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Funding by Venture Capital

Below are questions provided as follow-up to a hypothetical example. I have attached all the background information that I could to assist in the completion of these questions, making it as easy as possible. I found this to be a very interesting simulation; however, I am in need of assistance with regard to answering the questions below.

A. Why do venture capital companies prefer to advance money in stages? If you were the management of Marvin Enterprises, would you have been happy with such an arrangement? With the benefit of hindsight did First Meriam gain or lose by advancing money in stages?
B. The price at which First Meriam would invest more money in Marvin was not fixed in advance. But Marvin could have given First Meriam an option to buy more shares at a preset price. Would this have been better?
C. At the second stage Marvin could have tried to raise money from another venture capital company in preference to First Meriam. To protect themselves against this, venture capital firms sometimes demand first refusal on new capital issues. Would you recommend this arrangement?


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A. VENTURE CAPITAL COMPANIES PREFER TO ADVANCE MONEY IN STAGES in order to make a balance between risk and reward equation. The risks get diminished by advancing money in stages as it bring more accountablity and tracking of the perofrmance by the ...

Solution Summary

This explains the process of Funding by Venture Capital