Venture capital is a type of private equity financing that funds early-stage, high-potential growth companies. It is a critical source of financing for start-ups and small businesses that may not have access to traditional sources of capital, such as bank loans or public markets. Venture capital firms typically invest in companies in exchange for equity ownership, expecting significant returns when the company goes public or is acquired.
Which of the following best describes venture capital?
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A) Venture capital is not focused on publicly traded securities. B) Venture capital is a type of private equity financing that funds early-stage, high-potential growth companies. C) Venture capital is not focused on debt financing for established companies. D) Venture capital is not a type of crowdfunding.
What is the primary goal of a venture capital firm when investing in a start-up?
A) Venture capital investments are not focused on generating a steady income stream. B) The primary goal of a venture capital firm is to achieve significant capital appreciation through its investments in start-ups. C) Venture capital investments are inherently risky and not focused on minimizing risk through diversification. D) Venture capital investments are typically long-term in nature, not focused on providing short-term financing.
In the late 1990s, a small online bookstore received venture capital funding from a well-known venture capital firm. The investment allowed the company to expand its product offerings and invest in technology, eventually becoming one of the largest e-commerce companies in the world.
Which of the following is a common exit strategy for a venture capital investment?
A) An initial public offering (IPO) is a common exit strategy for venture capital investments, as it allows the VC firm to realize a return on its investment. B) Redemption of shares by the company is not a common exit strategy for venture capital investments. C) Sale of shares on the secondary market is not a common exit strategy for venture capital investments, as VC investments are typically in privately held companies. D) Conversion of equity to debt is not a common exit strategy for venture capital investments.
A group of college students develops a mobile app that connects users with local service providers, such as dog walkers and handypersons. They pitch their idea to a venture capital firm, which agrees to invest $1 million in exchange for a 20% equity stake in the company. The investment allows the start-up to hire additional staff, develop the app, and launch a marketing campaign.
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Example Series 65 Example Practice Question
Venture capital, a start-up's friend, provides the funds to help them ascend. With equity stakes and high returns, the VC's investment journey begins.