BUS 477 Lecture Notes - Lecture 10: Market Risk, Angel Investor, Moral Hazard

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What do Investors Look for in a Business Plan?
A Comparison of the Investment Criteria of Banker, Venture Capitalist and Business Angels
- Entrepreneurs must customize their business plan according to whether they are
seeking funding from a bank, venture capital, fund or business angel
Introduction
- More the ¾ business angels require a business plan before they will consider investing
- A business plan is the ticket of admission for an entrepreneur
- How good the business plan supports the financial proposal is imperative
The Baker’s Ledig Decisio
- Bakes look to iiize Type Oe eos, hih is ledig to usiess hih
suseuetly fail
- Risk of moral hazard, which is the banks inability to monitor entrepreneurs once a loan
has been made
- Majority of Small Business bank loans have occurred through taking collateral on
personal assets
- Two key considerations must occur in order to increase chances of receiving a bank loan
o The opays aility to geeate suffiiet ash flo to seie the ak loa
o The presence of collateral security to ensure that the bank can recover its funds
from the liquidation of the business and or personal assets
- Collateral is key
The Veture Capital Fud Maager’s Ivestet Decisio
- This party is looking for capital and to reap some of the benefits that come with the
success of the company
- The quality of the Entrepreneur heavily decides the investment decision
o Product characteristics
o Market characteristics
o Retruns
- VCs ad Agels ho ae po-active in their support will sometimes invest into a
usiess if the aageet tea ist geat ut the idea/usiess is soud
The Busiess Agel’s Ivestet Decisio
- BAs oe is ithi the aageet tea ad iustaes i hih etai
ees aet aoodatig fo their role.
- VCs potet theseles ith this though otats to deal ith ay ee ho is ot
fulfilling their role
- BAs often specialize in evaluating agency ris and rely upon the entrepreneur to manage
market risk
- The expertise a BA can bring to a project is the 3rd most important factor in the decision
to invest
- VCFMs ae less hads o ad oe etu die
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