Question

1. In contrast to venture capital, commercial banks are notoriously conservative in lending to new business firms. What makes venture capitalists more eager to finance risky projects?

2. Suppose you are very favorably considering a venture that has the following risk-return profile.

Probability Return

1/3 -10

1/3 0

1/3 +13

Since the expected return = 1.0, you give it a thumbs up.

But the venture capitalist who will fund the venture requires that he receive 25% of any positive profit. How would that change your verdict??

Short answers please, original work only. Thank you.