Financing the Corporate Venture

Prior to World War I, most companies were small in comparison to companies today. They were often owned and operated by the founders [1]. The capital expenditures were for replacement of obsolete or worn-out equipment, or perhaps for modest plant expansions. The funds for these expenditures were, for the most part, obtained from company earnings.

Between World War I and II, industrial growth took place with plant acquisitions or mergers with other firms. Since these were often major expenditures, internal funds were not sufficient to meet company needs. Established companies, like Du Pont and Eastman, that in the past had relied on internally generated funds were forced to examine their policy in order to replace equipment and grow. External funding sources had to be obtained and the sources were banks, insurance companies, and investment banking houses.

In the period after World War II, growth was one of the management goals. For companies to maintain a regular dividend policy, external funding for ventures had to be sought. In very recent times, with the mergers, acquisitions, joint ventures, and alliances, and interest in megadollar projects, external sources were the only option for large-scale projects. Cash generated from internal sources alone could not begin to fund the capital-intensive projects.

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