investors who provide financial capital.

Any young startup firm is a risk. Some startup firms are only a little more than an idea on paper. The firm’s

founders inevitably have better information than anyone else about how hard they are willing to work, and

whether the firm is likely to succeed. When the founders invested their own money into the firm, they

demonstrate a belief in its prospects. At this early stage, angel investors and venture capitalists try to

overcome the imperfect information, at least in part, by knowing the managers and their business plan

personally and by giving them advice.

Accurate information is sometimes not available because corporate governance, the name economists give to
the institutions that are supposed to watch over top executives, fails, as the following Clear It Up feature on

Lehman Brothers shows.

CLEAR IT UP
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