Why is it especially difficult for an entrepreneur with a new business
QUESTION
Why is it especially difficult for an entrepreneur with a new business to raise capital? What tool can help him or her to raise external capital?
A new business is like a bet which has a possibility of success as well as failure. Nobody can predict whether it will be a profitable venture. Thus it is highly risky for the investors to invest in such a business. Investors are more willing to invest in a business which is already established and has a proven track record of being profitable. The already established business has the historical records and market position expressed through the market prices of the shares. The investors can use such data to analyze the¦
sition of the business. This option is not available in the case of a new business. So its difficult for the investors and lending institutions to trust the new venture and lend their money. Correspondingly, its difficult for an entrepreneur with a new business to raise capital. A business plan is a good tool to raise external capital.
ANSWER:
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