CURRENT EVENT ARTICLE REVIEW ON ANYTHING FINANCE RELATED - Essay Example

In the article “Cloudy Funding Forecast Ahead for Start-Ups” there is a worrying disconnect for in the expectation between CEOs and venture investors. According to a joint survey conducted by the National Venture Capital Association and Dow Jones & Co, whereas 75% of the CEOs surveyed expect to raise cash in 2012, 69% of venture capitalists expect investments to stay the same or decline from 2011. Other bleak statistics includes a decrease from the previous year in the number of investors who expect IPO volume to increase in 2012 and 62% of investors projecting angel investing to have worse returns than venture capital investing.

The survey also found that consumer IT, health-care IT and business IT remaining as favorites for VCs to increase their investment dollars at the expense of clean technology, medical-device and biopharmaceutical companies. The paradox though is that both CEOs and VCs are optimistic about the increase in value of their investments (Basich, 2011).To adequately analyze this article it is first important to understand the role of Venture Capital for the startup businesses. Venture Capital is a finance that is provided to startups that are too small to raise the capital they need, either through bank loans or otherwise but that have a high potential for growth.

The numerous benefits of VC is summarised by research conducted by Puri and Zarutskie (2010) as follows: VC-financed firms typically grow more quickly, tend to grow bigger and are less likely to fail in comparison to non-VC-financed firms. When we place this into the current American context it means that VC-financing would be critical for rapid job creation due to their typical quicker growth rate and given that most employees are employed by small businesses such as these rising startups.

The higher potential for massive growth also portends well for the US economy as it predicts higher wages associated with large companies that will translate to higher disposable incomes and thus increased consumer spending. Finally, the decreased likelihood of failure of VC-financed firms is vital for increasing investor confidence in the US market in general and entrepreneurship in particular. The article’s prediction of decreased venture investing in 2012 therefore robs the US of the hope of quick recovery from its slow economy.

Venture investing is often accompanied by other support services such as increased management capacity, industry networking and so on which are equally critical in supporting the growth of startups. Entrepreneurship seems to be the best hope for America’s economy to recover yet the articles findings appear to dim this hope. However, one set of findings needs a critical analysis as it may provide light on the best way forward for both CEOs and VCs in 2012. The finding that 63% of VCs and 80% of CEOs think that their companies would grow in value could be the key to unlocking this problem.

The challenge here would be how to convince a significant number of the 63% of VCs to increase their investment in startups given their confidence in the performance of their portfolio companies. Probably, CEOs of startups would need to convince the VCs that their businesses operate in the same environment that they anticipate will increase the value of their other businesses.ReferencesBasich, Z. (2011, December 15). Cloudy Funding Forecast Ahead for Start-Ups. WSJ.com. Retrieved December 29, 2011, from http://online.wsj.com/article/SB10001424052970204026804577098562065044278.html?mod=WSJ_FinancingAndInvesting_LEFTTopHeadlinesPuri, M.

, & Zarutskie, R. (2010). On the Lifecycle Dynamics of Venture-Capital and Non-Venture-Capital-Financed Firms (Studies Paper No. CES-WP-08-13). US Census Bureau Center for Economic.