1. Venture Capital is best defined as:
- A. Short-term debt financing for working capital
- B. Government grants for startups
- C. Equity funding provided to high-risk, high-potential businesses
- D. Bonds issued by new companies
Venture Capital is equity funding provided to startups and emerging businesses with high growth potential and higher risk.
2. Which of the following is NOT a characteristic of Venture Capital financing?
- A. Guaranteed fixed return
- B. High risk and high return potential
- C. Long-term investment horizon
- D. Active involvement in management
Venture capital does not guarantee fixed returns. It is a high-risk, equity-based investment with long-term focus.
3. In India, organized Venture Capital activities started in:
- A. 1950s with RBI support
- B. 1969 with nationalization of banks
- C. 1980s with SEBI guidelines
- D. 1988 with the establishment of TDICI by ICICI and UTI
In India, Venture Capital formally began in 1988 when ICICI and UTI set up TDICI (Technology Development and Investment Corporation of India).
4. Which government body issued the first set of guidelines for Venture Capital in India in 1988?
- A. Ministry of Finance
- B. Controller of Capital Issues (CCI)
- C. Reserve Bank of India
- D. Department of Economic Affairs
The Controller of Capital Issues (CCI) issued the first guidelines in 1988 to regulate Venture Capital funds in India.
5. Which of the following sectors was the primary focus of early Venture Capital funding in India?
- A. Consumer goods
- B. Real estate
- C. Technology and R&D driven industries
- D. Agriculture
Early Venture Capital funding in India was directed towards technology, R&D, and innovation-driven industries.
6. Which of the following statements about Venture Capital in India is TRUE?
- A. SEBI regulates Venture Capital Funds under SEBI (Venture Capital Funds) Regulations, 1996
- B. Venture Capital provides only debt finance to startups
- C. Venture Capital was introduced by nationalized banks in 1969
- D. Venture Capital is risk-free due to government guarantees
SEBI brought Venture Capital Funds under regulation through SEBI (Venture Capital Funds) Regulations, 1996, later merged under AIF regulations.
7. Which of the following is a unique characteristic of Venture Capital financing?
- A. It provides short-term liquidity loans
- B. It guarantees repayment of principal
- C. It does not involve any management participation
- D. It involves active participation in management and mentoring
Venture Capitalists not only provide funds but also actively participate in management, strategy, and mentoring of the business.
8. Venture Capital is considered a high-risk investment because:
- A. It is backed by collateral
- B. It is invested in unproven, innovative, and early-stage businesses
- C. It only invests in large listed companies
- D. It assures fixed annual returns
Venture Capital targets startups and innovative businesses where the success rate is uncertain, making it inherently risky.
9. The stage of Venture Capital financing where funds are provided to help a startup develop its product prototype is called:
- A. Expansion Stage
- B. Later Stage
- C. Seed Stage
- D. Bridge Finance
In the Seed Stage, Venture Capitalists provide funds to develop product ideas, conduct research, or build a prototype.
10. Which stage of Venture Capital financing involves supporting a company in scaling up operations, marketing, and expanding markets?
- A. Expansion Stage
- B. Seed Stage
- C. Idea Stage
- D. Bridge Finance
In the Expansion Stage, Venture Capital funding is used to scale operations, marketing, and enter new markets after initial success.
11. Bridge financing in Venture Capital refers to:
- A. Funding given during idea validation
- B. Long-term investment to build infrastructure
- C. Initial support to build a prototype
- D. Short-term funding provided before IPO or major financing round
Bridge financing is temporary, short-term funding provided to a company before it goes public or raises a larger round of financing.
12. At which stage of Venture Capital financing is the risk the highest?
- A. Expansion Stage
- B. Seed Stage
- C. Later Stage
- D. Bridge Financing
The Seed Stage carries the highest risk as the business idea is untested, and there is no proven product or revenue stream.
13. The first step in the Venture Capital financing process is:
- A. Investment monitoring
- B. Negotiation and deal structuring
- C. Project evaluation and screening
- D. Exit through IPO
The process begins with project evaluation and screening, where the Venture Capitalist assesses business plans, scalability, and promoter credibility.
14. After the funding agreement is finalized, Venture Capitalists typically:
- A. Actively monitor performance and provide strategic guidance
- B. Exit immediately through IPO
- C. Convert investment into fixed deposits
- D. Hand over complete control of the company to banks
Venture Capitalists play an active role in monitoring and advising the company post-investment to ensure growth and safeguard their stake.
15. Which of the following is a common exit route for Venture Capitalists?
- A. Accepting fixed interest from the startup
- B. Providing debt refinancing
- C. Long-term perpetual funding
- D. Exit through IPO, acquisition, or buy-back
Venture Capitalists exit by selling their stake through IPOs, acquisitions, or buy-backs by promoters, realizing their returns.
16. Venture Capital Funds in India were first regulated under which guidelines?
- A. Companies Act, 1956
- B. SEBI (Venture Capital Funds) Regulations, 1996
- C. RBI Prudential Norms, 1991
- D. FEMA Guidelines, 2000
Venture Capital Funds were formally regulated by SEBI under the SEBI (Venture Capital Funds) Regulations, 1996.
17. Under current regulations, Venture Capital Funds in India are categorized as:
- A. Category I Alternate Investment Funds (AIFs)
- B. Category II Mutual Funds
- C. Category I Alternate Investment Funds (AIFs)
- D. Category III Hedge Funds
Venture Capital Funds now fall under SEBI (Alternative Investment Funds) Regulations, 2012, as Category I AIFs.
18. Which of the following sectors is typically encouraged under SEBI’s Venture Capital Fund regulations?
- A. Startups in IT, biotechnology, and innovation-driven businesses
- B. Traditional manufacturing units
- C. Established listed companies
- D. Only government-owned enterprises
SEBI encourages Venture Capital Funds to invest in high-growth, innovation-based sectors like IT, biotech, and startups.
19. Which of the following is a common mode of Venture Capital financing?
- A. Bank overdraft
- B. Equity participation
- C. Public deposit schemes
- D. Hire purchase finance
Equity participation is a primary mode of Venture Capital financing where the VC invests directly in the equity of the company.
20. In convertible debt financing, Venture Capitalists:
- A. Provide grants that need not be repaid
- B. Lend money with fixed interest rates
- C. Provide debt that can later be converted into equity
- D. Offer only preference shares
Convertible debt is a hybrid mode where the VC provides debt with an option to convert it into equity at a later stage.
21. Which of the following is an advantage of Venture Capital financing for startups?
- A. Access to funds along with managerial and strategic expertise
- B. Guaranteed repayment obligation
- C. No dilution of ownership
- D. Risk-free source of finance
Venture Capital provides not just money but also industry expertise, mentoring, and business networks to startups.
22. Which of the following is a disadvantage of Venture Capital financing from the entrepreneur’s perspective?
- A. Access to expert guidance
- B. Long-term patient capital
- C. Networking opportunities
- D. Dilution of ownership and loss of some control
One drawback of Venture Capital is that entrepreneurs have to share ownership and sometimes give up part of management control.
23. Exiting by selling the company’s shares to the public through an Initial Public Offering (IPO) is known as:
- A. Management buyout
- B. Public issue / IPO exit
- C. Trade sale
- D. Liquidation
One of the most preferred exit routes for Venture Capitalists is an IPO, where shares are sold to the public, generating returns.
24. Which exit route involves selling the VC’s stake to another company in the same industry?
- A. IPO
- B. Buy-back by promoters
- C. Trade sale / Strategic sale
- D. Liquidation
In a trade sale, the Venture Capitalist sells its stake to another company (often a competitor or strategic partner) in the industry.
