Randy’s, a family-owned restaurant chain operating in Alabama, has grown to the point that expansion throughout the entire Southeast is feasible

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Randy’s, a family-owned restaurant chain operating in Alabama, has grown to the point that expansion throughout the entire Southeast is feasible

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Randy’s, a family-owned restaurant chain operating in Alabama, has grown to the point that expansion throughout the entire Southeast is feasible. The proposed expansion would require the firm to raise about $18.3 million in new capital. Because Randy’s currently has a debt ratio of 50% and because family members already have all their personal wealth invested in the company, the family would like to sell common stock to the public to raise the $18.3 million. However, the family wants to retain voting control. You have been asked to brief family members on the issues involved by answering the following questions:
b. How are start-up firms usually financed?

Explanation & AnswerSolution by a verified expert

Explanation

Startups usually get funds through the following process:

The founder of the business first invests his/her savings or asks family and friends to help with capital requirements of business.
The founder approaches angel investors for further capital requirements for starting the business. An angel investor is a person who provides capital to a business in its initial stages through investing in ownership equity of the firm.

Angel investors assume high risk in order to earn higher return.

The founder further approaches venture capitalists for the capital requirements in performing various business operations, venture capitalists are the group of investors or venture firms that provide capital to start ups or emerging companies having high growth rates in return for equity ownership in the concern.

Verified Answer

Startups usually get funds through the following process:

The person who has the idea of starting a business, invests his/her own savings or asks family and friends for help.
He/She then pitches the idea in front of angel investors who finance the business at the most initial stage.
The founder of the idea approaches venture capitalists for funds at the beginning of business operations.

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