Answer to Question #132060 in Economics of Enterprise for Aditi

Question

Derive the smallest value of A that includes outside investors to provide capital of $(150000-1A) to Maddox. Hint: you need to assume that Maddox will take the minimum stake as calculated In c.

Answer 1

Outside sources of equity financing include:

1. Angel investors provide financial backing for small businesses. Typically, the amount invested is less than $500,000, the terms are favorable, and the investor does not get involved in the management of the business.
2. Venture capitalists are professional investors who provide funding to select businesses. They are very choosy about investing only in businesses that are well managed and have a strong competitive advantage in their particular industry.
3. Crowdfunding involves using large groups of angel investors to contribute funding to smaller businesses in amounts as small as $1,000.