07_Overheads - Objectives for today Decision control in...

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ACC 333 (Farrell), Fall 2011, Class 07 1 ACC 333 (Far el ) Fal 2011, Class 07 1 Objectives for today Decision control in closed corporations Brief review of decision control systems in closed corporations A closer look Background Why should we care? Risks in venture capital The “lemons problem” and signaling Decision control mechanisms VCs use to mitigate risks In-class activity ACC 333 (Far el ) Fal 2011, Class 07 2 From last class – Example 2: Closed corporations General definition and examples – Privately-held firms in which stock is held by a small number of individuals and is not issued or traded on exchanges – e.g., Hearst Corporation, Lego, Victorinox, entrepreneurial firms Who are the principals? Small group of shareholders that often includes the firms’ founders, their family members, and initial investors Implications for decision control systems For relatively large closed corporations, then decision control is similar to open corporations (except for peer monitoring) For relatively small closed corporations, we’ll talk about decision control features in the next class ACC 333 (Far el ) Fal 2011, Class 07 3 Background: Entrepreneurs and venture capitalists Where can entrepreneurs get money to grow their businesses? Angels – Friends, family, and other interested (and usually wealthy) individuals Typically have little desire to be involved with day-to- day management and invest relatively small sums Venture capitalists (VCs) – Individuals who manage a fund of money that’s distributed to startup firms with strong growth potential Relatively large investments Why not banks ?
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ACC 333 (Farrell), Fall 2011, Class 07 2 ACC 333 (Far el ) Fal 2011, Class 07 4 Background: Entrepreneurs and venture capitalists (continued) How does venture capital work? VCs get money from individual and institutional investors in exchange for a share of ownership and/or profits of the businesses the VC chooses to invest in VCs give money and managerial & technical advice to entrepreneurs in exchange for their own share of ownership and decision control rights Goal is typically an IPO (initial public offering) ACC 333 (Far el ) Fal 2011, Class 07 5 Background: Entrepreneurs and venture capitalists (continued) Who are the principals? – The investors who give money to the VCs
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This note was uploaded on 03/19/2012 for the course ACCACC 333 taught by Professor Anne during the Fall '11 term at Miami University.

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07_Overheads - Objectives for today Decision control in...

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