What are the advantages and disadvantages of venture capital financing? What are the benefits of an IPO as a source of financing? Would you consider investing in Fago de Chao? Why or why not?
Primary Response To Instructor
There are several advantages and disadvantages when it comes to venture capital financing.
Advantages
- Faster Growth – Venture Capital can provide support when it comes to taxes, legal help, and even personal matters. This can help with growth for a company. Many issues however tend to come from money related problems.
- Connections – People who go in to venture capital tend to have connections or have experience themselves. Having these connections are always great for new businesses.
- Capital Return – Of course for most investors or VC, one of the main advantages is the act of investing and gaining money in return.
Disadvantages
- Risk – There is still some risk to this as a business still might fail or lose value in it’s stocks. It is possible that whatever money is invested might not come back to the investor. This can happen when a business fails. Even when stocks grow, it can still fall heavily. In a way it is a different type of gambling
- Ownership – Since investors are the one putting in money, they tend to gain or become the new owner or have part ownership. They can demand and try to dictate things such as how to run the company or be board of director. Losing control can be problematic.
- Expensive – The amount of money invested can be costly, what’s more is that any services, legal advice, fees, etc. will add up to a bigger amount that needs to be paid.
