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Currently, your only funding for your business has come from your rich relative. What is the risk involved in this financing situation? What is the risk involved in other financing situations (e.g., selling bonds, issuing stock, venture capital, and debt and equity financing)?

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Currently, your only funding for your business has come from your rich relative. What is the risk involved in this financing situation? What is the risk involved in other financing situations (e.g., selling bonds, issuing stock, venture capital, and debt and equity financing)?

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Currently, your only funding for your business has come from your rich relative. What is the risk involved in this financing situation?

The primary risk with such funding is that I need to provide an equity stake to my relative in my company in lieu of his funding and thus, part with the profits. Further, the relative may also start demanding his principal after some time. Another possible risk could be the fact that the relative might start to interfere in the day to day operations of the company.

What is the risk involved in other financing situations (e.g., selling bonds, issuing stock, venture capital, and debt and equity financing)?

Let us take each of these situations one by one.

Issuing stock: The primary risk with issuing stock to the retail investors by going public or in other words, making ourselves a listed entity is the fact that we become highly answerable and responsible to the shareholders and the public and need to reveal and justify all our actions to the shareholders and public. In other words, the company will lose all its privacy and will become responsible to the public shareholders for all its ...

Solution provided by:
Sandeep Bardia, MBA
Education
  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
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