Recently I went through a book called The corporate life cycle by Aswath Damodaran, absolutely worth reading.
According to Damodaran, Companies are mortal, they are born as startups, growth and decline over a life cycle like humans.
During the life period, many things change and many things have to be changed accordingly.
**Corporate Finance**
**Valuation**
**Management**
**Strategies**
**Risk**
**Debt**
Companies undergo tremendous ups and downs during the life cycle, but majorly Corporate Finance is the one approach that is just to run a company efficiently.
# Startups: The earliest stage
When a company is incorporated, this is the stage where ideas become reality and behan to initiate. They don't have a business model, cash flow, and profit here. Barely they operate even operation. Here founders are the only manager and head to employ all. Here is the best part which is **INVESTING.**
**F**ounders have to find opportunities to invest and generate cash flow or earnings beyond the hurdle rate even.
*Hurdle rate is the minimum return that must be generated by investment adjusting cost of capital and inflation.*
If the founder finds such opportunities, they invest. If they earn beyond the hurdle rate, they profit or are below the hurdle rate, they burn.
Business has only one aim which is to maximize the shareholders value and this will be determined by your investments. If a company earns beyond the hurdle rate it is creating some value and vice versa.
In the early stage, companies should not borrow money and even if they can't due to lack of credibility and high default spread, No bank is going to lend you.
So therefore majorly equity is the only way to raise capital. But here's the point . " **Who will invest in a startup which has the highest risk" ?**
The answer is VENTURE CAPITAL an pooled investment vehicle which invests in early startups to gain maximum return as they bear maximum risk too.
VCs price ventures and demand bargained Valuation to invest.
.......later.