Management and Organizational Studies 1023A/B Chapter Notes - Chapter 2: Venture Capital, Initial Public Offering, Leveraged Buyout

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MOS 1023A/B Full Course Notes
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MOS 1023A/B Full Course Notes
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Why venture capital funding is different three reasons why traditional sources of funding do not work for new or emerging businesses: The high degree of risk involved- most new businesses fail, and it is difficult to identify which firms will be successful, most suppliers of capital are averse to undertaking high-risk investments. Types of productive assets- new firms who primary assets are often intangibles, such as patents or trade secrets, find it difficult to secure financing from traditional lending sources. Informational asymmetry problems- information asymmetry arises when one party to a transaction has knowledge that the other party does not, an entrepreneur knows more about his or her company"s prospects than a lender does. Most investors do not have the expertise to distinguish between competent and incompetent entrepreneurs for these reasons, many investors find it difficult to participate directly in the venture capital market.

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