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CA Final · Advanced Financial Management · Startup Finance

Aarav founds a tech startup with only an idea and a prototype, and no revenue yet. He raises a small amount from a group of wealthy individuals who also mentor the company, in return for equity or convertible notes. At which stage of startup funding is this source most typically used?

Angel investment at the seed stage is correct. Angels are wealthy individuals who back pre-revenue ideas and prototypes, taking equity or convertible notes and offering mentoring. IPOs, buyouts and venture debt suit later, more established companies with revenue and track record.

  1. AAngel investment at the seed stageCorrect
  2. BInitial public offer on the main board
  3. CVenture debt from a bank at the maturity stage
  4. DPrivate equity buyout of a mature business

Explanation

Angel investors are high-net-worth individuals who fund early-stage, pre-revenue ventures and often mentor them, usually for equity or convertible instruments. An IPO and PE buyouts need an established business track record, and venture debt typically follows an equity round, so these do not fit.

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