# HW__1 - Homework#1 Decision Making AEM 330 1 VC Decision...

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Homework #1: Decision Making AEM 330 1. VC Decision Tree You are raising \$10 million for a new venture. You know that you can borrow the money from your rich uncle, but then you would have to put up with him looking over your shoulder all the time. It is worth \$50,000 to you to get the financing from a venture capitalist instead (same terms as you would get from the rich uncle). You have appointments with two VCs. The first appointment is with a VC known for giving people only 5 minutes for their pitch. The second VC gives people up to an hour. To prepare for the first meeting, you need to spend about \$10,000 in preparation costs. There is no point in preparing more since you only get 5 minutes. There is value in preparing more for the second VC since you may get up to an hour with her. But if the first VC funds you, you will cancel you appointment with the second. Light preparation (the amount you would do for the first VC) costs \$10,000. Heavy preparation costs an extra \$20,000, raising the total preparation cost to \$30,000. The additional preparation has no effect on your chances of getting funding from the first VC (who has a 0.3 probability of funding you so long as you do light preparation), but it raises the probability of the second VC funding you from 0.2 (with just light preparation) to 0.7 (with heavy preparation). Unfortunately, your appointments with the two VCs are on the same day, so you would not have time to do more preparation for the second VC if the first VC were to turn you down.

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• Spring '08
• SIMON,D.
• Venture Capital, venture capitalist, alternate production process, Acme Steel Research Acme Steel

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