Financing a startup venture’s business model is another key component of entrepreneurial finance. External financing involves various types of capital providers: angel investors, VC investors, creditors, suppliers (for trade credit), etc. These external financiers, together with founders and employees, design various deal structures and financial instruments (e. g., stock options, preferred stocks with various special rights, convertibles, debts with different seniorities and different collateral requirements, etc.) to carve up the venture’s value. What are your thoughts on the value partition issue in a new venture?

John as an entrepreneur,  and the founder of Johnson Global, requires funding for his new business ventures.  He has contacted Paul as an angel investor or the managing director of Paulson Venture Capital Ltd.  When Paul invests his money in Johnson Global, he has paid the piper and will invariably dictate the tune.  He also decides how the economic value shall be partitioned between the entrepreneur and the investor.  Similar scenarios play out with all entrepreneurial financing.

An entrepreneur can fund his or her startup ideas or venture from various sources.  She can take bootstrapping, otherwise known as the internal source.  She can also take the external financing source.  This later source is where business angels, venture capitalists, management buy-outs, and other sources of finance are arranged.

Venture capital and angel investors, suppliers, and employees design various deal structures and financial instruments first to capture where the value lies in a new venture and then decide how the finances are to be raised, when, and from whom.  Having assigned an economic valuation to the startup idea, investors also conclude an effective funding contract with the entrepreneur and express their exit strategies.

Putting a value on a new venture is not an easy task.  There are many uncertainties concerning development possibilities, and market and industry trends.  There are informations gaps to deal with, the presence of soft assets, which are unique and rarely measurable in the marketplace, and associated volatility with market conditions, financial and product markets, and current value and potential profitability issues to be addressed.

Explanation:

Entrepreneurial finance covers the study of value and resource allocation, especially in a new venture.  These aspects determine if the entrepreneur will get fresh finances for her ideas.  They also determine who gets what from the economic value that will potentially result from the new venture.

3rd the reason why is because of management and leadership