Final answer:
Managers assess stand-alone risk by examining the uniqueness of a project, the management team's commitment, and the amount of information available about the company's performance. In the early stages, personal knowledge and the founders' investments are indicators of potential success; as the company grows, more objective data is utilized.
Step-by-step explanation:
When managers consider the stand-alone risk of projects, particularly in the context of startups, they assess the project's potential success if it were the only investment in the portfolio. This entails examining factors such as the business plan, the dedication and capability of the management team, and the founders' investments which signal confidence in the venture. As a startup evolves, access to more comprehensive information about the company makes personal knowledge of the managers less critical for investors like bondholders and shareholders.
At the same time, the early stage of any startup involves dealing with imperfect information; hence, relationships and personal assessments are vital. Angel investors and venture capitalists often rely on their personal knowledge of the managers and their commitment to the business as an indicator of potential success. This personal approach helps bridge the gap caused by lack of concrete data in the nascent phase of a company. As a project progresses, the need for insurance against catastrophic risks should not be ignored, as the consequences might be severe, even if probabilities are low.