Question

In: Finance

As an entrepreneur seeking funds to capitalize your venture, you will be faced with investor proposals...

As an entrepreneur seeking funds to capitalize your venture, you will be faced with investor proposals regarding their preference for a funding option. After a review of Chapter 15 and preceding chapters, consider the following funding options: loan, common stock, and convertible debenture. Which do you think would be a better financial choice for a venture capitalist and why?

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Expert Solution

Venture capitalist invests in a business based on the potential of growth of a business. The business are generally startups with no surety of revenues. In such cases, the venture capitalists hope to gain profits by way of the increase in share prices. In this scenario taking a loan or issuing debentures will not be beneficial because the business does not yet have fixed revenues. The issue of debt will create an interest burden on the business which increases the risk.

Equity capital on the other hand has no liability of payments. Dividend is paid as and when required by the management. This is a safe form of raising capital and does not burden the business. So this is a better financial option.

jeff jeffy answered 2 years ago
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