Beruflich Dokumente
Kultur Dokumente
Kaushik Chemburkar
Student Number 10280547
Overview:
This case mainly discusses about the “dot-com bubble” caused because of speculation
by investors, companies, venture capitalists, investment banks, money managers,
FASB and their supporting intermediaries such as brokers, media, portfolio managers,
Buy-side analysts, accountants and auditors about the value of the rapidly growing
Internet sector and e-businesses.
1) What was the intended role of each of the institutions and intermediaries
discussed in the case for the effective functioning of capital markets?
In a well functioning system and capital market, investors and companies rely on
intermediaries to help them make decisions. This is because investors do not have
enough information or expertise and companies do not have infrastructure and know
how to directly receive capital from investors.
In this case we look more closely at the intended roles of players in the investing and
information chain and the regulators:
I. Venture Capitalists:
• To provide a high rate of return to their investors for the associated risk.
• To screen good business ideas and entrepreneurial teams from bad ones
• Employ experienced and savvy people who worked closely with their
portfolio companies to monitor and guide them to a point where they have
turned a business idea into a well managed, fully functional company that
could stand on its own.
2) Are their incentives aligned properly with their intended role? Whose
incentives are most misaligned? (Wht Happ)
The incentives and the intended roles of players in the investing and information
chain and the regulators were substantially misaligned thus causing a breakdown in
the effective and well functioning capital market.
I. Venture Capitalists:
• To provide high rate of return to their investors, VC’s typically sold their
stake in their portfolio companies either to the public through an IPO, or to
another company in a trade sale.
• The partners in a VC firm typically had a substantially percentage of their
net worth tied in their funds, which aligned their interests with their
investors.
• The main form of compensation was large share of profits (typically 20%).
•
3) Who, if anyone, was primarily responsible for the Internet stock bubble?
(cauze)
4) What are the costs of such a stock market bubble? As a future business
professional, what lessons do you draw from the bubble? (Soln and Recomdtn)