Question

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Question 1:

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

Answer 1

Answer:

Introduction:

A venture capitalist (VC) is a private equity investor that provides capital to companies exhibiting high growth potential in exchange for an equity stake. This could be funding startup ventures or supporting small companies that wish to expand but do not have access to equities markets

Venture capitalists make money in 2 ways: carried interest on their fund's return and a fee for managing a fund's capital. ... Investors invest in your company believing (hoping) that the liquidity event will be large enough to return a significant portion: all of or in excess of their original investment fund.

A typical VC firm manages about $207 million in venture capital per year for its investors. On average, a single fund contains $135 million. This capital is usually spread between 30-80 startups, though some funds are entirely invested into a single company, and others are spread between hundreds of startups.

Venture capitalists reduce the risk of their investments in the following ways: (1) stagefunding, which gives the investors a chance to periodically reassess the project, themanagement team, and the company's financial performance, and to makenecessary corrections throughout the duration of the project

Appropriate examples from Saudi Firms.

Investing in sustainable projects can help tackle the current sustainability challenges.

• Venture capital investments can contribute significantly to the growth of sustainable start-ups. Sustainable venture capital (SVC) research is just emerging.
• This paper identifies enablers for sustainable venture capital investments in Saudi Arabia taking into account different stakeholders and firm’s tangible and intangible resources.
• Using perspectives from venture capital experts in Saudi Arabia and the grey-based Decision-Making Trial and Evaluation Laboratory (DEMATEL) method, this study pinpoints the most critical enablers and investigates their causal and effect interconnections.
• The methodological process consists of reviewing the SVC literature and consulting the experts to identify the SVC enablers, creating a questionnaire, acquiring the answers from four experts, analyzing the data with grey-based DEMATEL and performing a sensitivity analysis.
• The government use of international standards, policies and regulations for sustainable investments, the commitment of the venture capitalists to sustainability and their deep understanding of sustainable business models are the most influential enablers.
• The paper concludes with implications for different actors, limitations and prospective directions for the sustainable venture capital research.