Introduction To Social Capital

Introduction To Social Capital

Social capital is a concept not easily nor well-defined. In this series, we define social capital as the use of capital (for our purposes, we examine it primarily as financial capital) to have a social benefit as well as a financial benefit. This definition also includes the concepts of impact investing, “double bottom line” investing, and “doing good by doing well.”   

From our perspective, social capital is an amorphous term with shifting meaning. From Bitcoin to food waste to affordable housing, “social capital” concepts and constructs cover an array of seemingly disparate themes. This broadness is helpful in the sense that the idea of social capital can help formulate thinking in the many different areas in which First Avenue Venture is involved. However, this broadness is frustrating when trying to answer the seemingly simple question: What is Social Capital? Even the Wikipedia article on the topic provides a multi-paragraph explanation that invokes more questions than answers.  

Additionally, written works on the subject tend toward advocacy. Often, the writer tries to persuade the audience on a particular perspective with respect to the nature of capital. Of course, these perspectives are necessary to move the idea forward. However, there is a lack of resources providing a general background of the idea, which limits the understanding of the field.  

In this series of pages, we will seek to do just that: provide a resource that gives a simplified basis for these concepts. While we certainly have perspectives and opinions, we will try to present these topics in as unbiased a way as possible. We invite others to help us — we are by no means the experts.  People much smarter than us devote much more of their time and effort in this area. 

Hopefully, by way of an introductory series on social capital, we can set a framework for looking at money, which will help frame a discussion around impact investing.  Impact investing and social capital are closely related concepts. By putting a different perspective around investing, impact investors provide the capital that fuels social capital.  They provide the fuel for the fire. Our goal is to begin that conversation so that Birmingham begins to have these conversations. We want our mission — growing Birmingham organizations — impact other mission-driven organizations so together we can create a better Birmingham.

Areas of Focus for Social Impact

The power of social capital is that it compounds the ability of capital to solve global problems. By providing a return of capital, regardless of whether the return is a market return or a below market return, the money is compounded.  By comparison, traditional philanthropy, which is based on grants and donations, does not allow for a return.

Obviously, not every problem is solvable with an impact investment. Philanthropy and grants are and will remain instrumental in solving societal woes. However, in certain situations, by using a social capital perspective and by financing organizations with instruments that can be returned, more capital is recycled to address the issues, accelerating the solution and easing the problem.  

Why First Avenue Ventures and Impact Investment?

First Avenue Ventures is a for-profit incubator dedicated to providing entrepreneurial services to grow Birmingham businesses. Why the focus on social impact? That question is one we get asked and one we continually ask ourselves. It is a good question and our answer is ever-evolving.  Here is our current thinking:

  • We want to make a difference in society.  One day, we want to look back on what we are doing with First Avenue and be proud.  Helping companies is one step towards that goal, but helping companies who are helping others is even more rewarding.
  • Mission-driven companies are generally better than companies without missions. This statement sounds obvious, but in building businesses it is often overlooked.  And in order to attract employees, customers, and to build a lasting brand, that mission has to be about more than making money.  A compelling mission makes a compelling company, and that makes us want to be involved.
  • The forces of social capital and impact investing are increasing.  More capital is flowing into impact investing funds, and we anticipate this trend to continue.   
  • Birmingham in particular can benefit from this trend, but a huge knowledge gap exists that we can help fill.

That is today’s answer.  Our involvement in the area is both self-serving and serving society, but I think there is a component of that in this social capital/ impact investing world — by doing good for others, you do good for yourselves.

Ask us again tomorrow — our answer may change.

Further Thoughts from Mike

All of the focus on social capital and impact investment — and indeed, all of the things we do at and with First Avenue — circle around our core mission of making Birmingham a better entrepreneurial center. Birmingham is a wonderful place. It is a great place to raise a family and I would not choose anywhere else to live, but Birmingham is not without its problems. Our mission at First Avenue is to help grow the entrepreneurial scene. By focusing on the entrepreneurial ecosystem, we can build a better Birmingham. This is our mission; that is our why; that is why we do what we do. We are mission-driven because our mission allows us to focus.  

But more than just being mission-driven about Birmingham, we think being mission-driven generally is an exciting and useful endeavor. When we took a step back and tried to figure out what it is we love, we realized we love helping people who were making a difference in Birmingham. We love helping people who are working on missions that move things forward. We love working with mission-driven companies.  In other words, we are mission-driven for mission driven Birmingham companies.

In October 2018, I attended SOCAP, a seminar in San Francisco about social capital. The focus of this conference was how mission-driven businesses could create not just financial but social impacts. The thesis of social capital is that you can do good financially and do good societally.  Underlying this idea is the assumption that mission-driven companies are financially impactful. We want to have impact through our mission.

Another realization that I had at this seminar is that, generally speaking, Birmingham does not have the vocabulary and knowledge in this area. Yes, we have pockets of it, and, of course, certain individuals in Birmingham have a lot more knowledge than us, but collectively, we have an education gap. 

We want to help reframe the community conversation over impact investing and social capital. On this site, we are going to dive into social capital, impact investing, and mission-driven investing in order to help explain to Birmingham (and a little bit to ourselves) about why we do what we do. 

The city of Birmingham has traditionally viewed charity and business separately. I’ve heard several people say I make my money one way and I give them money another way. This concept is not bad, but I do believe it is insufficient. As we move forward as a community, we need to be more creative and more flexible. I believe there is a role and place for all organizations to help move the city forward, and if all of Birmingham can share a little bit in our mission –- to grow Birmingham organizations — and if we can share a little bit in your respective missions, then I believe we can collectively go further faster and better.