Entrepreneur, Entrepreneurial Firm

Question 1

What is Entrepreneur?

Answer 1

An individual or individuals with a vision for growth
……Innovative
…..Risk-Taking
…..able to change

Only 4-8% of start-ups are entrepreneurial
They provide 50-75% of new jobs

Question 2

What makes a successful Entrepreneur?

Answer 2

Sahlmon:

Good Ideas are a dime a dozen…..good execution and good management…in a word good people are rare
Most businesses fail

Question 3

What is different about entrepreneurial firms

Answer 3

Traditional firms
Liquid shares
Passive investors
Competitive capital market
Separation  of Investment from finance
Little private information
Project Valuation straightforward
Assets marketable
Investors diversified

Entrepreneurial Firms
Illiquid
Active investors
Restricted access to funds
Complex interaction between investment and financing
Widespread private information
Cash flows uncertain
Assets specialised
Investors not equally diversified

Question 4

Who funds new businesses?

Sources of funding for Entrepreneurial firms?

Answer 4

Venture Capital Funds
Limited partnerships in which the managing partners invest on behalf of the other investors

Angel Investors
High Net Worth Individuals who invest in a small set of companies

Corporate Investors
Investments often made for strategic reasons

Question 5

Why might traditional forms of finance not work for Entrepreneurial Firms?

Answer 5

1. Not an established company
2. Funding an idea a product or a strategy
3. Success is critically dependent on the calibre of management
4. Typically bio-technology healthcare or IT companies

Features of Investment

1. High Risk
2. High potential for agency costs-moral hazard
3. Acute Information asymmetries- hidden information