15.1 Unless the firm can secure second-stage financing, it is unlikely to succeed. If the entrepre- neur
Question:
15.1 Unless the firm can secure second-stage financing, it is unlikely to succeed. If the entrepre- neur is going to reap any reward on his own investment, he needs to put in enough effort to get further financing. By accepting only part of the necessary venture capital, management increases its own risk and reduces that of the venture capitalist. This decision would be costly and foolish if management lacked confidence that the project would be successful enough to get past the first stage. A credible signal by management is one that only managers who are truly confident can afford to provide. However, words are cheap and there is little to be lost by saying that you are confident (although if you are proved wrong, you may find it difficult to raise money a second time).
Step by Step Answer:
Fundamentals Of Corporate Finance
ISBN: 9780073382302
6th Edition
Authors: Richard A Brealey, Stewart C Myers, Alan J Marcus