Generally, the higher the risk involved in investing, the more investors tilt their preferences toward preferred equity
Question:
Generally, the higher the risk involved in investing, the more investors tilt their preferences toward preferred equity and the higher is the cost of common/ordinary shares compared to preference shares. Out of the following taxonomy of risks, which specific risks do you think tilt Venture Capital investors toward almost never investing in common shares when they invest in early-stage companies? Explain your answers. * Taxonomy of Risks and Uncertainty sources - Two perspectives: 1. ERM (Enterprise Risk Management) framework: regulatory and strategic enterprise functions one way to view risk 2. Financial markets / capital funders perspective have a different view of risk and expected returns * We can consider ERM and strategic view of risk and then use these to inform our financial analysis * Organization level risks ('micro' risks or idiosyncratic) * Hazard Risks * Financial Risks * Operational Risks * Strategic Risks * Investment Intermediaries Risks
| Generally, the higher the risk involved in investing, the more investors tilt their preferences toward preferred equity and the higher is the cost of common/ordinary shares compared to preference shares. |
Expert Answer:
Venture Capital VC investors typically prefer preferred equity over common shares when investing in earlystage companies due to several specific risks ... View the full answer
