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Date Posted: 07:47:42 01/18/03 Sat
Author: Dr.D.
Subject: Burn Rate (the game)
In reply to: J.Fred 's message, "Burn rate" on 11:00:55 01/17/03 Fri

You are correct. I think you may have come across the site for the game "Burn Rate" that I mentioned in class. The website is:

http://www.burnrategame.com/

Venture Capital firms invest in start-up companies. They provide capital (funds) to the companies in exchange for an ownership stake, and typically also take a seat on the company's board of directors. The VC puts a lot of strings on the money, but also provides a lot of resources in terms of business plans etc. Their payoff typically comes when they help take the company public in an IPO. SInce they're part owners in the company, if they're successful, there's a big payoff. However, for a VC's investment in 100 companies, fewer than 20 or 30 may actually get to this stage. So, a good sized VC is essentially a portfolio of very risky investments. The fact that they invest in a lot of companies spreads the risk, but there are still a lot of VCs that lose a lot of money. Like I said in class, high risk ==> high potential investment. Or, sadi another way, to get high potential investment, you have to take high risk.


>Hi Dr. D
>I needed a little more clarity on the burn rate so I
>looked it up. This is what I found: burn rate deals
>with venture capital financing, it's the rate at which
>a start-up company spends capital to finance overhead
>before generating a positive cash flow from ops. Then,
>I was confused about venture capital so I looked that
>up as well: VC is a good source of financing for
>start-up co.; includes risks, but offers above avg
>future profits. Is this correct?

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