The Role of Capital Market Intermediaries in the Dot-Com Crash of 2000
1. List the ideal role of each financial intermediary
Here the answers are not including the information intermediaries since we can differentiate intermediaries into two types in the capital market, one is financial intermediaries such as venture capital firms, banks, mutual funds, and insurance companies, and the other is information intermediaries such as auditors, financial analysts, bond-rating agencies, and the financial press.
a) Venture Capitalists (VCs)
There are several types of VCs that invest in companies in different stages such as Seed, Early Stage, Late Stage, Expansion, and Private Equity. In the case it was focusing on the Early Stage. Since VCs invest in Early Stage are taking a high risk, they are seeking to a high return as well. Their goal is to sell their shares of the invested company by exiting two main ways, IPO and acquisitions.
The main role of VCs was to distinguish good business ideas and entrepreneurial teams from bad ones. The other role was to foster the invested company to make them become on the list.
b) Investment Bank Underwriters
Since they are specialists to help a company to be listed in the market, entrepreneurs are necessary to deal with them to obtain funds from the market. The main role of investment banks is to be as a bridge between investors who have funds and want to invest in securities and entrepreneur who needs funds for their business. Investment banks provided advisory financial services, helped the companies price their offerings, underwrite the shares, and introduce them to investors, often in the form of a road show.
c) Sell-Side Analysts
The main role of sell-side analysts is that they provide investment information of companies, industries, and segments for the institutional and individual investors by belonging to investment banks and brokerage houses. Their recommendations on the stocks that some investors heavily rely on it make on huge impact on the investors and so on the market as well.
Here the answers are not including the information intermediaries since we can differentiate intermediaries into two types in the capital market, one is financial intermediaries such as venture capital firms, banks, mutual funds, and insurance companies, and the other is information intermediaries such as auditors, financial analysts, bond-rating agencies, and the financial press.
a) Venture Capitalists (VCs)
There are several types of VCs that invest in companies in different stages such as Seed, Early Stage, Late Stage, Expansion, and Private Equity. In the case it was focusing on the Early Stage. Since VCs invest in Early Stage are taking a high risk, they are seeking to a high return as well. Their goal is to sell their shares of the invested company by exiting two main ways, IPO and acquisitions.
The main role of VCs was to distinguish good business ideas and entrepreneurial teams from bad ones. The other role was to foster the invested company to make them become on the list.
b) Investment Bank Underwriters
Since they are specialists to help a company to be listed in the market, entrepreneurs are necessary to deal with them to obtain funds from the market. The main role of investment banks is to be as a bridge between investors who have funds and want to invest in securities and entrepreneur who needs funds for their business. Investment banks provided advisory financial services, helped the companies price their offerings, underwrite the shares, and introduce them to investors, often in the form of a road show.
c) Sell-Side Analysts
The main role of sell-side analysts is that they provide investment information of companies, industries, and segments for the institutional and individual investors by belonging to investment banks and brokerage houses. Their recommendations on the stocks that some investors heavily rely on it make on huge impact on the investors and so on the market as well.