Exactly How Long Should a New Venture Lose Money?
15 Pages Posted: 10 Apr 2002
Date Written: February 6, 2002
We generate a model of firm value to illustrate/determine when more growth is too much growth for a firm. We allow the firm to grow in three phases: an initial aggressive phase, a consolidation phase, and a terminal long-run phase. It is in the latter two phases where the firm reaps the rewards of establishing market share in the initial phase. However, the initial phase can destroy value when permitted to continue too long. Further, if the initial phase cannot be funded appropriately, the venture will never enter the latter two phases and become profitable.
Keywords: Firm Value, Pro Forma
JEL Classification: G30, G31
Suggested Citation: Suggested Citation