Use of entrepreneurial capital for new firm formation in SA

Abstract

This research was aimed at determining the role of entrepreneurial capital in the transition of entrepreneurial businesses from the start-up to the new firm status. New firms are important in any given economy because they create jobs, and the South African economy requires many of them because of the high endemic levels of unemployment. Even though the South African government has policies in place to support entrepreneurs, global entrepreneurship reports have indicated that the rate of formation of new firms has always been lower, sometimes by up to 50%, than the rate of formation of start-up firms, indicating the high mortality rate of start-up firms. We have taken the view that businesses fail because of the inability of the owners to address operational problems. The processes employed by entrepreneurs in South Africa in the early stages of the firm to solve these problems are not very well known. This project was exploratory and qualitative in nature and was aimed at documenting some of these processes. Entrepreneurial capital, a collection of the resources inherent in the business was used as the framework of analysis. We observe a strong effect of elements of the framework, especially work experience, in the solutions offered by the participants in this study. We provide suggestions to current and potential entrepreneurs on what problems to expect and how to solve them.