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F Co. is a large private company, the founder holds 60% of the company's share capital and her 2 children each hold 20% of the share capital.
The company requires a large amount of long-term finance to pursue expansion opportunities, the finance is required within the next 3 months. The family has agreed that an Initial Public Offering (IPO) should not be pursued at this time, because it would take up to 12 months to arrange.
The existing shareholders are currently considering raising the required finance from an established Venture Capitalist in the form of debt and equity. The Venture Capitalist has agreed to provide the required finance provided it can earn a return on investment of 25% per year. In addition, the Venture Capitalist requires 60% of the equity capital, a directorship in the company and a veto on all expenditure of a capital or revenue nature above a specified limit.
From the perspective of the family, which of the following are advantages of raising the required finance from the Venture Capitalist?
Select all that apply.
Suggested Answer: A, C
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32 comments · newest first
MA
Malinda
11 months ago
The veto power could be a double-edged sword.
MA
Marvel
11 months ago
Speed is key! They need that cash fast.
BA
Barrie
11 months ago
Wait, a 25% return? Sounds too good to be true.
MA
Maurine
12 months ago
Totally agree, but they bring valuable experience too.
LA
Latonia
12 months ago
The VC wants 60% equity? That's a huge chunk!
AM
Ammie
1 year ago
The cost of finance might not be favorable since the VC wants a 25% return, but I think the family might see the speed of funding as a major plus.
BU
Bulah
1 year ago
I feel uncertain about the veto on expenditure; it seems like it could limit the family's control, but maybe it also ensures better financial decisions?
GW
Gwenn
1 year ago
I remember discussing how the experience of the Venture Capitalist can really help a growing business, so that might be a key advantage too.
AL
Altha
1 year ago
I'm not entirely sure, but I think the speed of obtaining finance could be a big advantage since they need it within 3 months.
MA
Marica
1 year ago
This is a good opportunity to showcase my understanding of venture capital financing. I'll methodically go through each option and explain why it is or isn't an advantage from the family's perspective.
WI
Willis
1 year ago
I'm a bit confused by all the financial details here. I'll need to re-read the question carefully and make sure I understand the implications of the Venture Capitalist's terms before answering.
MA
Mary
1 year ago
Hmm, this is a tricky one. I'll need to weigh the pros and cons of the Venture Capitalist's terms and how they impact the family's control and ownership of the business. I'll have to think this through step-by-step.
JU
Jules
1 year ago
This seems like a pretty straightforward question. I'll need to carefully analyze the details of the Venture Capitalist's offer and the family's current situation to identify the key advantages.
RA
Raylene
1 year ago
Okay, I think I've got a good handle on this. The key advantages seem to be the speed of obtaining the financing, the Venture Capitalist's experience, and the changes to the shareholding structure. I'll make sure to select those options.
KA
Karan
2 years ago
The Venture Capitalist is really squeezing them, isn't it? Veto power and 60% equity? That's highway robbery! Unless they're planning to pull off some *ahem* creative accounting, I'd steer clear of this deal.
MI
Mike
2 years ago
They should definitely consider all their options before committing to this deal.
AU
Audry
2 years ago
I agree, it seems like a risky move for the family.
SU
Susana
2 years ago
Yeah, that's a lot of control to give up to the Venture Capitalist.
AR
Arlene
2 years ago
Woah, 25% per year? That's a steep price. Though I guess it beats waiting 12 months for an IPO. And the Venture Capitalist's experience could be a real boon. Tough call, but I'd go for it if I were them. *whistles*
NO
Noemi
2 years ago
Hmm, the Venture Capitalist seems to be driving a hard bargain. Veto power on expenditures? That's a bit much. But I guess you have to give to get in these situations. *shrugs*
SE
Serina
2 years ago
Yeah, sometimes you have to weigh the pros and cons. It's a tough decision to make.
MI
Michael
2 years ago
I agree, the speed of getting the finance could be crucial for the company's expansion plans.
LE
Lenny
2 years ago
True, it does seem like a lot to give up. But maybe the experience they bring could be worth it.
HO
Honey
2 years ago
I see your points, but I believe option C is crucial to consider as well. We need to be cautious with expenditure.
LI
Lilli
2 years ago
I agree with Jeannetta, speed is important. But I also think option E is valuable for us.
SO
Sophia
2 years ago
I'm not sure about giving up 60% of the equity to the Venture Capitalist. That's a big chunk of the company. But the speed and expertise could be valuable, so it's a tough call.
JE
Jeannetta
2 years ago
I think option D is an advantage because we need the finance quickly.
WI
Willis
2 years ago
Well, the cost of the finance is a bit high at 25% per year, but the speed and experience of the Venture Capitalist could be worth it. The changes in shareholding and the veto power are concerning though.
MA
Margret
2 years ago
B) The changes in shareholding as a result of the Venture Capital investment.
RO
Rodney
2 years ago
E) The experience of the Venture Capitalist with growing businesses.
HO
Hortencia
2 years ago
D) The speed with which the finance can be obtained.
GE
Georgene
2 years ago
A) The cost of the finance under the Venture Capital investment.