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CA Intermediate · Financial Management and Strategic Management · Types of Financing

Which of the following best describes venture capital financing?

Venture capital is risk capital, mainly equity-type funding, given to high-growth or start-up businesses in return for ownership. The investor typically aims to exit later through an IPO, sale to another investor or buyback. It is not a bank working capital loan, debenture issue or deposit.

  1. AShort-term working capital loans given by banks against stock
  2. BEquity-type funding provided to high-growth, often start-up, firms in exchange for ownership, with the investor exiting later through sale or listingCorrect
  3. CDebentures issued to the public with a fixed redemption date
  4. DDeposits accepted by a company from its members

Explanation

Venture capital is risk capital, mostly equity or quasi-equity, invested in new or growing businesses with high potential and risk. The investor takes ownership and seeks an exit via IPO, sale or buyback. The other options describe bank working capital, public debentures and deposits.

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