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The Start-up Problem

The process of developing a new technology company involves the management of significant uncertainty. As you might expect, this uncertainty impacts the financing of new ventures. To exploit a technology opportunity, you will generally have to obtain resources from outside sources. Therefore, you have to convince external stakeholders to provide support resources, despite the uncertainty that the new venture faces.

The more uncertainty that your new venture faces, the greater the return that investors and other stakeholders will demand to provide the resources that you need to exploit your opportunity. The relationship between uncertainty and desired returns means that you are faced with the following options: You can provide stakeholders with greater equity in the new venture as a way to increase the size of the returns that investors will earn for a given amount of invested capital. You can bear the uncertainty yourself, or you can adopt strategies to manage uncertainty.


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