Social Capital and Entrepreneurship

We offer a critical review of the concepts and principles of social capital and social networks as applied to entrepreneurship. Our review is intended for junior scholars and graduate students in the field of entrepreneurship who wish to learn the basic vocabulary of social network and social capital analyses. We illustrate several interesting research questions and a toolbox of methods to answer them. First, we use a popular new website, Friendster, to show the potential power of social capital accessed via social networks. Then, we show that the potential of social networks often cannot be realized because of various socio-cultural constraints. Taking account of these constraints, we offer three empirical generalizations about social networks and show how the concepts of homophily, social boundaries, and bounded rationality provide a framework for understanding the observations. As we discuss each generalization, we discuss some well-established theoretical contributions and empirical findings from the social capital and social networks literatures. Throughout the text we explain various research designs for studying social networks and issues raised in trying to use them. We conclude by noting the tension between the properties of social networks used in entrepreneurship researchers' models and the limited perspective on networks available to practicing entrepreneurs.