Starting Right Corporation which will be headed by Julia Day is a startup firm, no matter how one describes it. It is currently in need of a huge fund that it will use to finance its capital expenses and perhaps its first few years of operations until such time that it becomes capable of financially sustaining its own operations using revenues and profits it would generate in the future, from its core operations. These are the risks that Sue Pansky has to consider before even thinking about investing in Starting Right Corporation. Considering her conservative risk appetite, it is generally not recommended for her to invest in any of the investment opportunities available at Starting Right. In the case of the common share investment opportunity, for example, it is to be expected that the stock price for the company would be highly volatile for the first two years (at least) of operations because of market and company uncertainty and so she may not be able to stomach the paper losses that may be associated in that kind of investment.
It can be assumed that Ray Cahn, being a broker working for a commodities trading firm, knows a thing or two about investments. However, unlike real and existing companies such as Starting Right in this case, commodities such as oil and gold do not generate revenues; the only way an investor can profit from them is if their price per unit increases . In Ray’s case, it was not made clear how he managed to arrive at the 11% of swinging an upside in his would-be investment in Starting Right, but it may be safe to assume that he did that by doing a technical analysis. Technical analysis only works effectively if one can quickly predict the next trend movement of a particular stock or commodity. Trends, unfortunately, take time to develop. Starting Right is still in its startup phases and so it would be impossible to establish trends for the company. This makes investing in Starting Right a highly risky investment proposition. So, it would be best for Ray to just focus on commodities trading and wait until a clear trend line on Starting Right’s stock price has been established.
Lila Battle is a risk avoider just like Sue Pansky. However, she has access to information that not a lot of investors have—she seem to personally know the key people behind Starting Right’s management team. She knows and believes that Julia Day would do a good job in making the company grow. In that case, despite being a risk avoider, the most appropriate advice to Lila would be to start investing in either of the three investment choices available at Starting Right.
George Yates believes that there is a fifty-fifty chance of success when it comes to investing in Starting Right. The most important thing when it comes to making an investment, especially in relatively riskier investment propositions (such as investing in a startup firm) is to make informed decisions. There must be reasons backed by fundamental analysis and if possible, even results of a feasibility or pilot study focusing on the workability of the business model that the business is trying to monetize. In this case, it would only be safe to assume that George does not have access to these kinds of information so the recommendation for him would be to stay away from Starting Right first until he obtains a clear picture of how the company makes money and its outlook.
Peter Metarko knows something about the industry (and the outlook of the industry) where Starting Right has decided to operate. He, in general, has an optimistic outlook on the growth of the industry. In general, a growing industry, offers a lot of growth and expansion capabilities for the firms and businesses that operate in that industry. This means that if Peter’s analysis would turn out to be right, he would have already realized an upside on the investment fund he placed in Starting Right. Because his investment decision was based on a reliable factor, an analysis of the baby food industry to be exact (although it was not made clear what type of analysis he did and how he arrived at such a proposition), the recommendation for Peter would be to proceed on investing in the company’s common stock.
Meeting all the regulatory and documentation requirements for any one of the three investment offerings that Julia has initially laid out would take a lot of time, effort, and financial resources. Currently, Julia is planning to offer corporate bonds, preferred shares, and common shares, as investment opportunities for investors who want to put their trust and money on Starting Right. If expenses are a concern, Julia can simply remove the corporate bond offerings from the list and just focus on the preferred shares and common share offerings. This is because corporate bonds and preferred shares essentially share the same characteristics in that they can be both classified as fixed-income instruments often intended for risk intolerant investors. The common share investment option, on the other hand, would be intended for investors who are risk seekers.
References
Bratton, W. (2002). Venture Capital on the Downside: Preferred Stock and Corporate Control. Michigan Law Review.
Matia, K., Ashkenazy, Y., & stanley, E. (2003). Multifracctal Properties of Price Fluctuations of Stocks and Commodities. Europhysics Letters.
