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Q28 (IAS/2014) Economy › Industry, Infrastructure & Investment › Investment vehicles Official Key

What does venture capital mean?

Result
Your answer: —  Âˇ  Correct: B
Explanation

Venture capitalists provide the funding for start-up businesses and early stage companies[1], making option B the correct answer. Venture capital is a central part of the life cycle of a new business, as before a company can start earning revenue, it needs start-up capital to hire employees, rent facilities[2], and cover other initial expenses. Getting funding for a business from venture capital bridges the gap, making it an imperative engine of innovation and long-term growth prospects[3].

Option A is incorrect because venture capital is fundamentally about long-term growth and value creation, not short-term funding. Option C is wrong as VCs fill the gap when a company lacks history, collateral, or untested models that hinder traditional support[4]—they invest in new ventures, not established companies facing losses. Option D is also incorrect since venture capital targets new entrepreneurial ventures rather than existing industries requiring renovation or replacement of assets.

Sources
  1. [1] https://www.sciencedirect.com/topics/economics-econometrics-and-finance/venture-capital-financing
  2. [2] https://www.investopedia.com/terms/v/venturecapital.asp
How others answered
Each bar shows the % of students who chose that option. Green bar = correct answer, blue outline = your choice.
Community Performance
Out of everyone who attempted this question.
80%
got it right
PROVENANCE & STUDY PATTERN
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Don’t just practise – reverse-engineer the question. This panel shows where this PYQ came from (books / web), how the examiner broke it into hidden statements, and which nearby micro-concepts you were supposed to learn from it. Treat it like an autopsy of the question: what might have triggered it, which exact lines in the book matter, and what linked ideas you should carry forward to future questions.
Q. What does venture capital mean? [A] A short-term capital provided to industries [B] A long-term start-up capital provided to new entrep…
At a glance
Origin: Mostly Current Affairs Fairness: Low / Borderline fairness Books / CA: 0/10 ¡ 10/10
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This is a classic 'Definition' question, classified as a 'Sitter'. It tests fundamental financial literacy rather than obscure trivia. If you understand the basic distinction between Money Market (short-term) and Capital Market (long-term), and the meaning of 'Venture' (risk/new), this is a 10-second kill.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Does "venture capital" refer to short-term capital provided to industries?
Origin: Web / Current Affairs Fairness: CA heavy Web-answerable

Web source
Presence: 5/5
"Getting funding for a business from venture capital bridges the gap, making it an imperative engine of innovation and long-term growth prospects."
Why this source?
  • Explicitly describes venture capital as supporting long-term growth rather than short-term financing.
  • Positions VC as bridging gaps for firms lacking collateral/history and providing mentorship and resources for sustained development.
Web source
Presence: 3/5
"the entrepreneur to aim for short-term success rather than long-term value creation, that is, “window dressing,” to secure the VC investor's next round of capital infusion."
Why this source?
  • Notes that VC uses staged rounds of financing, which can create pressure on entrepreneurs for short-term results to secure the next round.
  • Implicates that VC is structured (staged) financing rather than a simple short-term capital injection.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 16: Terminology > 16 Terminology > p. 461
Strength: 5/5
“Systemic change can mean gradual institutional reforms, but those reforms must be based on and aimed at a transformation of the fundamental qualities and principles of the system itself. Systemic change is a change that pervades all part of the system rather than just one part.• Venture Capital: It is a form of private equity and a type of financing that investors provide to start-up companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks and any other financial institutions.• Skewflation: Skewflation means the skewness of inflation among different sectors of the economy i.e., some sectors are facing huge inflation, some none and some deflation.• Stagflation: It is an exception to the general theory of inflation and growth.”
Why relevant

Gives a direct definitional pattern: venture capital is a form of financing provided to start‑ups and small businesses believed to have long‑term growth potential.

How to extend

A student can extend this by noting that 'long‑term growth potential' implies multi‑period investment horizons, which contrasts with the notion of 'short‑term' funding in the statement.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > 2014 > p. 286
Strength: 4/5
“• 6. 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”
Why relevant

Presents the standard MCQ contrast where one option defines venture capital as 'short‑term' and another as 'long‑term start‑up capital', indicating that textbooks treat these as mutually exclusive definitions.

How to extend

A student could use this to recognise that commonly taught definitions distinguish venture capital from short‑term funds and thus suspect the statement is likely incorrect.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 12: Indian Industry > Important Measures Taken So Far > p. 399
Strength: 4/5
“• The India Aspiration Fund has been set up under Small Industries Development Bank of India (SIDBI) for venture capital financing of new setups and for expanding existing units in the MSME sector. • SIDBI's Make in India Soft Loan Fund for Micro Small and Medium Enterprises e. (SMILE) scheme has been launched to offer quasi-equity and term-based short-term loans to Indian SMEs with less stringent rules and regulations and a special focus on 22 thrust sectors of Make in India.”
Why relevant

Example of institutional practice: SIDBI's India Aspiration Fund is described as set up for 'venture capital financing of new setups and for expanding existing units', linking VC to new/expansion finance rather than short‑term working capital.

How to extend

One can infer that funds aimed at start‑ups and expansion are typically longer‑term commitments than working‑capital loans, so VC is unlikely to be short‑term.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > MONEY MARKET > p. 258
Strength: 3/5
“• It refers to that part of broader financial markets in which highly liquid and short-term financial assets with maturity up to 1 year are traded. • Money market caters to the short-term borrowing requirements such as working capital. Entities and individuals with short-term surplus invest in the money market instruments and lend money to those who need them. For long-term funds, capital markets are tapped.”
Why relevant

Defines the money market as the segment for 'highly liquid and short‑term financial assets with maturity up to 1 year' used for working capital, establishing a textbook boundary for what 'short‑term' finance means.

How to extend

By contrasting this explicit short‑term/money‑market definition with the VC definition (start‑up, long‑term), a student can eliminate VC as a money‑market/short‑term instrument.

Statement analysis

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Statement analysis

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Statement analysis

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