Redbox There Were Several Risks That Created Term Paper

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Redbox

There were several risks that created issues for Redbox in securing venture capital financing. Venture capitalists typically invest with an eye towards taking companies public in order to earn their return on investment. Venture capitalists 'concentrate investments in early stage and high technology companies where informational asymmetries are highest" (Gompers, 1995). This means that venture capitalists must feel that they have a better understanding of the risks of a company than most other people. So for them to be concerned about Redbox, there needed to be significant risks, usually ones that could make it difficult to take the firm public.

The first significant issue is that of revenue. Redbox is in the DVD rental business. The problem is that the business is mature, has established players like Blockbuster, and is threatened by new technology such as Netflix. There is a concern, therefore, there that is insufficient growth opportunity in the business as presently constituted. Without growth, there is no reason for a venture capitalist to invest, because they will not receive adequate return on their investment commensurate with the risk of investing in a start-up.

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This is especially a significant concern because the company needs to demonstrate that the technology is the most important asset and can be transferred to other businesses when DVDs become obsolete, a trend which is already under way (Stock, 2013).

The second issue is the reliance on partners. Redbox wants to place its machines where they will capture a substantial amount of walk-by traffic. The company is ideally seeking a partnership with a firm where the arrangement will be mutually beneficial. If RedBox had established deals in place with nationwide partners, it would be in a much better position to attract venture capital. Indeed, since venture capitalists seek to capture information asymmetry, the ideal would be to have a tentative deal that would be sealed by the arrival of the venture capitalist to provide the additional financing. Thus, the venture capitalist would be directly contributing to….....

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