Entrepreneurial Finance and the Role of the Entrepreneurs - Essay Example

PART I: “CRITICALLY REVIEW AND DISCUSS MAJOR ISSUES RELATED TO ‘ENTREPRENEURIAL FINANCE’” In this research, the analysis has been based to review the growth prospects within the business environment. The discussion will include the relatedness with Entrepreneurial Finance which is the study of using the available resources and finance in the business setup. Determining the scope of the business and allocating the resources so that the efficient utilization of the resources can take place. The development scope of the business requires that the work related to the field is done effectively so that the business functions and operational significance can be highlighted. The contributions of different authors in the development of the field and analyzing the scope and progress of the business setup can be respectively discussed. The development of the field and highlighting the issues which associate with the field shows the business development. This aids to the progress of the business operations which paves the path using which the organizational progress is determined. Financial utilization of the firms especially in the initial business phase is extremely crucial. These factors of the organization are linked to the development and utilization of the resources efficiently for the progress and development of the businesses. INTRODUCTION The study process by the individuals using which they learn about investing the available resources, manage the risk, liquidity and information which is delivered to individuals is known as entrepreneurial finance (Robb, 2002). The business men, financiers and the investors require that the action plan taken for managing the resources is done with care so that the progress and advancement of organizations can be secured. The financial decisions which are taken within the organization aim at determining the future scope and growth prospects of the business (Kerr, Lerner, & Schoar, 2011). All these depend particularly on the actions and the choices which are taken by individuals for the progress of the business (Pare, Redis, & Sahut, 2009). This report will include the literature review about the topic Entrepreneurial Finance. In this report, the scope of the topic along with particular issues will also be discussed. In the determination of the topic, a critical analysis will be made using which the development of the topic will also be discussed. The narrow focus on the topic and thorough analysis of the risk factors on the basis of which the entrepreneurs manage the risk and determine the progress will also be discussed. Realizing new opportunities and becoming subject to change are the terms and processes through which the organizations pave the path of their success. The role of the entrepreneurs can be as an inventor, financier or manager within an organization setup. The determination of the investing capital which the investors need to put in the industry is determined solely from the corporate finance. Businesses require that the risk in the industry is curtailed so that the uncertainties of the businesses are managed and risk is minimized. ENTREPRENEURIAL FINANCE Different authors such as Brophy and Shulman (1992), Saint-Pierre and Mathieu (2003), Dennis (2004), and Pare, Redis, & Sahut, (2009) within the industry have attempted to analyze and summarize the topic of Entrepreneurial Finance. All have found that the art of managing and operating the business in the most minimum capital available and reaching the business efficiencies desired determines the scope of the business. Realizing the business activities and assessing the risk so that the future business scope can be secured determines the progress and determination through which the business is managed. The scope of the business and the significance of entrepreneurial finance will be determined through a narrow venture. In this venture, the scope and issues surrounding the topic will be discussed. The recent development and scope of the business will be analyzed using three different theories. These studies are of Brophy and Shulman (1992), Saint-Pierre and Mathieu (2003) and Dennis (2004). These studies show the recent development of the topic and the increasing scope of Entrepreneurial Finance. Brophy and Shulman, (1992) have suggested that venture for the capital is a field which connects the finance with the entrepreneurs. The relevant research includes determination of characteristics using which the selection criteria of the investor and the new business is done (Brophy and Shulman, 1992). The investment process requires the formation of structure and appraisal of ventures so that relevant negotiation can be done. Similar to the entry of the investors, the exit of the managers is also managed. Alliances, mergers and divestment of the business determine the exit for the investors (Brophy and Shulman, 1992). Saint-Pierre and Mathieu (2003) have published a synopsis of the model through which the venture capital can be generated. They proposed the role of the venture capital in the development, legal framework and the business sources. The study also included the managing of capital and risk associated. Comparison of the firms, survival methods and the new trends of the business were also discussed in the study (Saint-Pierre and Mathieu, 2003). Dennis (2004) has published in the Journal of Corporate Finance the study discussed the contribution of capital, corporate ventures, financing contracts and agency dilemmas associated with the development of financial policy within the fiscal policy. This study also proposed the risk associated to the investment in the new business ventures (Dennis, 2004). All these studies and several others relate to the development of the business and the scope using which the different authors have contributed in the development of the business scope. This helps in assessing the significance of finance within the industry and the factors which lead to the development of the business model. The future prospect of the study in the field of entrepreneurial research relies on analyzing the development and contributions which lead to the development of the entrepreneurial phenomenon. Entrepreneurial Finance is linked with the understanding the risk and the finance requirements which the new business requires (Adelman, & Marks, 2007). The few aims of the field is 1. FINANCING NEEDS OF THE NEW FIRMS A new business requires more intense development and nurturing for its development. Managing risk and getting exposed to innovation requires acquiring the personal and professional knowledge (Smith, Smith, & Bliss, 2011). Assessing the alternatives and the development potentials enable the growth prospects of the organization. 2. SOURCES OF ALTERNATIVE FINANCING Most of the Entrepreneurial Finance is related to the venture capital. Studies and researches related to the topic have been done as corporate ventures so that the improvement of the existing systems and knowledge sharing practices can be accomplished. Understanding the finance and risk of the business in the initial phase helps in developing an idea through which the corporate ventures are structured. 3. CONTRACT BETWEEN THE CREATORS AND FINANCIERS Many researchers have analyzed the scope of the business ventures and through the use of these the creators and financiers are distinguished. The information within the organization is used through an asymmetry with different parties and their interests along with their conflicts. Restrictive clauses and monitoring the flow of investment within the system will determine the scope and development of the business. 4. THE ROLE OF LEGAL AND INSTITUTIONAL ENVIRONMENT Valuing the institutional environment and viewing the legal system which lays the foundation of the organization establishes the optimism which leads to the development of the organization. Risk factors of the business along with strong growth also determine the pathway which the organization must adopt and realize the development prospects of the business. 5. INNOVATION FIRMS Innovation is the essence using which the firms can develop and progress within the organizational setup. Firms need to develop a specific scope in order to be successful (Baumol, 2007). The development of scope is important in leading the progress of the organization. Through this assessment of risk, contract and success can be appropriately utilized. Identification of the business scope will lead to the development and recognition of the relevant business scope which will determine the progress of the organization (Baumol, 2002). Availing the cost benefits and alternates using which the business can progress and financing of the entrepreneurial scope can be developed. The venture capitalist in the region develops the finance scope so that the availability of resources and corporate awareness can be assured. Understanding the following is essential for managing the business scope and operations. This is analyzing the scope of the business and using professionalization and certification for determining the scope of the business. All these are essential components through which the methods of investing the capital and analyzed and assessed. The angel investors and corporate level venture investing are the methods using which the investment ventures of the business and its operations are managed (Dennis, 2004). The entrepreneurial finance is associated with the usage of two basic issues. First of the system is the asymmetric issues which are associated between the entrepreneurs and investors. The quality and potential value of the technological innovations are related with the development of the business model. The innovations of the business must be safeguarded (Baumol, 2007). The second issue of the business is associated with the moral hazards which are associated with the progress and development of the business. The incentive contracts and designing are associated with optimizing the sensitivity so that the efforts vested can be utilized and all the business potential can be accomplished (Smith, Smith, & Bliss, 2011). The study of the venture capitalist is associated with the individuals linked to the development and progress of the new businesses. The securities of the business are utilized with entire uncertainty through which the scope and progress of the business can be accomplished. CONCLUSION Understanding the investment goals and utilizing the resources efficiently are essential for enhancing and improving the business. The purpose behind the topic is to analyze the effective usage of the business and its operations. Through the development of this business model, the managers assess the efficient utilization of their resources. All these determine the usage and develop the necessity behind the application of this model. Various researchers have studied the topic, and on the basis of those studies the appropriate business model is developed. The aims of managing the finance are associated with using the resources efficiently. The businesses need to make the investment decisions extremely cautiously. This is linked with the development and utilization of the business model. In the initial phase, the appropriate allocation determines the success of the business through which all the resources are efficiently utilized. References Adelman, P. J., & Marks, A. M. (2007). Entrepreneurial finance. Pearson Prentice Hall. Baumol, W. J. (2002). Entrepreneurship, innovation and growth: The David-Goliath symbiosis. Journal of Entrepreneurial Finance, JEF, vol. 7, no. 2, pp. 1-10. Baumol, W. J. (2007). Entrepreneurship and innovation: The (Micro) theory of price and profit. File: Entpricetheoryw-apr-4-2007. Brophy, D. J., & Shulman, J. M. (1992). A finance perspective on entrepreneurship research. Entrepreneurship Theory and Practice, vol. 16, no. 3, pp. 61-71. Denis, D. J. (2004). Entrepreneurial finance: an overview of the issues and evidence. Journal of Corporate Finance, vol. 10, no. 2, pp. 301-326. Kerr, W. R., Lerner, J., & Schoar, A. (2011). The consequences of entrepreneurial finance: Evidence from angel financings. Review of Financial Studies. Pare, J. L., Redis, J., & Sahut, J. M. (2009). The development of entrepreneurial finance research. International Journal of Business, vol. 14, no. 4, pp. 283. Robb, A. M. (2002). Small business financing: Differences between young and old firms. Journal of Entrepreneurial Finance, JEF, vol. 7, no. 2, pp. 45-65. Smith, J., Smith, R., & Bliss, R. (2011). Entrepreneurial Finance: Strategy, Valuation, and Deal Structure. Stanford University Press. St-Pierre, J., & Mathieu, C. (2003). Le Financement Par Capital De Ri Soue: Évolution Des Connaissances Des Dix Dernières Années Et Avenues De Recherche. Rapport de recherche. Read More