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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 as taught in the Types of Financing chapter?

Venture capital involves an investor taking an equity stake in a high-growth, high-risk, usually unlisted business and exiting after some years. It is risk capital, not fixed-rate secured lending, listed debenture trading or pure receivable-backed working capital finance.

  1. AThe investor typically takes an equity stake in a high-growth, high-risk unlisted firm and may exit after a few yearsCorrect
  2. BThe investor lends against fixed assets at a fixed rate with no ownership claim
  3. CThe investor buys only listed debentures through the stock exchange
  4. DThe investor provides funds only for working capital against receivables

Explanation

Venture capital is risk capital provided mainly as equity or quasi-equity to young, high-growth, often unlisted businesses, with exit through sale, buyback or IPO. Option B describes secured term lending, which gives no ownership claim.

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