¶ … investment banker is a person working for an investment bank. Investment banks finance both public and private companies. They arrange for debt financing and they can help put together equity deals as well. A startup company will often seek partnerships with investment bankers in order to secure the financing needed to expand or to make acquisitions. Investment bankers do not normally work with companies that only have an idea.
The stock market is a secondary market where equities are traded. A company does not turn to the stock market per se to acquire capital. The company gets its equity financing from an investment banker, who may then place the shares on the stock market. The company only sees money from the issue of the stock -- the price on the stock market does not go to the company. Investors on the stock market, however, have votes on aspects of the company's activities and therefore can influence future decisions the company makes.
Financial management is a broad term that relates to all aspects of the firm's finances. Financial management can relate to everything from balancing the books, finding ways to improve profitability, to managing the firm's capital structure and making capital budgeting decisions. Essentially anything to do with the firm's finances falls under the category of financial management.
Risk financing refers to financing that is intended to cover unexpected losses. There are many forms of risk financing including insurance, slush funds (reserves), lines of credit and hedges. For most startup companies, access to credit is a basic form of risk financing, and eventually the company may also keep reserves on hand for this purpose. Some forms of risk can be offset with insurance.
The preferred source of funds for a startup would be a mix of debt and equity. Debt has the advantage of being a low-cost source of funds and with debt the owner does not surrender control of the company. Equity financing is great when it is the founder's equity. When it is not, then the founder will almost certainly lose control. While there are some companies that have no long-term debt, most companies operate with a mix of debt and equity. The main advantage of this is that it balances off four competing interests: the risks associated with leverage, the return to the shareholders, the cost of capital and control over the firm. The precise mix would be dependent on the amount of money needed and how much is available from each source.
You’re 73% through this paper. Sign up to read the full paper.
Sign Up Now — Instant Access Already a member? Log inAlways verify citation format against your institution’s current style guide requirements.