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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 an external financing option that provides funds in exchange for shares in the business. For Pura Cosmetics, this is particularly relevant as it is a new business that may find it difficult to secure traditional bank financing due to perceived high risks.
Additionally, Rose Dyson may lack experience in business management, which makes external guidance valuable. More experienced venture capitalists, such as Deborah Meadon, can provide not only funding but also essential insights and mentorship, aiding in strategic decision-making. Furthermore, as Pura Cosmetics aims for rapid expansion, venture capital could facilitate the necessary funding and resources for scaling operations effectively.
Step 2
Potential drawbacks of venture capital
Answer
However, opting for venture capital comes with its challenges. Rose Dyson would likely need to relinquish some control over the business, as she would be answering to investors who demand a say in operations in return for their investment. This could lead to potential conflicts regarding business direction and strategy.
Moreover, sharing profits with investors may reduce Dyson's financial returns compared to retaining full ownership. Finally, disagreements may arise between investors and the management team, creating friction in operational decisions.
Step 3
Conclusion
Answer
In conclusion, while venture capital presents a pathway for Pura Cosmetics to secure necessary funding and expertise for growth, it may also introduce complexities regarding control and profit-sharing. Ultimately, the decision for Rose Dyson should weigh these factors against potential alternatives, such as reinvesting retained profits or seeking smaller loans to maintain autonomy.