Construed Shared Expectations: Facilitating Access to Early-Stage Equity Financing Across Structural Holes

Abstract

This paper aims to understand access to early-stage equity financing in environments with structural holes among social classes, a common characteristic in developing countries. Previous studies have overlooked the effects of the inequalities between vertical structures on access to entrepreneurial equity financing; therefore, they fail to explain how entrepreneurs from the low and middle classes develop trust and connections with business angels, who are generally wealthy individuals. The grounded theory method was used to analyze 33 semi-structured interviews with Central American actors related to entrepreneurial financing. Based on the grounded evidence and the social capital dimensions framework, the study proposes a model explaining how the institutional work carried out by investors, businesspersons, and other actors improved access to entrepreneurial financing in developing countries by enabling two social capital mechanisms. The contribution to social capital theory is twofold. Firstly, the paper illuminates the causal relationship between the cognitive and relational social capital dimensions by explaining how trust ties are generated between actors from disconnected networks. Secondly, the paper extends the bridging brokerage mechanism: It explains the role of the broker not only as an information gatekeeper between two disconnected networks but as a promoter of the strong ties between the members of such networks. The study has practical implications for organizations interested in promoting high-growth entrepreneurship in developing countries.