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Raising finance

Yu have brilliant but unusual business idea. Yu could put all you life savings into it, and ask friends and family to invest in it as well. But this not b enough. r your friends , perhaps wisely, refuse to lend you . You go to your local bank, but they don't understand your idea and suggest you look elsewhere.

You go to venture capitalist like the one in the main Couse Book unit. Venture capitalists r used to looking at new ideas, especially in hi-tech industries, and they see the potential in your brilliant idea. The venture capitalist also recommends it to some business angels, private investors looking for new start-ups to invest in. They provide you with seed capital to set up your business.

You launch your business, and it's great success. But the amount of it generates from sales is not enough to invest in it further: it's not self-financing, so you decide to raise capital in n initial public offering r IPO: your company is floated and you issue shares stock market for the first time, perhaps market r section of n that specializes in shares in hi-tech companies.

You wait anxiously for the day of the issue r float. Interest from investors is high, and all the shares sold. Over the next few weeks, there is stream of favourable news from your company about its sales, new products and the brilliant new people it has managed to recruit. The shares increase steadily in value.

Now look at this process from the point of view of investors. The venture capitalists and business angels, for example, know most new businesses will fail, but that few will do reasonably well and one or two will, with luck, hit the jackpot. paying back all the they lost n unprofitable projects and much more. This exemplifies the classic trade-off between risk and return, the idea that the riskier n investment is, the more profit you require from it.

In your IPO, there b investors who think that your company might b future IBM r Microsoft, and they want to get in the ground floor, hold n to the shares as they increase inexorably in value. They make large capital gains that n b realized when they sell the shares. r they anticipate selling quickly and making quick profit.

Other investors prefer to avoid the unpredictable world of tech stocks altogether and go for steady but unspectacular returns from established, well-known companies. These r the blue chips that form the basis of conservative investment portfolios. n day in few years' time. when your company is mature and growing at five r ten r cent yr, rather than doubling in size every six months, your brilliant business idea have b blue-hi company itself.

Governments increasingly depend n investment from the private sector in public projects. These public-private partnerships financed b combination of commercial investment and public from taxation and government borrowing.

Read on

Michael rett: How to Read the Fiacial Pages. Century Business paperback. 5th edition. 2000

Graham Bannock. WilIiam Manser: Iteratioal Dictioary of Fiace. Economist Books/Hutchinson, 1999

Masterig Fiace. FT Pitman, 1997

Pocket Fiace, Economist Books/Hamish Hamilton, 1994

Date: 2015-01-02; view: 3360

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