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Funding

Entrepreneurship. The effect of governments on business operations and running is described elsewhere.

Funding stages

Prototyping

People with a good business idea may get ’seed money’ from an ’angel investor’ to make a prototype. The angel investors may well be governments or university funds.

Launch

Then, they pitch it to venture capitalists who provide two rounds of funding in return for a share in the company.

Expansion

A third round of funding, called the mezzannine funding, is then sought for a possible expansion phase, usually after the company is profitable.

Later, the companies often get money from the general public at large, through stock market, in return for a share in the company’s ownership, as necessary.

Downsides of VC

VC funding distorts priorities. As you are under pressure to show ROI to VC, & they will tell u what you can & can’t work on. If something only has potential after 10 yrs of R&D, usual VC’s r not interested. If your aim is to make money & exit, then VC may work for you. +++(5)+++

Borrowing

Long-term Borrowing

This is often done by issuing bonds at the stock exchange or taking regular loans.

Short-term borrowing

For day-to-day operations, businesses may need money, but they may not hold any reserve capital for that purpose - all of it may be invested in expansion.

So, depending on the day-to-day financial situation companies
borrow money from the ’commercial paper market’, where various entities (especially money market mutual funds) lend money over the short-term. Commercial paper is essentially notes acknowledging these short-term, usually safe loans.

Leverage

Sometimes entities are allowed to be liable for much more money than they are worth. This is especially true in dealing with stocks and bonds, where people can make especially risky maneuvers to get high returns: entities are allowed to buy stocks with the agents money, insurances involved in credit-swap make huge guarantees.