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Chapter 4. Inflating the Bubble: the Fin... > How the Financial Value Chain Should...

How the Financial Value Chain Should Have Worked

The way the Financial Value Chain operated during the bubble is not the way it is supposed to have operated, nor the way we expect it to operate day after day, month after month, year after year. The proper operation of the Financial Value Chain is as follows:

Venture capitalists, who typically demand a very high return on investment because the risk of failure is very high, do their best to ensure that the companies they've backed will have good management teams and a sustainable business model that will stand the test of time. Otherwise, the capital markets should put a relatively low value, consistent with their uncertain future stream of earnings, on venture-backed companies when they are offered for sale to the public. Likewise, investment bankers take public only companies with sound strategies and business models that provide the likelihood of giving investors a decent return.


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