Answer to Question 1
Return on investment (ROI) techniques measure the amount of income (return) that will be provided by a specific current expenditure (investment). ROI techniques provide a quantitative expression of whether the benefits of a particular investment exceed their costs (including opportunity costs). They can also mathematically adjust for the reduced value of benefits that the investment will return in future years (benefits received in future years are worth less than those received in the current year). Note, however, that ROI has some built-in biases that can lead managers to make poor decisions. First, ROI requires that all costs and benefits be stated in dollars. Because it is usually easier to quantify costs than benefits, ROI measurements can be biased in a way that gives undue weight to costs. Second, ROI focuses on benefits that can be predicted. Many electronic commerce initiatives have returned benefits that were not foreseen by their planners. The benefits developed after the initiatives were in place. Yet another weakness of ROI is that it tends to emphasize short-run benefits over long-run benefits.
Answer to Question 2
Angel investors are a good option for online business ideas that need more money than they can raise from relatives and friends. In return for their capital, angel investors become stockholders in the business.
Venture capitalists are very wealthy individuals, groups of wealthy individuals, or investment firms that look for small companies that are about to grow rapidly. They invest large amounts of money (between a million and a few hundred million dollars) hoping that in a few years the company will be large enough to sell stock to the public in an event called an initial public offering (IPO). In the IPO, the venture capitalists take their profits and once again search for a new small company in which to invest.
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