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

Which of the following is a feature of venture capital financing?

Venture capital involves an investor taking an equity or equity-linked stake in a high-growth but risky business and aiming to exit later through a sale or public listing. Fixed-interest secured lending, receivable purchase and short rentals describe other financing methods.

  1. AThe investor typically takes an equity stake in a high-growth, high-risk business and expects exit through sale or listingCorrect
  2. BThe investor lends against fixed assets at a fixed interest rate with no equity participation
  3. CThe investor purchases trade receivables and collects them from debtors
  4. DThe investor supplies plant on rent for a short, cancellable period

Explanation

Venture capital is risk capital, mostly equity or equity-linked, provided to start-ups and high-growth firms, with the investor seeking capital gains on exit through an IPO or sale. Fixed-rate secured lending is term lending, buying receivables is factoring, and short cancellable rental is an operating lease.

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