UPSC Prelims 2014 Q28: Indian Economy – Financial Markets & Capital Markets
What does venture capital mean?
- (a) A short - term capital provided to industries
- (b) A long - term start - up capital provided to new entrepreneurs
- (c) Funds provided to industries at times of incurring losses
- (d) Funds provided for replacement and renovation of industries
Answer: (b) A long - term start - up capital provided to new entrepreneurs
Explanation
Venture capital
Venture capital is long-term, high-risk equity funding given to new or young companies with strong growth potential.
| Feature | Detail |
|---|---|
| Given to | Start-ups and new entrepreneurs, often in technology |
| Form | Equity (a share in ownership), not a loan |
| Risk and return | High risk, with hope of high return |
| Help beyond money | Advice, contacts and management support |
| Exit | By selling shares in an IPO or to another buyer |
The options checked:
| Option | Verdict |
|---|---|
| (a) Short-term capital provided to industries | Incorrect; that is working capital |
| (b) Long-term start-up capital provided to new entrepreneurs | Correct |
| (c) Funds provided at times of incurring losses | Incorrect |
| (d) Funds for replacement and renovation | Incorrect |
In India, venture capital funds are regulated by SEBI as Alternative Investment Funds.
Answer: (b) a long-term start-up capital provided to new entrepreneurs.
Why each option is right or wrong
- (a) Incorrect. Short-term capital for industries is working capital.
- (b) CORRECT. Venture capital is long-term start-up capital for new entrepreneurs.
- (c) Incorrect. Funds given when a firm makes losses are bailout or rescue finance.
- (d) Incorrect. Funds for replacement and renovation are modernisation loans.
Key point
Venture capital: long-term, high-risk equity for start-ups; investor exits through an IPO or sale; regulated by SEBI as Alternative Investment Funds.
Remember
Venture capital = start-up equity, long term.
Common mistakes
- Thinking venture capital is a loan; it is equity.
- Confusing it with working capital.
- Mixing up venture capital (early stage) and private equity (mature firms).
Exam tip
Venture = risk. New firm + long term + equity.
Sources
- Securities and Exchange Board of India — Alternative Investment Funds Regulations, 2012
- Department for Promotion of Industry and Internal Trade — Startup India: Fund of Funds for Startups