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CS Executive · Setting Up of Business, Industrial and Labour Laws · Startups and its Registration

Tara's LLP-based startup, recognised by DPIIT, plans to seek funding. A friend claims that crowdfunding, venture debt and the Fund of Funds are all forms of equity capital taken directly from the public. Which of these three is most accurately described as debt-type funding?

Venture debt is the debt-type source. It gives loan-style funding to venture-backed startups, usually alongside equity rounds, with less dilution of ownership. The Fund of Funds works through AIFs rather than lending directly, and equity crowdfunding raises shares from many small contributors, so the friend's claim is incorrect.

  1. AVenture debt, which provides loan-type funds to startups, usually alongside equity roundsCorrect
  2. BFund of Funds, which lends directly to startups at fixed interest
  3. CEquity crowdfunding, which is a bank term loan
  4. DNone, since all three are equity capital

Explanation

Venture debt is loan-type financing given to venture-backed startups, often complementing equity rounds and with limited dilution. The Fund of Funds invests via AIFs and does not lend directly. Equity crowdfunding raises equity from many small contributors, not a bank loan. So the friend's claim is wrong.

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