Venture Inc. is sitting on $100 million in liquidity and considering investing in two different start-ups: Company A and Company B. After 3 years, Venture plans to sell their stake in both companies.
a) What are the expected returns from Company A and Company B?
b) If Company A has a higher risk factor, would Venture Inc. be justified in expecting higher returns from them?
c) What are the potential risks associated with investing in start-ups?
d) How would Venture Inc. determine the valuation of each start-up?