Finance is a complicated business. It is possible to lose money on an investment before you even make it. What are the factors that affect the costs of making investments?
COMPLEXITY OF THE TRANSACTION
COMPLEXITY OF THE TRANSACTION
A greater number of variables that leads to potential complications increasing the cost of a financial transaction
MATURITY OF MARKETS
MATURITY OF MARKET
Less mature markets or industries (also called emerging or frontier markets) are, in general, less organized and therefore more costly to participate in but they allow room for growth and innovation and so are attractive to investors
REGULATORY COMPLEXITY
REGULATORY COMPLEXITY
Significant complexity or rate of change in of the regulatory environment requires more time and expertise to navigate therefore increasing the costs of investments
ECONOMIES OF SCOPE
ECONOMIES OF SCOPE
Average total cost of a service or product decrease when number of different services provided within a single institution increases. As a result, financial institutions often diversify what financial services or products they offer
ECONOMIES OF SCALE
ECONOMIES OF SCALE
The greater number of similar transactions (also called specialization), the lower per unit fixed costs as costs are spread over a larger number of transactions. Scale also creates operational efficiencies and synergies
ACCESS TO KNOWLEDGE
ACCESS TO KNOWLEDGE
Whether or not knowledge necessary to inform investment decision is readily available; for example, in an early stage, field knowledge is less readily organized or accessible
ACCESS TO DEAL FLOW
ACCESS TO DEAL FLOW
If investors cannot easily identify enterprises ready for investment in a particular industry or geography (also called absorptive capacity), investors need to build technical support or market formation activities into the cost of financing
AVAILABILITY OF INVESTMENT CAPITAL
AVAILABILITY OF INVESTMENT CAPITAL
Investors rarely invest alone. Therefore, whether other appropriate investment capital is available to co-invest or partner affects the cost of the transaction to the investor
OTHER SECTION CATEGORIES




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