MOS 1023 Mar 13

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Western University
Management and Organizational Studies
Management and Organizational Studies 1023A/B
Kate Helsen

Mar 13 – Financing and Distribution Steps – Not everyone uses all these; some don't need any, ignore some, etc. Bootstrapping – Initial funding of the firm – someone has an idea for a product or idea – not necessarily have the knowledge to raise equity for their business. Often takes years for a company to become a household name. – Can't get money from stock market, because there is not business activity due to the newness of the company. Venture Capital – Provide much early-stage financing. – Reasons as to why traditional funding doesn't always work. 2. Types of productive assets – intangible assets – if someone doesn't have real assets, there is no proof of a good track record. 3. Informational asymmetry problems – eg. borrower knows more than the lender. Hard to distinguish b/w a good and bad entrepreneur. – Venture capitalists invest so they can have excellent returns on the loan they lend to the entrepreneur. Involvement in business – most investors are quite involved due to the want for large returns. How Venture Capitalists Reduce Their Risk – Stage funding: not giving the full loan at once – giving it in stages – the venture capitalist will analyze the entrepreneur's success so they minimize their loss – Requiring entrepreneurs to make personal investments: if the entrepreneur is willing to put up some of their finances, this is a good sign that the company may have good returns. – Syndicating investments – diversification allows getting involved in the business while getting involved in other ventures, gives confirmation that other venture capitalists are in agreement with you, so this must mean it is a reasonable investment The Exit Strategy – Point where venture capitalist wants to leave: terms about this stated in the initial document (contract). – Ways: 1. Selling to private market eg. Large c
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