Question

Discuss how venture capitalists reduce their risk when investing in startup businesses. Justify your answer citing appropriate examples from Saudi Firms

Answer 1

SOLUTION:-

There are many ways by which Venture capitalist reduces their risk of investment. Some of them are

1. Time diversification

2. Stage diversification

3. Sector diversification

4. Pro rata investing over time

5. Portfolio management.

Since it is going to be a newly starting business, the following of risk management ways are very important.

The best example if a person wants to invest in new company, instead of investing the entire fund required, he can do it on pro rata basis to reduce risk. Or he can invest it on timely basis depending on the performance of the business.

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