Exactly How Long Should a New Venture Lose Money?

15 Pages Posted: 10 Apr 2002

See all articles by Tom Arnold

Tom Arnold

University of Richmond - E. Claiborne Robins School of Business

Date Written: February 6, 2002

Abstract

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

Arnold, Thomas M., Exactly How Long Should a New Venture Lose Money? (February 6, 2002). Available at SSRN: https://ssrn.com/abstract=301875 or http://dx.doi.org/10.2139/ssrn.301875

Thomas M. Arnold (Contact Author)

University of Richmond - E. Claiborne Robins School of Business ( email )

1 Gateway Drive
Richmond, VA 23173
United States
804-287-6399 (Phone)
804-289-8878 (Fax)

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