Question

how venture capitalists reduce their risk when investing in startup businesses. Justify your answer citing appropriate examples from Saudi Firms.

Answer 1

A startup fails because of unsound strategy or unable to implement the sound strategy.According to harvard's report on scale 60- 70 percent of the startsup fail or their business idea are not capable to grab the market.They fail because they are unable to identify good timing between proportion of value of business and perception of need Of market.

Thereby role becomes more important of a venture capitalist as they become the part of board of the startsup.Thereby influenening decsion to be taken for the benfit of startsup.

The vc influenece the startsup decision portfolio of whether the Risk exposure is within their risk appetite.
To reduce and identify Risk..VC follows following procedure

1) Risk identification processs : whereby the risk of competitor,technology change,change in needs of the customers are identified.

2) Analyze Risk on basis of stakeholder needs:
We identify risk on the basis of stakeholder information of worst secanaio of risk. What is the day to day risk which can be handled or with give the company a tough time if such risk is unhandled

3) Divide key Risk factors and no key factors
After analyzing divide Risk into key factor risk and non key factor risk.

To Qunatify Risk following action may be taken.

1) once risk are identified detailed analysis is done to migitate risk by hiring the expert management risk or creating a team of such within the organisation.
2) The risk management team collaborate with the stakeholders to formulate action plan to be taken against such key and no key risk.

For example

Decision in saudi by venture capital by decision making trail and evaluation laboratory and the methodology consisting of identifying and reviweing the sustainable venture cpital.