Corporate finance is a discipline necessary for any enterprise, as it deals with the money flows in the company. Producing goods or providing services, paying salaries, purchasing materials, renting rooms, and production capacities are examples of corporate activities that require intelligent money management. Venture capital is the field of corporate finance that works with early investments in a startup, new product, business model, or technology. This business activity is usually highly risky, as a new business can be pushed out by competitors or have low demand, leading to losses; however, in case of success, the reward would be high. Corporate finance enables venture capitalists and managers to evaluate risks and save corporate money while maximizing returns.
The corporate finance area deals not only with the cashflows in a large corporation but with various commercial and non-commercial organizations, such as small businesses or charities. It includes studying and managing cashflows, earnings, investments, values, and the company’s financial risks (Ross et al. 3). Corporate finance provides tools for the company’s financial management and is vital for investment decision-making (Vernimmen et al. ch. 40). Venture capital is a large separate field in corporate finance, working with investments and funding new projects (Ross et al. 495). Therefore, corporate finance tools can be used to examine the company’s money flows, calculate the company’s value, evaluate risks, and organize investments.
Cashflows are the general term for money inflows and outflows which are present in the company. Earnings are the income obtained by the company when providing its services and goods to people, and it depends on the value created by it (Vernimmen et al., ch. 26). Money flows are usually divided into operating and investment cycles. Operating cycles describe the routine good or services, and investment cycles are directly connected with new products or startups and, thus, venture capital (Vernimmen et al. ch. 2). They aim to create new goods and services, requiring an initial investment and usually have a high risk. These costs will not return in case there is a low demand for a new product or competitors will push it out. The value created by the company means it creates a product or service of higher quality and lower price than was available before. Smart venture capital investments aim to maximize the value and ensure that the product will benefit a certain industry or people’s daily routines.
Corporate finance studies inevitable risks present during venture investments and business activities. Virtually all corporate actions can be evaluated based on the expected return and known risks, but these calculations are especially useful for new products or startup funding (Ross et al. 356–357). When a company or startup plans to create a product or service, it must launch an investment cycle and attract initial funding through venture capital. Before that, they should examine the market situation, people’s needs and opinions, competitors, and governmental regulations (Vernimmen et al. ch. 2). Venture capitalists tend to oversee a startup in which they invest and fund trending and actual industries, where a large demand is present among people (Ross et al. 497). In the case of successful investments, the investment cycle will become the operating one, generating more income and creating more value for a company.
Therefore, corporate finance is essential when dealing with any organization which should proceed with money. It works with cashflows, earnings, values, investments, and risk evaluation and serves as a tool for money management in any enterprise. Venture capital is an initial, risky investment into a new product, technology, or startup to obtain revenue when a new business creates value. Venture capitalists work with investment cycles, overseeing and managing new business processes and ensuring they will provide goods or services with high demand and competitive prices and qualities. Risk evaluation enables them to see which investments will be profitable and which industries have low revenues. Therefore, corporate finance is an important discipline for overseeing and managing corporate money, and venture capital aims at creating new value by investing in new perspective technologies, products, and startups.
Works Cited
Ross, Stephen A., et al. Essentials of Corporate Finance. 11th ed., McGraw-Hill Education, 2023.
Vernimmen, Pascal, et al. Corporate Finance: Theory and Practice. 6th ed., John Wiley & Sons, 2021.