Answer to Question #293350 in Finance for Robert

Question

1)Define venture capital

2)Outline three common characteristics Successful investments

3)Describe the Attributes of venture capital

4)Discuss the Role of Venture Capital in Economic Development

5)Explain the Reasons for Significant Growth in Venture Capital in the Developed Countries

6)Explain the Constraints of Venture Capital in Kenya 20MARKS

Answer 1

1)Define venture capital

Venture capital (VC) is a type of private equity and financing provided by investors to startups and small enterprises with the potential for long-term growth.

2)Outline three common characteristics Successful investments

Long-Term Viability

Diversified

Generating income

Liquidity and ability to leave at will

Assets' appreciation and price increase over time

3)Describe the Attributes of venture capital

-Long-term investment horizon: Between the first investment and the eventual pay-out, venture capital investments have a structural time lag. Liquidity risk is increased by the structural time lag. As a result, VC investments tend to pay out extremely high returns in order to compensate for the higher-than-average liquidity risk.

-There is a significant difference between private and public value (market valuation): VC investments, unlike traditional investment instruments that are traded on a regulated exchange, are held by private funds. As a result, any individual investor in the market has no method of determining the investment's value.

-Venture capital investments are often long-term and, in comparison to market-traded financial vehicles, are somewhat illiquid. VC investments, unlike publicly listed investment instruments, do not have the option of a short-term payout. The success of an initial public offering (IPO) determines the long-term returns on venture capital investments.

4)Discuss the Role of Venture Capital in Economic Development

-Financing the creation of new goods, new technologies, and processes by businesses that are intended to have a direct and positive impact on the economy.

-Improving absorptive capacity; increasing knowledge, abilities, and business acumen learned via the process of developing various solutions and enterprises.

-Generating jobs through the many employment options available to empowered entrepreneurs

-Generating wealth based on market performance and sales growth, profitability, survival, and return on investment.

5)Explain the Reasons for Significant Growth in Venture Capital in the Developed Countries

I Public perception, i.e., the general public's favorable attitude toward entrepreneurship, including success and failure.

ii) A dynamic financial system, such as a competitive banking system and an efficient stock exchange.

iii) An increase in the number of management buyouts (MBOs), resulting in a demand for equity financing.

6)Explain the Constraints of Venture Capital in Kenya 20MARKS

1. less wealthy investors in kenya, thus less equity capital
2. inadequate security markets; inefficient NSE means investors cannot sell the shares, hence shy from investing.
3. Poor infrastructure which hinders growth rate of SMEs requiring raw materials and unlimited accessibility to the competitive market
4. Lack of need skills and expertise for management of venture, capital leading to less progress.
5. Lack of political will and support from the governement accompanied by increasing corruptions and embezzlement of funds limits investing.