Fostering Innovation and Entrepreneurship: Shark Tank Shouldn\u27t be the Model

For the past half century, innovation has driven the economic growth that has made the American economy the envy of the world. For most of this period, venture capitalists provided not only the capital that new innovative companies needed, but also the management expertise

Friends or foes? The interrelationship between angel and venture capital markets

This paper develops a theory of how angel and venture capital markets interact. Entrepreneurs first receive angel then venture capital funding. The two investor types are ‘friends’ in that they rely upon each other׳s investments. However, they are also ‘foes,’ because at the later stage the venture capitalists no longer need the angels. Using a costly search model we derive the equilibrium deal flows across the two markets, endogenously deriving market sizes, competitive structures, valuation levels, and exit rates. We also examine the role of legal protection for angel investments

Start-Up Valuation : Bumble Inc. case study

This paper has been based on which methods should be used in order to value a Start-Up. The structure of the paper has been divided into four parts. In the first part, we have mainly defined what a start-up is. It has been clarified which are the main characteristics that distinguish a start-up from a more mature company, such as the lack of history, its profitability, its dependence on private capital, the risk it presents, the number of different investors and rounds needed to raise funding and finally the illiquid nature of an investment in a start-up. We then proceeded to define what a VC is and how it works. The different types of financing rounds in which start-ups participate in order to obtain financing were studied. Finally, some technological trends that will mark the industry in the future were defined. The second part of the work focused on studying the main types of company valuations that exist. A distinction has been made between two different types depending on their suitability when valuing a start-up, since, as has been said, these have different characteristics to more mature companies, so that the methods normally used may not be useful. On the one hand, traditional valuation methods have been studied, including DCF, LB O, Public Comparables and Precedent Transaction. On the other hand, valuation methods for start-ups have been studied, including the Venture Capital Method, the Real Options Method, the First Chicago Method, the Berkus Approach and several others. Next, the impact of different subjective factors on the valuation of start-ups was discussed. Finally, the points of the shareholders agreement that could affect the valuation of a company have been mentioned. In the third part of the paper, a case study of the company Bumble Inc, a company that owns online dating platforms, has been carried out. The company has been studied in depth, as well as the market in which it operates. Then, the different valuation methods mentioned in the second part of the paper were calculated and compared in a joint analysis. Finally, in the fourth part of the paper, a series of conclusions have been drawn about start-up valuations and how they are influenced by interest rate change

Law, Innovation and Finance: A Review

A number of recent national and EU initiatives have sought explicitly to encourage innovative firms and venture capital finance. In keeping with the policy debate, this paper focuses explicitly on the role of law and lawyers in facilitating venture capital: that is, both supply by investors, and demand by entrepreneurs. It reviews existing literature in a way that seeks to clarify the links between law and legal institutions and the facilitation of venture capital finance, identifies open research questions and suggests a number of hypotheses. As such, it forms the first part of a wider study which will seek to test these hypothesesVenture Capital, Law and Finance, Company Law, Innovation

Synergies, cooperation and syndication in venture capital game, portfolio optimization with genetic algorithms and asset auctions: essays in finance

This thesis looks at all scientific phenomenon of financial decision-making from both the empirical and theoretical side, with empirical trying to strengthen theoretical assumptions or even to expand it. In chapter 2, we propose a two-stage financing model with three players that consider the output elasticities of all parties using the Cobb-Douglas utility function. Theoretical findings in chapter 2 suggest that a higher complementary coefficient between players on both stages can lead to a higher level of effort from all three players, taking game dynamics away from the moral hazard problem and causing higher exit stage payoffs. Previous track record of the angel and VC and output elasticity of the entrepreneur, combined with the company’s shares offered the angel and VC, impact the three-player game dynamic, causing some players to reduce their efforts after specific funding rounds. Our empirical results show that VC syndication increases the average amount of funding offered to entrepreneurs as well as that syndicated ventures have a higher number of funding rounds, resulting in a higher number of possible entry-points provided by those start-ups. Our results in chapter 4 suggested that a two-point GA that minimized the risk for a given level of expected return slightly outperformed the results of the SPEA2. Compared with the previous industry standard for risk measure—Value-at-Risk, we show that both frontiers differed, especially at the low return side. The converted Value-at-Risk solutions were not evenly distributed along the efficient frontier and even inadequate for some ES values. In chapter 5, we use the game theory approach to examine the first-price package auction design for illiquid asset auctions. Our theoretical work suggests that every case that can be presented as a two or three asset game, as well as longer games that can be presented as two and three asset subgames, has a strong equilibrium if the bidders’ budgets and utilities for every asset are common knowledge

A Real Option Dynamic Decision (rodd) Framework For Operational Innovations

Changing the business operations and adopting new operational innovations, have become key features for a business solution approach. However, there are challenges for developing innovative operations due to a lack of the proper decision analysis tools, lack of understanding the impacts transition will have on operational models, and the time limits of the innovation life cycle. The cases of business failure in operational innovation (i.e. Eastman Kodak Company and Borders Group Inc.,) support the need for an investment decision framework. This research aims to develop a Real Option Dynamic Decision (RODD) framework for decision making, to support decision makers for operational innovation investments. This development will help the business/organization to recognize the need for change in operations, and quickly respond to market threats and customer needs. The RODD framework is developed by integrating a strategic investment method (Real Options Analysis), management transition evaluation (Matrix of Change), competitiveness evaluation (Lotka-Volterra), and dynamic behavior modeling (System Dynamics Modeling) to analyze the feasibility of the transformation, and to assess return on investment of new operation schemes. Two case studies are used: United Parcel Service of America, Inc., and Firefighting Operations to validate the RODD framework. The results show that the benefits of this decisionmaking framework are (1) to provide increased flexibility, improved predictions, and more information to decision makers; (2) to assess the value alternative option with regards to uncertainty and competitiveness; (3) to reduce complexity; and (4) to gain a new understanding of operational innovations

VENTURE CAPITAL INVESTMENT CRITERIA IN GAME SOFTWARE COMPANIES : Initial investments in the Finnish game industry

This thesis explores venture capital (VC) investment criteria on a specific industry, the game industry. The game industry is a new, lucrative and fast-paced industry characterised by volatility, unpredictability and a hit-driven nature. The theoretical purpose is to summarise the findings of previous literature on VC investment criteria and discuss it in the context of the game industry. The empirical purpose is to study what criteria Finnish VCs use when deciding whether to invest or not into a game company. To aid in providing an appropriate framework, the thesis includes a section introducing venture capital activities in general and in Finland, and the game industry, its dynamics and the Finnish game industry. The methodological approach of the thesis is empirical and descriptive. The thesis falls into the tradition of ‘managerial-oriented venture capital research’, which approaches VC activities from the micro-perspective in contrast to ‘market-oriented venture capital research’, which has a macro-perspective. The study is qualitative and the data is received via semi-structured interviews. In total six persons are interviewed: five from venture capitalists and one from the Finnish Game Industry Association. The primary result from the interviews is that an experienced team is the most important single investment criterium, accompanied with product and/or business model continuity, market characteristics such as market size, platform or segment, product characteristics such as genre, novelty, appeal, market interest and having a playable demo ready, substantial profit potential and VC portfolio suitability. The team needs to be experienced in both content and technical skills, have game business understanding, have marketing skills, be balanced, have passion and have the ability to execute. Moreover, the importance of the continuity of the product or business model was a new finding that seems to be important to VCs operating in the game industry. Market characteristics seem to play a role in some VC’s decision making, but are not universally critical to all VCs. Similarly, product characteristics divide the interviewees. Portfolio suitability and substantial profit potential did not stand out. In conclusion, the key findings of this thesis can be summarised in that the game industry does not fundamentally differ from general VC investment criteria, but certain criteria are emphasised. General VC investment criteria - the competitiveness of entrepreneur and the team, the lucrativeness of the market, the suitability of the product or service and profitable financial considerations - are all relevant, but the team is clearly even more emphasised when investing into the game industry. Future research is suggested in VC investment criteria in different industries and game industry related financial topics

Securities Law\u27s Dirty Little Secret

Securities law’s dirty little secret is that rich investors have access to special kinds of investments—hedge funds, private equity, private companies—that everyone else does not. This disparity stems from the fact that, from its inception, federal securities law has jealously guarded the manner in which firms can sell shares to the general public. Perhaps paternalistically, the law assumes that the average investor needs the protection of the full panoply of securities regulation and thus should be limited to buying public securities. In contrast, accredited—i.e., wealthy— investors, who it is presumed can fend for themselves, have the luxury of choosing between the public and private markets. This Article uses the emergence of new secondary markets in the shares of private companies to illustrate the above disparity, which has long characterized the world of investment access. First, focusing narrowly on these markets reveals their troubling potential effects on the venture capital world, a vital source of startup funding. More broadly, these new secondary markets bring to light the stark contrasts in investing power and access that have always been securities law’s dirty little secret: by making it easier for accredited investors to wield their special privilege, the new markets just make the disparity of investment access more obvious. For example, after Facebook’s initial public offering, it was widely reported that accredited investors had been buying shares of the high-profile company in the three years before it rather disastrously went public—at which point the big money had already been made. Thus, the increased transparency that the secondary markets bring to the world of private investment makes our overall securities law newly vulnerable to a fundamental critique: government intervention has created an investing climate that lets the rich get richer, while the poor get left behind. The Article acknowledges elements keeping the current system in place, explaining the current inequality of investor access by way of public choice theory: regulators and companies alike favor the status quo. Viewed from the perspective of the little guy, however, inequality in investment access may prove less defensible and ultimately less tenable. I suggest a modest fix: letting the general public participate in the private market via mutual fund investment, something it currently cannot do

Valuation of a Startup: Zoom Case Study

This paper provides an overview of the main attributes that define a startup, laying out its stages of development and sources of financing, which are mainly through equity, allowing stakeholders to own part of the business. Also, this paper provides a view on the high-risk nature of a startup, which tends to have operational losses at early stages of development and consequently, high risk of failure. Besides, this research shows that, even though startups operate in any industry, tech and finance are the most successful sectors in the recent years in terms of number of unicorns. The current environment of rising interest rates also affects valuations due to the increase in the risk-free rate, and consequently, the company's cost of capital, which cause valuations to fall. Also, high interest rates increase the interest expense, and thus, companies can spend less money on capital investments, which may affect future earnings growth. The exhaustive company and market analysis of Zoom as of October 2020 shows that Zoom is the clear market leader in the videoconferencing industry, accounting for around 48% of the Daily Active Users in October 2020. This is thanks to the expansion driven by the pandemic lockdowns, which forced people to perform their work-related activities from home. However, competitors in the videoconferencing industry might be able to increase their market share in relation to Zoom since the big incumbent players (e.g., Google Meet, Microsoft Teams etc.) are part of larger corporations which are better capitalized and more skill full when facing a potential future slowdown of the videoconferencing paradigm. The case study of this paper focuses on valuing Zoom on October 2020 using several valuation methodologies. The outcome of the case study provides a share value of between $344.5 and$440.6, which is aligned with the estimations made by several investment banks in that period of time. However, several elements in the case study such as a very high EV/Revenue multiple, indicated that Zoom was overvalued at that time due to the expansion driven by the pandemic lockdowns

A Policy Theory Evaluation of the Dutch SME and Entrepreneurship Policy Program between 1982 and 2003

The present paper reconstructs and analyses the assumptions – i.e. the policy theory – underlying the development of the SME and Entrepreneurship Policy Program in general and the Establishment Act and the Loan Guarantee (BBMKB) in particular between 1982-2003. The analysis links these assumptions to policy output results and policy effects. We find that the foundation of the policy theories of the Establishment Act and the Loan Guarantee requires improvement with respect to implicit assumptions and lacking warrants. We also find that the implied policy effects cohere with formal policy objectives.