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CSEET · Economic and Business Environment · Entrepreneurship Scenario

Which of the following best describes the role of venture capital in the entrepreneurial ecosystem, distinguishing it from ordinary bank lending?

Venture capital is risk capital, usually equity, invested in high-growth ventures where investors accept high risk for potentially high returns. This differs from bank loans, which are secured, fixed-interest and repayable, and from grants or overdrafts, which do not involve equity investment.

  1. AIt provides risk capital mainly as equity to high-growth ventures, accepting high risk for potentially high returnsCorrect
  2. BIt lends fixed-interest funds against mortgage of property with guaranteed repayment
  3. CIt supplies only short-term working capital through overdrafts
  4. DIt gives non-repayable government grants without any ownership or return expectation

Explanation

Venture capital is equity-oriented risk capital invested in high-growth, often young firms, with investors expecting high returns on exit. Fixed-interest secured loans describe bank credit, overdrafts are short-term working capital, and grants involve no return expectation, so those options are wrong.

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