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Assess the value of venture capital as an external method of finance for Pura Cosmetics. - Edexcel - A-Level Business - Question 1 - 2022 - Paper 2
Question 1
Assess the value of venture capital as an external method of finance for Pura Cosmetics.
Worked Solution & Example Answer:Assess the value of venture capital as an external method of finance for Pura Cosmetics. - Edexcel - A-Level Business - Question 1 - 2022 - Paper 2
Step 1
Arguments for venture capital
Answer
Venture capital is a method of external finance which is provided by an investor in exchange for a share in the business. For Pura Cosmetics, this can be particularly valuable due to a few critical reasons:
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Funding Sources: As a new business, obtaining traditional finance from banks may be challenging due to perceived risks. Venture capitalists are more likely to invest in new ventures, providing the necessary funds for operational expenses and growth initiatives.
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Support and Expertise: Investors often bring valuable experience and guidance based on their previous dealings. Rose Dyson could benefit from Deborah Meadon’s experience, which would help navigate the competitive landscape and make informed decisions for Pura Cosmetics’ expansion.
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Rapid Expansion Needs: Since Pura Cosmetics plans to expand quickly, venture capital may fulfill immediate financial needs for scaling production and improving marketing efforts.
Step 2
Counterarguments
Answer
Despite the advantages, there are notable drawbacks when considering venture capital:
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Loss of Control: By accepting venture capital, Rose Dyson may have to relinquish some control over business decisions. Investors typically seek a say in major business choices proportional to their share.
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Profit Sharing: Rose Dyson would need to share profits with venture capitalists, which may reduce overall returns compared to solely retaining profits.
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Potential for Disagreements: The inclusion of investors can lead to conflicts regarding the management style and strategic direction of Pura Cosmetics, especially as they may have differing views from Rose on how the business should be run.
Step 3
Potential Conclusion
Answer
In assessing venture capital, it appears that while it presents opportunities for financial injection and strategic guidance, it may also impose significant challenges related to control and profit distribution. Therefore, if Rose Dyson believes in her company's growth potential, the value of venture capital could outweigh these drawbacks, provided she is prepared to navigate the complexities that come with it.