#Resource
ESACa Business and Economics Mock Exam AY2324. Sample Answer Annotated.
Raising the money to open a business and cover costs until it becomes profitable is a major
challenge for many aspiring entrepreneurs. One of several possibilities available is to seek the help
of a venture capital company, which will provide start-up support in in return for an agreed share
of the profits over a fixed term or for an equity share. While it sometimes has a positive outcome,
this essay will argue that this is usually an option to be pursued only after all others have been
tried.
It should be acknowledged that venture capital has some points to commend it. Importantly, as
reported by Input Text 1, these companies are more ready than most to support ‘non-standard’
business ideas that might not appeal to more conventional lenders. Furthermore, the active
involvement of the venture capital company can offer practical business experience to complement
the technical expertise of the start-up founders. For example, they will be able to offer advice on
matters including office leasing, marketing, and the law (Input Text 1). Additionally, these
companies can use their established networks locally and even nationally or internationally to
connect the new company with possible clients.
Commented [LP1]: Signposting the thesis
Commented [LP2]: A thesis (stance) which addresses the
task
Commented [LP3]: Cited reference to Input Text 1
However, there are serious drawbacks involved in working with venture capitalists, and an
important one is loss of control. First, the would-be entrepreneur will have to share the ‘big idea’
with the venture capital company when pitching for its support. Even when that support is granted,
it comes at a price: usually a significant share of profits or an equity stake that might be as large
as 60% (Input Text 1). For many people the appeal of starting a business is the prospect of being
independent, but here a degree of both creative and managerial control is surrendered. It might
have been the entrepreneur’s hope to provide an excellent product and bring real value to the
customer, while the venture capital company’s hope is only to generate as large a profit as
possible. These two wants can be competing and might create real friction.
By contrast, other sources of external funding will not insist on this kind of close involvement. The
high street bank may offer advice, but that can be accepted or ignored. Moreover, if the bank is
willing to lend its money, it is because it believes the business plan is strong enough to ensure
that the money will be repaid (Input Text 2). Crowdfunding through the Internet is a recent means
of funding start-ups, and has the benefit that none of the small investors involved in funding the
project will require the right to interfere in the running of the business. As explained in Input Text
2, even business angels, individual investors who involve themselves with start-ups almost as a
hobby, will usually not expect to be consulted except about very major decisions.
Venture capital companies are able to make the demands they do because they know the wouldbe entrepreneur has no alternative. In many instances, the realization that no-one but a venture
capital company is prepared to be involved should be enough to persuade a person to find a new
business idea. For those wedded to their dreams, an only option is a best option. Nonetheless, for
most start-ups, this should be the last option to be seriously considered.
(Word count: 548)
Commented [LP4]: Cited reference to Input Text 2 (this
time formatted as a non-integral citation)
Commented [LP5]: Revisits the thesis in the conclusion
Commented [LP6]: This is indicative. There is no need for
you to provide a word count for your exam essays and
please don’t waste your time counting words