O venture capitalists are individualists or firms

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they reduce their risk when investing in start-up businesses.oVenture capitalists are individualists or firms that help new businesses get started and provide much of their early-stage financingoIndividual venture capitalists or angels are wealthy individuals that invest their own money in emerging businesses at the very early stages of small dealsoVenture capital is important because entrepreneurs have only limitedaccess to traditional sources of fundingHigh degree of risk in starting a new businessNew firms whose primary assets are often intangible find it difficult to secure financing from traditional lending sourcesInformation asymmetry problems: an entrepreneur know morethan a lenderThe Venture Capital funding cycleoStart a new businessoThe business planoFirst-stage financingoHow venture capitalists reduce their risk (know the industry and make the entrepreneurs invest and fund the venture in stages)oStaged funding (v.c)oPersonal investment (from the entrepreneur now)oSyndication (sell a percentage of the investment to other v.c.)Reduce risk by diversifying the venture capitalist’s investment portfolio and willingness of others to share in the investmentoIn-depth knowledgeoExit strategy (v.c. not long-term)Strategic buyerFinancial buyerInitial public offering
Explain some advantages of borrowing from a commercial bank rather than selling securities in financial markets and discuss bank term loans.Initial Public OfferingoSelling common stock to the publicoRaise larger sums of cash or to facilitate an exitoSeasoned public offerings lateroMore money than from private sourcesoDon’t need to give up control oActive secondary marketoTop managementoHigh costoShort-term (Working Capital) loansoPrime rate loans oHigher than market borrowing rates, for a range of servicesTerm loanoBusiness loans with maturities greater than one yearoSecured or unsecuredInventory or to finance plant and equipment

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