Question

Suppose you need $1 million dollars to start your Dream Business. Describe two (2) ways you would generate the funds needed to start such a business. Next, discuss any risks or benefits you should be aware of when gathering these funds. Provide examples to support your response.

Answer 1

If I need $1 million dollars to start my dream business, I would like to generate fund thrugh following two ways:-

A.Venture Capital- It is a type of private equity funding for a new business.In type type of capital financing, venture capitalist provide with the funding in exchange with the equity portion of the firm.

Benefits of the venture capital

1.While generating capital through venture capital method, Personal assets are not required to be kept as security

2.Venture capital helps in raising large amount of capital

3.No repayments are needed at periodic intervals.

Risks associated with venture capital

1.There is a dilution of equity on the part of the founder and control over business is shared.

2. Overall cost of financing through ventural capital is very high

3.Less scope for negotiation on the part of founder

B.Angel investor:- Angel investors are accredited persons having net worth more than $1 million or annual income of more than $200000.One has to convince them to invest in their business with good and innovative ideas so they feel that their capital invested is going to compound over investment period.

Benefits of fund raised through Angel investors

1.It is less risky than loan financing.

2. Angel investors are generraly investing for medium to longer periods .

3.Angel investors can bring vast knowledge and experience with themselves as they have experfince of investing into business of similar nature.

Risks of funding raised through Angel investors

1.It dissolves control of the owner as venture capitalist does.They exchange money with equity and control in the business.

2. It is quite rare to find and convince an angel investor to invest in the business.

3.There is lack of transparency with their existence as they are not listed over any stock exchanges.