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

Which of the following statements about venture capital financing is correct?

Venture capital investors typically take an equity stake in high-risk, high-growth businesses and plan an exit through an IPO, buy-back or sale to a strategic investor. It is not fixed-interest debt, and venture capitalists commonly take an active monitoring role.

  1. AVenture capital funding is provided only to established, profitable companies with a long operating history
  2. BVenture capital investors typically take an equity stake and seek exit through IPO, buy-back or sale to a strategic investorCorrect
  3. CVenture capital funding always carries a fixed rate of interest and mandatory periodic repayment
  4. DVenture capital investors normally avoid any role in management or monitoring of the investee

Explanation

Venture capital is risk capital, mainly equity or quasi-equity, given to start-ups and high-growth firms, and investors exit via IPO, buy-back or strategic sale. It is not fixed-interest debt, and investors often monitor and mentor investees.

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