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Venture Capital & IPO's

Theme 1
? Why do you believe that venture capital funding increased as much as it did during the 90s? What would you attribute to these types of gains?

? If you were a business owner, what would you see as the costs and benefits to using VC funding as opposed to equity or debt issues? Relative to the previous methods that we have studied, why would VC funding be preferred over the other types?

Theme 2
* What are the consequences of underpricing a new offering vs. overpricing it? Which side of the fence would you desire to err on?

* What criteria would you use to decide to go IPO as opposed to using VC funding, taking on new loans, or issuing debt (bonds)? What criteria would you use with your firm to determine which funding mechanism to use?

Solution Preview

Theme 1
? Why do you believe that venture capital funding increased as much as it did during the 90s? What would you attribute to these types of gains?

I do not believe that venture capital funding will increase as much as it did during the 90s because venture capitalists have been affected by the dot-com bubble burst and recession of 2000-1. However, because venture capitals are financiers, who expect a return of 25-35% per year over the life of their funds, they are increasingly focusing on lower-risk activities instead of the dot-com company. The amount of seed funding is so relatively small and is under the declining trend.

While the absolute amounts of seed stage funding has steadily decreased, the amount of seed funding as a percent of total VC investment has also decreased, from 1.6% in 1997 to 0.53% in 2004. The average for this period was 0.78%. While seed stage funding has seen a declining trend, late stage funding is increasing (as a percent of total investment).
Nevertheless, we can see from the data in the line shows the increasing trend in later stage funding as a % of total VC investment for that year. This figure has steadily increased from a low of 35 % in 1997 to a high of 45% in 2004. The average for this period was 38%. This shows that venture capitals are still seeking to invest their money, and it is our advantage to raise the fund for entrepreneurship

http://www.atp.nist.gov/factsheets/1-c-11.htm

? If you were a business owner, what would you see as the costs and benefits to using VC funding as opposed to equity or debt issues? Relative to the ...

Solution Summary

This solution is comprised of a detailed explanation to answer the request of the assignment of more than 500 words of text.

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