Final answer:
The statement that Mike Moyer recommends equity distribution based on contributions such as time, money, and intellectual property is true. Equity considerations are especially crucial in early corporate finance, where private investor contributions can be pivotal for growth.
Step-by-step explanation:
Entrepreneur Mike Moyer suggests creating a process for allocating equity based on the contributions made, including things like time, money, and intellectual property. Based on the information provided, the statement would be categorized as true.
Early-stage corporate finance often entails raising funds from private investors rather than through an IPO due to the high costs and complex regulations of public offerings, which very small companies cannot easily afford or justify. Instead, these companies may seek out private investors who provide the necessary capital for growth in exchange for equity.
In contrast, as companies grow, they may prefer an IPO because it can bring in a significant amount of capital without the immediate burden of debt repayments that comes with bank loans or issuing bonds. This is especially important if the company is not yet profitable and needs to reinvest earnings for growth. Furthermore, venture capitalists tend to have better, more in-depth information about a small firm's profit potential due to their active involvement and substantial ownership, giving them an advantage over bondholders who may have limited insights.
For example, if Fred buys a house for $200,000 with a 10% down payment, his equity in the home would be $20,000.