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CMA Final · Entrepreneurship and Startup · The Entrepreneurial Ecosystem

Which of the following best distinguishes venture capital funding from bank term loans for a startup?

Venture capital is typically equity-based funding for high-risk, high-growth ventures, with the investor expecting returns from an eventual exit such as an IPO or sale. Bank term loans, by contrast, need fixed repayments and often collateral.

  1. AVenture capital is repaid in fixed instalments with interest regardless of performance
  2. BVenture capital is typically equity-based, accepts higher risk, and the investor seeks returns through an eventual exitCorrect
  3. CVenture capital requires mortgage of fixed assets as security
  4. DVenture capital is available only to listed companies

Explanation

Venture capital usually takes equity in high-growth, high-risk ventures and earns returns on exit through IPO or sale. Fixed instalments and collateral are features of bank loans, and VC is mainly for unlisted young firms.

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