Entrepreneurial capital: the emerging venture's most important asset and competitive advantage

Abstract

This study presents a parsimonious model of entrepreneurial capital defined as a multiplicative function of entrepreneurial competence and entrepreneurial commitment. This approach is an extension of Ulrich's [Sloan Manage. Rev. 39 (1998) 15.] proposition of intellectual capital to a practical framework of entrepreneurial capital. The relationship between entrepreneurial competence and commitment is argued to be a multiplicative one rather than additive as both components must be strongly present for development to take place. For example, the presence of entrepreneurial competence without any commitment creates little value for the new venture. In contrast, the presence of entrepreneurial commitment without adequate entrepreneurial competence may be regarded as a waste of both time and resources. However, the presence of both entrepreneurial competence and commitment lays the foundation for enterprise generation and performance. Inherent in this view on competence is the capacity to identify opportunities. Krueger and Dickson [Decis. Sci. 25 (1994) 385.] found that an increase in perceived capability increases perceptions of opportunities. That is, individuals who perceive themselves as entrepreneurially capable are expected to be alert and sensitive to opportunities, and able to take advantage of such opportunities if they consider the endeavor worthwhile. Entrepreneurial capital can also be conceived as the present value of future entrepreneurial behavior. This is analogous to the PV rule in the finance literature. A similar notion is used when social capital is conceived as the sum of resources in networks. However, McGrath [Acad. Manage. Proc. (1996) 101.] conceived opportunities as latent potential or shadow options. Entrepreneurial capital can then be conceptualized as the present value of an infinite series of shadow options. In this study, entrepreneurial behavior is conceived as the pursuit of opportunities without regard to resources currently controlled. The perceived capacity to venture is investigated in a prospective research design and prospective MBAs serve as a study sample. The empirical evidence of this study supports the proposed relationship between the main components in the equation. The practical implications for society and educational institutions are that the focus of training should be on the drivers of the components in the equation. Investors and prospective entrepreneurs are also advised to be concerned about these issues. The practical implications for venturing individuals are that it is vital to demonstrate their competence and motivation toward possible stakeholders. The practical implications for investors are that they should be more concerned about competence and motivation issues among individuals and individuals in venturing teams, e.g. is the venturing team properly matched?