Essay Example on New trends in the economy of the USA

Introduction New trends in the USA show that small firms less than 100 employees are becoming increasingly important for the economy From the 1980s these small firms created more jobs and were responsible for more innovations than Fortune 500 companies Denis 2004 As a result there has been an increase in the amount of capital in the private equity market A major aspect of entrepreneurship is the ability to obtain financial funds Entrepreneurs have several options to obtain these funds and each has their advantages and disadvantages This essay gives an insight into the advantages disadvantages and trends of several financial models by comparing two articles about entrepreneurial finance The first article is How do entrepreneurs obtain financing An evaluation of available options and how they fit into the current entrepreneurial ecosystem written by Wright 2017 Wright argues that venture capital is in the limelight while other financial models are easier to obtain and yield more agreeable terms This article therefore assesses seven alternative models which are used by entrepreneurs to fund their business The second article in this comparison is Entrepreneurial finance an overview of the issues and evidence written by Denis 2004 Denis reviews four different areas of finance alternative sources of capital financial contracting issues public policy and the dynamics of private equity returns For this comparative essay only the first area alternative sources of capital are discussed Denis 2004 and Wright 2017 mention that research on funding models is lacking The aim of the two papers is thus to strengthen the understanding of these models What differs between the two papers is the date when it was published 

The evolution of the available and recently developed models can be determined which will extend but also correct information regarding research on models of financing Venture capital According to Wright 2017 starting or aspiring entrepreneurs may get the impression that venture capital is the primary model for obtaining financial funds However it is rare for a starting firm to obtain venture capital Wright 2017 shows that 1 444 businesses received funding with venture capital in 2015 Venture capital is a viable model but there are other financing models which are easier to obtain for starting entrepreneurs Denis 2004 does not mention the chances of receiving venture capital but he does claim that venture capitalists are actively involved in the company in which they invest Venture capitalists assist with support services such as improving professionalism and providing monitoring Firstly venture capitalists improve professionalism by assisting with acquisitions developing a business plan and helping by facilitating partnerships Denis 2004 argues that with the knowledge of venture capitalists the company is more likely to professionalize in several departments such as recruitment and human resource policies Secondly venture capitalists provide monitoring services and are playing a primary role in shaping the top management 

Business gain from these services because venture capitalists have access to certain knowledge which the company has not Angel investors An alternative to venture capital are angel investors Angel investors are wealthy individuals who invest in businesses in exchange for equity Wright 2017 argues that this model is similar to the venture capital model with the difference that angel investors do not represent a company or investment group In addition angel investors are more likely to invest in companies which they believe in although it might not be profitable on the short term As a result angel investors sometimes fund a project for its entire growth stage Wright 2017 shows that angel investing is a more popular model than venture capital In 2015 71 110 entrepreneurs received funding via angel investors while only 1 444 businesses received venture capital funding It is difficult to receive more data for this model because angel investors are not required to report their activities Denis 2004 confirms that data on angel investors is difficult to obtain However Denis makes different statements regarding this model 

According to him angel investors typically focus on smaller companies and serve a role in the early stage of startups which require smaller amounts of funding Angel investors serve as a bridge between starting a company to obtaining venture capital In this case angel investors do not compete with venture capitalists but have a more complementary function Crowdfunding The newest funding model is crowdfunding Entrepreneur can showcase their business plan on a crowdfunding platform where potential investors can fund this idea In exchange investors receive nonmonetary compensation such as a prototype of the product first access to a service Wright 2017 argues that in the future crowdfunding may evolve where investors can also receive monetary compensation An additional advantage crowdfunding offers is the increased exposure A new product or service may be already well known before it gets on the market and it also gets feedback from potential customers A well funded project may also prove that a business idea has potential which in turn increases the chance to receive venture capital or angel investment