CSEET · Economic and Business Environment · Entrepreneurship Scenario
A start-up founder in Pune has a promising product but struggles because banks demand collateral and she has no operating history. Which challenge is she primarily facing, and which kind of external source best suits an early-stage, high-risk, high-growth venture such as hers?
She faces an access-to-finance challenge, and venture capital or angel investment suits her best. These investors back risky early-stage firms for equity without needing collateral or operating history, unlike banks, commercial paper markets or public debenture issues.
- AAccess to finance; venture capital or angel investmentCorrect
- BExcess regulation of exports; commercial paper
- CLabour shortage; debentures to the public
- DTechnology obsolescence; retained profits of a mature firm
Explanation
Lack of collateral and track record is a finance-access problem. Angel investors and venture capital fund risky early-stage firms in return for equity and do not require collateral. Commercial paper and public debentures need established credit standing, and a new firm has no retained profits to use.
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