Management and Organizational Studies 1023A/B Lecture Notes - Lecture 7: Seed Money, Exit Strategy, Investment Company

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MOS 1023A/B Full Course Notes
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MOS 1023A/B Full Course Notes
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Companies need financing in order to start and follow a similar start-up process; most companies start off as an idea. The bootstrapping period is when entrepreneurs raise seed money; usually comes from the entrepreneur themselves needed to start the business; usually made to develop prototype of product. Next step is venture capital; have a prototype but not enough money to develop fully. Vcs are risk takers aka angel investors . Lend money to start-ups that cannot receive other funding. They deal with a high degree of risk. Most traditional financing institutions want low-risk, with collateral as insurance in assets, and information symmetry. Whereas start-ups usually have high-risk, with no assets as collateral (ideas), and information asymmetry. The venture capitalist usually wants convertible stock in exchange for investment. Venture capitalists provide more than financing: they are usually very involved in the industry and very knowledgeable. The big return happens early on in the game.

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