What Is Invisible Capital?

If capital is that form of wealth that when exchanged for a specific purpose produces more wealth, then invisible capital is the collection of largely intangible assets that improve the probability that your venture will grow and thrive.

Invisible capital is the toolkit of our skills, knowledge, language, networks, and experiences, along with the set of assets we were born with: our race and gender, our family’s wealth and status, the type of community in which we were raised, and the education we had as children. Some of these assets are fixed—we cannot change who our parents are. Others are in our power to modify. What makes all of them “invisible” is that our society does not acknowledge that entrepreneurial opportunities—and thus entrepreneurial outcomes—are greatly influenced by these assets.

Some of the assets in our invisible capital portfolio are quantifiable, such as work experience and the concrete skills, knowledge, and relationships that come from that job history. For example, we know from the 2008 Kauffman Firm Survey that the businesses that lasted the longest—up to 12 percent longer than their counterparts—were the ones run by people who had started two to three prior businesses.

Entrepreneurs who have worked in family-owned businesses have an even better chance of success. Those who have wealth or meaningful access to it—through family or other networks—have a leg up, as do those who have managed to obtain a college degree. Choice of industry matters, as do race and gender, though perhaps not in the way we might assume—being a man may prove a disadvantage if you want to start a day care center.

Jocelyn’s parents run a laundry, where she helped out as a child. In college, she created a venture doing laundry for other students. After college, she worked at a bank. When a friend wanted help setting up a dog-grooming business, she asked Jocelyn to be a partner. Jocelyn invested her small savings and helped her friend get a bank loan. Once the business was launched, her friend bought out Jocelyn’s share. With the money, Jocelyn decided to leave her banking job for good and pursue her real passion: flower design. She set up her own business, serving weddings, special events, and flower shops that needed expert advice. Her business now supports Jocelyn and an assistant.

Jocelyn had invisible capital. She was able to use her experience with the family business to set up her own laundry business in college. She then used her college degree to get a job in banking, which helped her learn more about getting loans and also allowed her to save up a little nest egg. She used her newfound knowledge of banking, and her nest egg, to help launch the dog-grooming business, and then used the money she made from that to launch her own successful business. Jocelyn worked hard, but she also had the advantage of invisible capital—some of which she inherited at birth and some of which she acquired through the choices she made. It didn’t matter that Jocelyn didn’t even know what invisible capital was or how it worked to her advantage.

Invisible capital is critical to entrepreneurial success. How many people are stopped in their pursuit of business success just because they have no idea how to apply for a loan? If no one in your family or in your circle of friends has ever applied for a business loan, you may not know that banks offer them, you may not know how to distinguish a good rate from a bad one, and you may not know how to create the kinds of financial statements bankers like to see. There is a whole set of tools that go into the toolkit of getting a bank loan that are readily available to some people—and absolutely invisible to others.