Question 57 from UPSC CSE 2014 - Economy

Question

What does venture capital mean?

IASCODEX · Accepted Answer

Correct Option: B. A long-term start-up capital provided to new entrepreneurs

Strategy: - Identify the key phrase 'venture capital'.
- Associate it with start-ups, new ventures, and long-term, high-growth potential funding.
- Eliminate options mentioning 'short-term,' 'losses,' or 'replacement/renovation'.
- Select the option that aligns with the core concept of financing innovative, early-stage companies.

Key Info: **What is Venture Capital?**
Venture capital is financing for start-up companies, early-stage firms, or small businesses with high growth potential that are often too risky for traditional bank loans. These funds are managed by professionals who pool capital from various investors, such as high-net-worth individuals and institutional investors. The capital is invested in exchange for equity or ownership in the company.

Venture capital supports innovation, entrepreneurship, and business expansion, especially in technology and knowledge-driven sectors. This investment is long-term and provides not only financial backing but also mentoring, expertise, and industry connections. Unlike loans, there is no fixed repayment schedule; returns are realized when the company grows significantly, is acquired, or goes public through an IPO.

**Distinction from Other Capital Types**
- **Short-term capital:** Refers to working capital or loans with quick repayment schedules, not typical of venture capital.
- **Bailout or turnaround capital:** Funds for loss-making situations, which differs from venture investments.
- **Modernization or restructuring capital:** Pertains to replacement and renovation funds, not venture capital.

IASCODEX · Answer

Option A: A short-term capital provided to industries

IASCODEX · Answer

Option C: Funds provided to industries at times of incurring losses

IASCODEX · Answer

Option D: Funds provided for replacement and renovation of industries