Venture capitalists’ job is to ensure companies have good management teams and a sustainable business model that will stand the rest of the time. This will help the capital markets avoid putting too low a value on the companies when they try to go public. Also as they typically demand a very high return in investment and usually exit their portfolio companies through an IPO, they will do their best to make that happen. In addition, they provide capital for companies in their early stages of development.
Investment banks provide their expertise in helping companies to go public or to make subsequent offerings, and introducing them to investors. They provide advisory financial services, help the companies price their offerings, underwrite the shares, and introduce them to investors. They are paid a commission based on the amount of money that the company manages to raise in the offering.
The “buy-side” refers to institutions that do the actual buying and selling of public securities, such as mutual fund companies, insurance companies, hedge funds, and other asset managers. There are two main roles on the buy side: analysts and portfolio managers. Analysts are responsible for doing industry researching, talking to the management teams, doing the valuation and ultimately rating the stock price. They also need to convince the portfolio managers to follow their recommendations. Portfolio managers manage the money of investors and are ultimately responsible for buying or selling securities.
Sell-side analysts monitor the performance of public companies by publishing research on those companies. They typically interact with buy side analysts and portfolio managers. Also they provide research to the buy side during the IPO process.
Accountants audit the financial statements of companies, ensuring that they follow the standards and act free from fraud. They give investors and analysts the confidence to make decisions based on these financial documents.
Regulators, such as The Financial Accounting Standards Boards (FASB), establish and improve standards of financial accounting and reporting for the guidance the education of the public. FASB standards are regulated by the Securities and Exchange Commission (SEC), which regulates the financial reporting of public companies in the United States. They are the last line of defensing for investors when working with public companies.
Lawyers give advices to investors, companies and even governments，helping them running legally. They also help other parties when there are lawsuits involved.
Media’s key mission is to help the pubic know the truth of the companies and investors. They can also provide the information to different parties. They are like a bridge among other parties.
Absolutely, their incentives are not associated properly with their intended role.
Venture capitalists are engaged in providing a high rate of return to their investors for the associated risk. During the dot-com crash, venture capitalists invested many Internet companies that had questionable business models become public companies, even those companies had not been proven operationally. In addition, venture capitalists invested in too many Internet companies in the late 1990s that they would ignore under ordinary circumstances. The reason venture capitalists began the process towards IPO before proper time had taken place and overruled past experience and knowledge is to pursue huge and rapid profits.
Investment bank underwriters help entrepreneurs in the actual process of doing an IPO. And also they provide advisory financial services, help the companies price their offerings, underwrite the shares, and introduce them to investors. However, investment banks took underperforming companies public in order to gain a commission associated with the amount of money that the company manages to raise in its offering. Meanwhile, investors, venture capitalists and buy-side analysts may make wrong decisions based