Your task To identify and discuss the various risks and ethical issues to be considered when launching as well as investing in a start-up. Assessment Description In this individual assignment,...

RISKS AND ETHICAL ISSUES WHEN LAUNCHING AND INVESTING IN A START-UP
Table of Contents
Introduction    3
Part One: Risks    4
Part Two: Ethical Issues    5
Conclusion    7
References    8
Introduction
Investing in a Startup business can be very risky as well as rewarding if the investment does pay off. Further, most of the companies are unable to perform efficiently, the outcome of which the investors lose the money invested. Also, investment in Startup is not for the faint or weak hearted. This is because a Startup have to perform effectively at all the stages where they face tremendous challenges and minimum opportunities. Hence, this is a risk for the investors. The most common form of risks of investing in Startup are investment risk, security risks and business risks. Further, the investment risks can be segregated into principal risks where by investing in Startup the entire money is at risk, the return risks where the return amount is highly variable and is not guaranteed. The third is returns delay where the returns may take many years to emerge. Finally, its liquidity risk where it is difficult for the investor to sell the securities which are held privately.
The security risk can be divided into instrument risk which are essentially investing in equity, debentures or preferred stocks. Second is dilution where the company may require additional funds for expansion of the business as a result will issue new securities which will ultimately dilute the ownership percentage of the shareholder in the business. The third is minority stake smaller shareholders will have less ability to influence the decisions of the company compared to the large shareholders. Fourthly, it is valuation risk where the valuation of the Startup is extremely complex and difficult to assess.
The third risk is business risks and can be due to various small risks such as failure of the business, shortage of revenue, poor funding of the Startup, no history of future operations as a result of which unable to provide necessary information to the stakeholders, personnel or employee inexperience, due to frauds, due to improper guidance from the professional investors, failure to efficiently manage the growth of the Startup business, stiff competition from the existing players, less demand for the Startup product in the market and poor control from the Board of directors and management.
Further, the Startup may face ethical issues such as licensing and permits, face legal consequences due to lack of knowledge and end up paying penalty, making false marketing claims through advertisements, issues related to proper allocation of properties with respect to setup of manufacturing facility, service center and warehouse unit. There may be ethical issues related to data protection and privacy of important information, protection of intellectual property rights.
Therefore, it is essential that there must be a proper evaluation of the risks and ethical issues which may hinder the business operation of Startup in Australia from the point of view of the entrepreneur and the investors.
Part One: Risks
Risks occurs due to uncertainty with respect to the preferences of the customers, technology and the competitions faced by the Startup businesses. Hence, it is essential that the entrepreneur must recognize and be aware of the risks. The personality of a Startup business entrepreneur is usually risk averse. But as the business grows there are several risks and ethical issues arise which should be adopted by the entrepreneur (Startup Decisions, 2019). These risks are usually product risk, market risks and financial risks.
Product risk is one of the biggest risk of startups. Making the customers understand the product, the issues it resolves and the reason due to which it is worth investing is very complex and difficult for the entrepreneur. The entrepreneurs have little time to devote in the research process prior to the launch of the product (Bhidé, 2000). Also, the research process for a Startup company may be too expensive. The possible ways to resolve this risk is by developing a new product by discovering new opportunities (Wang et al., 2013). This can be done through product innovation which can only happen by sourcing the existing ideas which are already tested and applied in the organization (Oliva et al., 2014). The example of product risk was Onward Mobility company which planned to launch BlackBerry smartphones with a physical keyboard in...