• Power management

There are some managers who cares about their self interest, when the company has too much equity it reduces the power of the manager. When we say manager it is usually the CEO for established companies and it usually the entrepreneurs for new businesses. One of the good example is Apple inc when Steve Jobs was fired by his own company because he did not own enough equity in the company therefore he did not have that much power. Having too much equity is also bad for the company because it reduces the motivation of the managers to work harder. The managers that are really good at adding value to the company sometimes held back because of power allocation and also lack of motivation. ​

Venture Capital (VC) is one of the way to finance the initial part of a business in return for equity. The venture capital companies invest in variate of ideas but mostly in technology because after the company becomes establish and when the big value is created the venture capitalists will have exit plan through Initial Public Offering (IPO) or trade sale. Usually the venture capital companies help to invest for up to 6 years and then list it on financial market for IPO to have large capital gain to pay of the shareholder with return.  The venture capitalist have been the backbones of many great companies but there are also problems regarding the equity when the VC wants to exit. 

• Who needs Venture Capital? 

The entrepreneurs with great ideas usually needs venture capital, because their ideas are uncertain and it is hard for them to get large amount of loans from the banks. The venture capitalist understand how the financial market and business works and they know how to make the ideas come to life and make the company established. 

Start-ups tends to grow fast and becomes large establish company with complex issues, that requires talented employees. The human resources becomes one of the issues of start-up companies, the technological start-up companies requires specific skilled employees. The venture capital companies are experienced in providing support with human capital to the start-up. The VCs will not only provide but they will also provide support with human capital. 

The start-up companies needs to reach curtain goal in terms of sales before it can be considered as established company to be listed as public in Financial Market. The entrepreneurs with ideas might only have technological background and they might not have the skills with marketing and sales, which is why it is essential that they have skilled manager to achieve the targeted goals.  The Venture Capitalist provides support in terms of appointing Managers with great skills in sales and marketing. The managers with essential marketing skills that has critical, analytical and outside the box thinking to achieve the targeted goals of stat up company.  The venture capitalist support with sales and marketing to achieve the goals faster to make their gains from the company when it is time to exit with IPO or Trade Sales.   

As the start up company grows it becomes complex and it requires organizational planning, the company needs to start putting all the things together in organized ways by creating departments and allocating the manpower accordingly. The company needs to make plans in terms of allocating departments for production, sale and marketing, Research and Development, human research department and board of directors. The entrepreneurs with the initial idea might not be the CEO of the company even that he owns up to half of the company's equity. There are some cases where the entrepreneurs might not be able to adopt to the CEO position to manage complex and establish company to add value. The venture capitalist and entrepreneurs might come to an agreement to appoint the CEO to add value to the company. Some people are just born to be a leader.

Dumb money is an investment that does not make a return. In business and in finance the dumb money is one of the biggest issue why investors lose their investments. When companies look for investors to invest in their company, then investors trust these investments but in the end the company fails and as well as the investments are lost. In corporate finance there is Venture Capital companies that invest in businesses, VCs can help entrepreneurs with great idea to make their dreams to come true. VCs also needs investors to invest in their Venture Capital company, if the normal investor invest in VC company then they might also invest an investment that does not make return. There are other factors when the company has too much money that they invest in wrong investment therefore it reduces the value of the company and these also one of the types of dumb money. There are 3 ways you can detect dumb money. 

Best ways to demand for transparency is by asking questions before you make your investments. The important questions are:

• What am I investing in?
• How is the company going to make return?
• How much return will I get?
• When will I get my return? 
• Can we have a say in it?

Some times the Venture Capital companies invest in the new businesses and when it is time to sell the company or to list it in Financial Market with IPO then the entrepreneurs do not come to an agreement therefore they close down the company. When these two parties do not come to an agreement then most of the time the investors are forgotten. If the business that VC invested fails then the investors lose their money. 

There are great entrepreneurs that knows how to build and fund the businesses, these entrepreneurs can convince the investment companies to invest in almost anything. The Venture Capital companies usually detect bad investment but even for them it is hard sometimes. One of the tactics used by entrepreneurs is that they wait for more than half a year before they start blowing the money. Waiting builds trust from VCs and then they get the 2nd payment from VC companies, usually it take long before entrepreneurs get the money. Venture Capitalist can usually detect this when the entrepreneurs present their proposal and during the interview by also asking the right questions. The VCs also wait before their invest in the business ideas of entrepreneurs until they see the response of other Venture Capitalist. 

In corporate finance there is one of the complex issue but I will try to make it as simple as possible to explain it. The investors and shareholders do not want the company to have too much money  which is called free cash but some call it dumb money. When established companies have too much extra money then they want to make investments which could be a bad investments. These usually can be detected by knowing the type of business and also the type of CEO or managers. The CEO with high ambitions are usually not favorable by the investors because they make too many investments that could lead to failure which will heart the value of the company. Always know the CEO of the company you want to invest. 

The person who holds the money has the power, it is the most important thing every investors should know. As soon as you let that money go then you transfer the power to other party. It is best to invest in investment that you know it will make a return in as short period of time as possible. The economy is always uncertain therefore sooner you make your return the better it is for you.