Somewhere I heard that firms issue shares and bonds through investment banks.
can anyone please provide an explanation and exles in real life of the following:
- mutual fund
- venture capital firm
Yes corporations issue shares of stock through investment banks. Investment banks will underwrite the issue by buying the stocks or bonds and then turning around and selling them at a markup to the public. Investment banks will often already have a bunch of clients lined up who are willing to pay a set price for the stocks and bonds before the Investment bank even buys the issue. Investment banking is a very profitable industry.
A mutual fund simply invests in stocks and bonds once they have already been issued, sold by the investment banks, and are circulating around on the secondary market between individual and institutional investors. The goal of a mutual fund is to pool up a bunch of people’s money together to purchase stocks and bonds that will outperform the rest of the stock or bond market so that everyone involved makes money. Buying a mutual fund share allows you to invest in a diverse portfolio of stocks and/or bonds without having to manage the portfolio yourself. You pay management fees for this convenience.
A venture capital firm is a company that invests money into brand new ventures. This is risky business since more than 67% of new business ventures fail. However if the business happens to succeed the venture capital provider has managed to get in right at the beginning and will often make huge gains. Many venture capitalists are private individual ventures, like john pappajohn. There are however corporate venture capital firms that are owned by hundreds or thousands of stockholders. Some are publicly traded like many stocks which probably were issued initially through the services of an investment bank. No matter how the venture capital firm is organized though, the goal is the same. Make money by investing in high risk/high reward new ventures.
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