32. A start-up company which has developed a new idea that it believes has great

Question

32. A start-up company which has developed a new idea that it believes has great potential of being successful would typically seek to raise capital by: (2 points) Engaging an investment bank to manage its Initial Public Offering (IPO) Contacting venture capital firms to arrange for an investment in the start-up company's equity in the form of a seed round or early-stage round. Contacting commercial banks to arrange for a syndicated bank loan. Contacting a private equity firm to arrange for an investment in the start-up company's equity in the form of a seed round or early-stage round. a. b. c. d.

Explanation / Answer

b) Contacting a venture capital firm.

This is because venture capital is a form of long term equity financing that give the new start up financial as well as management help.It is generally advanced to highy risky yet promising business ventures which are supposed to give good returns in the future. Such firms might not have a collateral to get a loan against in comercial banks and neither do they have any credibility in the market to go for an IPO.

It finances the startup at various stages as per the requirement of the startup. (seed ,early stage and expansion funding)

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