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THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.71, # 2, 2014, pp. 81-93
larger quantities of capital, access to the experience, network and resources of the VC, and
flexibility with respect to cash outlays as payments are distributed from business profits (Brewer
III & Genay, 1996). Because of the additional risks to the VC, they will typically require a
larger rate of return, as compared to interest charged by banks, and they retain ownership rights.
Obtaining VC requires greater resources up front with regard to time and legal expenses (Mullen,
2012). Other disadvantages include high levels of scrutiny, as well as additional administrative
and accounting costs associated with higher levels of regulation (Mullen, 2012). Those that are
able to secure VC will benefit from a much greater upside potential (Brewer III & Genay, 1996).
Ventures which are built upon research and development and require flexibility to shift funds
between projects are much more likely to attract and obtain non-debt financing.
Conclusion
Whether capital is obtained through self-financing, business operations, banks, or venture
capitalists, obtaining and managing capital for a new business is as critical as running the business.
The plan for capital management must be well thought out with built in flexibility and alternatives
identified in advance to account for unforeseen circumstances. Entrepreneurs that manage capital
wisely will have a much greater chance of turning their ideas into reality and achieving their dream.
References
[1] Brewer III, E., & Genay, H. (1996). How are small firms financed? Evidence from small
business investment companies. Economic Perspectives, 20(6), 2.
[2] Cornwall, J. (2008). The Entrepreneurial Mind. Retrieved from
http://www.drjeffcornwall.com/2008/08/07/pros_and_cons_of_selffinancing/
[3] Dolan, K. (2013). Billionaire venture capitalist Michael Moritz gives $30 million for UC San
Francisco basic science PhDs. Retrieved from
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