MBA603 - New Venture Capital: Risks and Ethical Issues in Startups

This report provides a comprehensive analysis of the risks and ethical issues associated with new venture capital, examining the perspectives of both entrepreneurs and investors. It delves into various risks such as execution, financial, and market risks, alongside ethical considerations like adherence to legal norms, CSR, and societal impact. Case studies of Uber, Airbnb, and Sellanycar are used to illustrate these points. From an entrepreneur's standpoint, the report emphasizes the importance of market research, ethical conduct, and risk mitigation through strategic management. For investors, the focus shifts to legal risks, capitalization structure, and the ethical implications of the venture. The report concludes by highlighting the top three risks and ethical issues for each stakeholder, emphasizing the need for a balanced approach that considers both financial gains and societal well-being. Desklib provides access to similar solved assignments and past papers for students.

Running head: NEW VENTURE CAPITAL RISING
New Venture Capital Rising
Name of the Student
Name of the University
Author’s note

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Introduction
To describe and define the concept of a start up in the simplest form is that a start up is a
business venture that has just begun its operations in the industry. Many people have vision for
the products or services that they want to offer a target market and therefore create a company,
but the success or failure of the organisation depends upon several factors. This assignment is
going to give an understanding regarding two most important stakeholders perspective in an
organisation that has just begun its operations or is not even at an incorporation state. These
stakeholders are the entrepreneurs and the investors (Marques et al. 2013). The companies that
are going to be studied in the assignment are UBER, Airbnb and Sellanycar. Uber is a company
that allows the customer to hire a ride; the company operates by using mobile phone application
and a website. Airbnb is a company that offers accommodation option to the travelers and
connects local people with the tourist, this is a social media platform that allows the customers to
post reviews and rate the accommodations as well. On the other hand sellanycar is a service that
allows an individual to sell any car in any condition the company auctions the car to the other
vendors.
A: As an entrepreneur
An entrepreneur is a person who is the owner of a business organisation. The concept of the
business model is the brand child of the entrepreneur. The entrepreneurs of the companies are:
Uber: Travis Kalanick and Garrett Camp; Airbnb: Brian Chesky, Joe Gebbia and Nathan
Blecharczyk; Sellanycar: Saygin Yalcin.

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Risks / Risk Assessments
Execution risk:
The risk of being a failure, this is the most important risk that the entrepreneur has until
the business has gained some momentum. As a considerable amount of liability lies in the
shoulders of the entrepreneur it is his or her duty to ensure that the company is able to meet the
requirements. There is always a risk of aligning the idea of the entrepreneur with the requirement
of the target market if this is missing then there is a risk of failure in terms of the idea
(Kozubíková et al. 2013). The case of Uber can be a good example here, the business model is
based on the efficiency of the drivers therefore executing such an idea is challenging especially
when the idea is innovative there is yardstick or any evaluation process of previous organisations
to measure the outcome.
Financial risk:
The second risk that the entrepreneur bares is the financial risk, launching a business idea
ensures that the owner has a incorporate capital in terms of finance, as investing in an idea can be
risky based on the success or failure of the endeavourer as discussed above (Sadgrove 2016). If
the idea is a success the company starts generating revenue which is further used as capital but if
this is not the case then the money that has been invested is waste. For example: in the case of
Uber the risk of using an internet based platfrom to book a cab was completely new to the target
market, the entrepreneurs of the company has invested a large amount in developing the website
and curetting taxis, if the plan did not work out, there would be a major loss (Verbano and
Venturini 2013).

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Market risk:
This is one of the most significant risks that are associated with the entrepreneur, it is
essential to understand and analyze the customer in order to understand the reason and the
procedure the target market is related or will be motivated to buy the product or service.
Furthermore, Verbano and Venturini (2013), state that it is essential to understand the
competition in the market in terms of direct as well as indirect competition. Therefore it is
essential to undertake proper market research in order to reduce this market risk. It also helps in
understanding the gap in the requirements that are in demand (Verbano and Venturini 2013). The
business model of Airbnb is explained as a disruptive innovation model, in such cases, there is
high market risk associated as the customers as well as the investors are unsure regarding the
service and the quality and utility of it.
Ethical Issues
Most of the time for a start up finance is a major issue, in that case the entrepreneur
should ensure that the process of incorporation and formulating policies for the company should
be adhere to the norms and regulations of the country of operation like labour law, taxation
policies etc. there are several instances where start-up companies are caught in illegal activities
in terms of the proceedings and operations (Verbano and Venturini 2013). In order to attract the
customers or investors, entrepreneurs may be lured in to exaggerating and making up things
regarding the products which may turn out to be false; this is one of the most important ethical
considerations that entrepreneurs must have while launching an idea (Hansen 2015). The
entrepreneurs make false promises and portray different things in order to gain for the company
but are this kind of effort ethical? While expanding in other countries Uber has faced a lot of

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controversies for example Uber has been banned in London and there is also negativity regarding
the company’s policies among the drivers in Paris.
As the business model of the company is created by the entrepreneur, they should make
sure that the model not only concentrates on the financial benefits of the company but also
recognize some of the societal and environmental objectives as well (Griffith 2016). While
planning the strategic management, setting clear goals and objectives help in the growth and
expansion of the organisation. In this process how far a start is up obliged to give the society and
the environment is the ethical consideration that the entrepreneur has to decide. All the three
organisations Uber, Airbnb and Sellanycar follows strict CSR proceedings and have CSR reports
published every year.
Another ethical consideration that the entrepreneur should determine is: what is the
outcome of the company, what will the entrepreneur do if the plan is a success and is making
earning revenues and is highly valued in the industry (Griffith 2016). Airbnb is a company that
is passionate about spreading joy of sharing experiences. The company offers the platform to the
consumers to ensure that the tourists share the experience of staying in a accommodation while
which has the essence of the location.
Top Three Risks / Ethical Issues (inclusive)
Market risk:
Market risk is something that is essential the entrepreneur has to prepare for the business
before commencing on the operation (Kozubíková et al. 2013). With the help of business plan
and strategic management practices like various market research, rational formulation of the
policies etc. It also helps in mitigating the market risk, before entering an industry the

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entrepreneur should be well aware of the dynamics that are associated with the industry. This
helps in minimizing the risk of the market fluctuation and provides a better understanding of the
perspective of the demands of the consumers (Kozubíková et al. 2013).
The most important ethical consideration that entrepreneurs must incorporate is the
recognition of the responsibilities and the duties that a business unit have towards the
development and protection of the society and environment (Kozubíková et al. 2013). These are
building on the basis of the values and principles that drive the entrepreneur hence the CSR
activities undertaken by the company is a reflection of the values that the organisation follow
(Marques et al. 2013). Which in the long run helps in developing the goodwill of the start up?
For example: Airbnb is a startup that has a number of CSR activities although the company is
fairly new. Each year the company tries to surpass the activities and the scale that they have set
in the previous year in terms of their responsibility (Hansen 2015).
The last of the top three is also a risk element that every startup organisation faces, the
risk of execution (Hansen 2015). For example: Saygin Yalcin, the founder of the used car
marketplace Sellanycar.com has set exemplary bench mark in terms of executing risk mitigation.
He had envisioned his perspective clearly which helped him to establish the organisation
(Kozubíková et al. 2013).
B: As an investor
Risks / Risk Assessments
Legal risk is the first issue that an investor should consider while putting money in to a
new venture. None of the investors would like to be associated with any kind of illegal

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association, hence it is essential to do a complete background check of the product and its
entrepreneurs in case one is thinking of investing in a new business unit (Kravet and Muslu
2013). As mentioned above, Uber is under various speculations and legal boundaries which
make the position of the company bad in terms of investing.
Capitalization structure risk is associated with the growth perspective of the company.
The investor should calculate the prospect he or she has being associated with the company. This
would ensure the profit or loss in the process of the investment (Verbano and Venturini 2013). If
the value of Uber falls based on the controversies that encompasses the company then the
investors will also have to lose their money.
Market risk: As mentioned above the investors have a significant impact on the market
risks as well, the dynamics of the market impact the investment and the operations of the
business which in turn positively or negatively impact the investors interest (Savor and Wilson
2013). These uncertainties are market adaptation, reaction of the target market, adaptability with
the changing dynamic situation etc (Sadgrove 2016). For example in the case of sellanycar, the
investors should be aware of the dynamics of the automobile industry in order to understand the
growth opportunities for a format like sellanycar. Saygin Yalcin the founder of the company in
2015, met venture capital investors in the US, in order to expand the business in the European
market. He is seeking to raise as much as $100 million to fund the objective. The company buys
used cars from individuals and auctions them to businesses, including dealerships. Some of the
services are: free inspections and valuations of the vehicles, and owners can accept or reject the
price. Mobile application and internet platforms are used to help in the deal (Griffith 2016).

7NEW VENTURE CAPITAL RISING
Ethical Issues
The investors should look at the product and service before investing in a new venture, if
the product or services are based on unethical values and principles, the investors should
consider judging the case before putting the money in to it. The process of manufacturing an
production also fall in this category, before investing they should check whether the company is
adhering to the legal boundaries in the country of operation (Griffith 2016).
The investors should consider the rate of accountability of the investors in terms of the
risks that is borne by them in the process of business operation. The investors must decide the
involvement in the business while it is facing any bad situation or is in a risk (Hansen 2015).
Lastly the role of the organisation in the societal and environmental development and
well being is a common consideration for both the entrepreneurs and the investors.
The investors of all the three organisations that have been discussed have their
obligations and responsibilities towards their investment. They must understand the value the
company stands for and must respect the principles (Griffith 2016).
Top Three Risks / Ethical Issues (inclusive)
The first ethical consideration is important for the investor as they have certain
responsibility towards the consumers as well, since the investors are the reason for which the
business is supported with financial aid. If an organisation is associated with unethical products
or services, uses unethical means of production, uses unethical means to get the attention of the
customers; the investors must decide upon being associated with such a company (Hansen 2015).

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The growth risk and opportunities is one of the significant aspects that the investor must
consider while choosing to invest in an organisation. They should analyze the dynamics of the
return that they are going to get juxtaposing the investment they have made. The risk of the
market is one of the most important aspects while investing. For example: an investor would like
to invest in an organisation that is developed in a prospective industry rather than a stagnant
market (Brink 2017).
Legal risk is also significant in the part of the investor they deal with the finances which
acts like a fuel to the company; the investors should be alert regarding any illegal activities that
are associated with the business (Hansen 2015).
Conclusion / Summary
It can be concluded from the above discussion that the market risk can be associated with
both the entrepreneurs and investors as the dynamics of the market decide upon the success and
failure of the business to a large extent. Both the roles of an investor as well as entrepreneurs are
crucial in any business, start-ups are special as they are innovative and are new hence they need
to be worked hard with in order to reach the position where established organisations are.
Considering the triple bottom line business model is a good idea for both the parties as
well. This helps in creation of value and maintains goodwill in the industry from a business
perspective.

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References:
Brink, C.H., 2017. Measuring political risk: risks to foreign investment. Routledge.
Elyasiani, E., Mester, L.J. and Pagano, M.S., 2014. Large capital infusions, investor reactions,
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Financial Stability, 11, pp.62-81.
Griffith, E., 2016. The Ugly Unethical Underside of Silicon Valley. Fortune magazine, [Online].
Available at: http://fortune.com/silicon-valley-startups-fraud-venture-capital/
Hansen, K.O., 2015. The Ethical Challenges Facing Entrepreneurs. The Wall Street Journal,
[Online]. Available at: https://www.wsj.com/articles/the-ethical-challenges-facing-
entrepreneurs-1448247600
Kozubíková, L., Belás, J., Bilan, Y. and Bartos, P., 2015. Personal characteristics of
entrepreneurs in the context of perception and management of business risk in the SME segment.
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