Introduction
The main focus of my work as a chief risk officer of our company entails divulging to the whole company stakeholders the actualities of systemic and idiosyncratic risks. By offering a detailed educational program, such as understanding the relative nature of these risks and using real-time examples of each risk in everyday life, the aim is to make my audience aware of the utility of this differentiation (Acharyya & Brady, 2014). This enables us to create an environment where risk awareness is considered the critical virtue and risk management is proactive.
Approach to Explaining Risks
General risks, including economic slumps and turnoffs in the market, are widespread and beyond one’s grasp by nature. These risks pose a serious problem for our business and require the thorough consideration of rational responses that will help to insulate our operations from the effects of the risks. In contrast to unsystematic risks connected with some factors of our company, specifically our industry, these risks can be handled by precisely targeted risk mitigation strategies. Illustrations of unsystematic risk themes embrace supplier reliance, regulatory modifications, or technology flaws. By emphasizing risk occurrence within our business ecosystem, stakeholders will better grasp their scale and apply better measures.
The stakeholders must first understand the nature of systemic and non-systematic risks and then carry out an assessment exercise that gives us a clear picture of how we are exposed to risks throughout the organization (Kohonen, 2015). Collaborated with the risk mapping personnel and surveyed to analyze potential areas of risk exposure within our operations. Conducting a complete risk evaluation will allow us to group risks as per their probability and anticipated effect. Through this, we can employ financial resources effectively and implement tailored procedures that mitigate the risks. Such a way of thinking in advance allows us to respond quickly to emerging threats, decrease the risk of the negative consequences of these threats, sustain the long-term success of our organization, and connect us with the environment.
Implications of Inaction
There are implications of inaction when discussing systemic and non-systemic hazards. Withholding from being proactive about these risks and planning before the damage can greatly affect our organization economically through financial losses, reputation-shattering, and strategic setbacks (Wagdi & Tarek, 2019). With a robust risk mitigation framework in place, stock prices might go down, and supply chain disruptions happen. By not tackling these risks, we burden our capacity to reach our strategic goals and take away the chance of achieving growth. Hence, as our chief risk officer, I will take proactive steps and ensure that all officers are suitably driven toward the spirit of good risk management, which will entail identifying, assessing, and reducing systematic and unsystematic risks.
Venture capital as startup funding
Following a limited experience, I had the chance to guide a new client trying to establish a bakery business. We found that venture capital is a prominent theme of discussion. My reflective analysis compared the merits and demerits of recourse to venture capital when financing startups.
Advantages of Venture Capital
Along with the capital infusion, venture capital provides a few robust virtues that help build businesses. On the one hand, it offers a large budget without the urgency to repay the funds; thus, deadlines can be anticipated carefully. These investments from equity partners are a great means to spur the company’s early growth and expansion and allow the entrepreneur to arm herself with such necessities as equipment, inventory, and marketing campaigns (Metrick & Yasuda, 2021). Adding to that, venture capitalists are not only a resource for capital but are equally important because of the expertise, industry connections, and strategic assistance they often provide. This external support can be precious for an entrepreneur during a long and complex journey to the market and the top. The aid can accelerate growth and enhance the possibility of success. Furthermore, venture capital finance provides repayment terms that are flexible not only on the part of the entrepreneur but also allow him or her to be dedicated 100% to building the business without much pressure from meeting stringent payment deadlines.
Disadvantages of Venture Capital
On the other hand, one has to recognize that venture capitalists provide certain disadvantages to development funds. What stands out most in this case is the problem of transferring the authority and ownership corresponding to inner investments to external. Venture capitalists mostly take a sizable equity stake in the business to gain financing. Such a step must dilute the entrepreneur’s ownership and share of the decision-making process (Lerner & Nanda, 2020). They can find the sudden adjustment of their great autonomy considerably difficult, and even worse, the performance of the company may decline due to the complications of conflicting interests and divergence of strategies. Moreover, upstream decision-makers like venture capitalists also usually have high expectations of return on their investment, which may undermine the entrepreneur’s drive for long-term sustainability over rapid growth and profitability. Therefore, the business may experience consequences such as being unable to create a strong foundation, which leads to misalignment of purpose or unsustainable growth.
Recommended Approach for the Client
Among the options, recommendations for my client regarding the optimum fundraising method for his bakery business include putting forward a balanced and well-thought-out approach that carefully weighs the possibilities and probable outcome of venture capital among those. Venture capital has major benefits for startups, including granting large amounts of capital and strategic support. However, this also comes with drawbacks, such as control loss and pressure to grow fast, which must be scrutinized to fulfill your client’s long-term goals. I propose various alternative funding sources, like small business loans, crowdfunding platforms, or the bootstrapping method, to the client. These sources of reliable capital add much autonomy and flexibility at the start.
On top of that, I would underline the significance of creating a complete business plan and showing short-term success due to sales or partnership deals, as it will ease the investor’s fear, and they will offer more preferable terms in the future. Funding is critical to laying the groundwork for this bakery business’s long-term survival and growth. My client aims to achieve this by following a strategic and informed approach to funding to make their business as sustainable as possible while upholding their vision and values.
References
Acharyya, M., & Brady, C. (2014). Designing an enterprise risk management curriculum for business studies: insights from a pilot program. Risk Management and Insurance Review, 17(1), 113–136.
Kohonen, A. (2015). Management of unsystematic risks in commercial real estate asset management (Master’s thesis).
Lerner, J., & Nanda, R. (2020). Venture capital’s role in financing innovation: what we know and how much we still need to learn. Journal of Economic Perspectives, 34(3), 237–261.
Metrick, A., & Yasuda, A. (2021). Venture capital and the finance of innovation. John Wiley & Sons.
Wagdi, O., & Tarek, Y. (2019). The impact of financial risk on systematic risks: international evidence. Journal of Applied Finance & Banking, 9(6).
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