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CA Final · Advanced Financial Management · Startup Finance

A startup with an idea, a founding team and no product wants to raise a very small amount from friends, family and a government-supported incubator to build a minimum viable product. Which feature best describes this pre-seed funding stage?

Pre-seed funding involves small amounts at high risk, with valuation resting mainly on the founding team and the idea rather than on financial metrics. The startup has no revenue, product or fixed assets, so EBITDA multiples, public issues and secured bank loans are not feasible.

  1. ASmall ticket size, high risk and valuation based largely on team and idea rather than financial metricsCorrect
  2. BLarge institutional investment valued on EBITDA multiples
  3. CFunding through a public issue with mandatory disclosures to SEBI
  4. DDebt financing from banks secured against the startup's fixed assets

Explanation

At pre-seed there are no revenues or assets, so investors rely on the team and the idea and invest small amounts at high risk. EBITDA multiples need operating history, public issues need an established business, and secured bank debt needs collateral that the startup lacks.

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