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Optimizing Follow-On Investment Decisions: A Comprehensive Approach for Venture
Capital Firms
Question: Why do so many Venture Capital Firms think their follow-on decision process
needs to be changed? (5Marks)
Many Venture Capital (VC) firms are considering modifications to their follow-on investment
decision process for a variety of compelling reasons. First, the inherent risk of early-stage startup
financing needs a flexible and adaptive approach. As time passes, venture capital firms learn
more about the startups in which they initially invested, such as their market performance,
leadership competencies, and competitive landscape. By altering their follow-on decisionmaking process, these organizations can make more informed decisions about whether to
continue investing in a given venture or not, reducing the risks associated with underperforming
startups. (García-Zamora et al., 2022)
Second, portfolio management is an important concern for venture capital businesses. They
usually have a wide portfolio of assets in a variety of businesses and stages of growth. To
maximize the performance of their portfolios, venture capital firms must distribute their
resources wisely. Adjusting the follow-on decision process enables them to provide extra capital
to businesses with great growth potential and that align with their investment strategy, allowing
them to successfully manage their portfolio to maximize returns. (García-Zamora et al., 2022)
Ano …
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