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In this chapter, you will learn about how to manage business finances. After you have read Chapter 17, please use the topic below as a starting point for class discussions, but please feel free to generate and initiate your own topics, including any questions or comment you may have for the concepts and content of this chapter.
At a minimum for every chapter, you need to submit at least one primary discussion posting(s) in response to the instructor’s topic or a new topic initiated by another student. You also need to submit at least one secondary posting(s) commenting on other students’ postings. Please note that initiating a new topic is classified as a primary posting. In the subject line of your posting, please indicate whether it is primary, i.e. initiating a new topic, responding to the instructor’s topic or to a new topic initiated by another student, or secondary, i.e. commenting on other student’s postings.
1. Please read the chapter-opening case “Fire On the Ground” on page 547 and answer the following questions: 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.
- 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.
- 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.
Going public or IPO means its stocks are open to the public. This is beneficial because it can lead to a large number of investors who think the business will do good. This can lead to several factors that help a business such as more capital and most of all publicity. This also means that the company has to listen and answer to the shareholders as they can sometimes have a say. This is why there are some instances were companies will own 51% of their stock and only sell 49% so that they can keep majority rule.
If we are talking about my current state, I most likely will not invest in Fogo de Chao. Currently they are around $15.75 per share. From my experience with stocks, that’s decent when it comes to pricing. For comparison there are companies like Google who are at $1,100 and smaller companies that can go all the way to $0.50, generally these would be called penny stocks. However, the pricing is sometimes not the issue. Fogo de Chao’s stock has jumped up 20% within a month, this is a great sign for investors and even a greater sign for the current shareholders. But for some people this could be a sign that one of two things will happen. First, it will keep growing, so this is a sign to buy shares now. Second, the shares jumped up so high that it will either stagnate or decrease. If the latter I would most likely wait for it to drop to its lowest point and then buy. The idea is to buy low and sell high. Again when it comes to the stock market, it can become a gamble. There are numerous other factors that take into account the pricing of a single share or stock. For cases like Fogo de Chao, I would have to research and follow them more to make a real decision, in this instance, I would not Invest.
Primary post- Response to Instructor’s prompt
The advantages of venture capital financing are might allow you to quickly create and expand the business, gaining market share and brand recognition before competitors can beat you to the market. Because venture capital is not a loan, it is looked at as equity in the company instead of debt carried by the company which means the company doesn’t have to repay the money. As the company grows, the founders share of the company increases in value. Of course the other advantage is having access to money, especially when you don’t have enough of your own to fund your startup.
The disadvantages of venture capital financing are risk, uncertainty and loss of total control over decisions made about the company’s direction.This can be difficult for entrepreneurs who have a particular vision of the growth of the company.Venture capital investors may also push for a quicker exit from the market than the original owner is willing to consider, either through acquisition by a larger company or through an initial public offering.
The benefits of an IPO as a source of financing include: raising capital quickly from investors,not having to rely on a bank for further financing and rewarding your efforts as a founder of your startup.
I would not consider investing in Fago de Chao primarily because I am vegetarian and do not eat meat. I want to invest in a company that I believe in and because I am investing my own money into the company. Because of my personal values,I do not feel comfortable investing in Fago de Chao even it is profitable because of my personal eating values.