mind, I pose a question, do your skills, connections and experience count as capital?

John’s Case Scenario

John is a 23-year-old guy fresh out of campus. He graduated with honours in Fine Arts and can be termed an excellent painter. John has been without employment for one year since graduating from campus. His dream is to one day own an art gallery in his city. In conversation with Mary, John admits to not having set up the art gallery yet because he lacks capital.

The scrutiny continues

On probing John farther, Mary finds out that John has some artworks that he has been working on and he knows one or two people that work at the museum whom he meets regularly. John confesses more that he knows a couple of individuals like him who want to start an art gallery but do not have ‘capital’ the same way he doesn’t have.

Mary’s advice to John

Mary, being the visionary person she is, does not want to see her friend John whine and so she gives him some few tips. Using what John has just revealed to her, Mary breaks down the puzzle for John and helps him see the way out of his ‘lack of capital rant’. Mary breaks down capital into three types;

  1. Intellectual Capital

This refers to the knowledge and skills that John has which he can use to help him set up his art gallery. As we already know, John is an excellent painter and an honours graduate in Fine Arts. He can use his skills to come up with more art pieces that he can finally display when the art gallery is set up or that he can even sell online and raise funds to set up the gallery.

  1. Social Capital

The second type of capital that John has but which he does not realize is human capital. These are the connections that he has which can help him set up his art gallery. John already knows some people that work at the museum in his town and he has a couple of friends that are painters. John can leverage these contacts to help him pool funds together or even get in-kind donations that will be vital in setting up his art gallery.

  1. Financial Capital

Financial capital is the last type of capital which Mary elaborates to John. This may seem like the most crucial type of capital for John but is it? John already has the skills he needs and can leverage his contacts to help him set up the art gallery. Not forgetting, John can get a very good platform on social media to promote his art and eventually have the following he so desires.

For many entrepreneurs, they focus too much on financial capital whereas it is not the only form of capital needed in a business. It is important that time be invested in building the other two forms of capital in order to make a business attract investors. So my question is, is capital the problem?

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