What Is Venture Capital?

D

Venture capital becomes available when financing from banks and public debt or equity markets is either unavailable or inappropriate.

Venture capital is a form of financing that is specifically targeted towards privately held companies, typically in their early stages of development. It is an important source of funding for startups and emerging businesses that have high growth potential but may not have access to traditional bank financing or other forms of capital.

The correct answer to the question is option D: "Venture capital is financing for privately held companies, typically in the form of equity and/or long-term debt."

Here's a detailed explanation of each option:

A. Venture capital is typically a secondary form of financing, after bank financing: This statement is incorrect. Venture capital is not typically a secondary form of financing after bank financing. In fact, venture capital is often sought out by companies that may not qualify for bank financing due to their early stage, high-risk nature, or lack of tangible assets for collateral.

B. Venture capital is in the form of equity: This statement is correct. Venture capital investments are primarily made in exchange for equity ownership in the company. Venture capitalists provide funds to the company in exchange for a share of ownership, allowing them to potentially benefit from the company's future growth and profitability.

C. Venture capital is short-term financing, usually at higher-than-market rates: This statement is incorrect. Venture capital is not typically short-term financing. Venture capitalists are usually long-term investors who aim to support the company through its growth stages, which often takes several years. The terms of venture capital investments can vary, but they are generally not structured as short-term loans, and the interest rates are not necessarily higher than market rates.

D. Venture capital is financing for privately held companies, typically in the form of equity and/or long-term debt: This statement is correct. Venture capital is specifically aimed at privately held companies, which means that the company's shares are not publicly traded on a stock exchange. While equity is the predominant form of investment in venture capital, it's worth noting that venture capitalists may also provide long-term debt financing in certain cases.

E. Venture capital is equity and debt financing available to privately and publicly held companies: This statement is incorrect. Venture capital is primarily targeted at privately held companies, as mentioned earlier. While some venture capital firms may invest in publicly held companies, it is not the primary focus of venture capital. Additionally, venture capital is not limited to providing debt financing. The primary focus is on equity investments, although debt financing may be included in certain situations.

In summary, venture capital refers to financing provided to privately held companies, primarily in the form of equity ownership. While debt financing may be included in some cases, it is not the primary characteristic of venture capital.