UPSC Prelims 2014 · Question 8 of 100
UPSC Prelims 2014 question on Venture Capital
- ExamUPSC CSE
- Year2014
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicSecurity Market in India
- DifficultyMedium
- TypeDirect
What does venture capital mean?
Show answer
Answer: B. A long-term start-up capital provided to new entrepreneurs
Verdict
The answer is long term start up capital provided to new entrepreneurs. Venture capital is patient equity finance for young, high growth, high risk ventures.
Analysis
The defining features are that the money is equity rather than debt, that it goes to firms too young or too risky for bank lending, and that the investor expects to stay in for years before exiting through a sale or a listing. Short term capital is wrong on the tenure, and short term industrial finance is working capital, a different instrument. Funds provided at times of incurring losses describes rescue or turnaround finance, not venture capital. Funds for replacement and renovation describes modernisation finance, which typically goes to established firms with an existing asset base.
Source
Investopedia entry on venture capital.
How to crack it
All four options describe real categories of industrial finance, so the discriminator has to be a defining attribute, not a plausible one. Venture capital has two: the firm is new, and the money is long term equity. Test each option against both attributes and only one survives. Build the habit of holding a two attribute test for every economics term you learn, because UPSC economics distractors are almost always real concepts placed in the wrong slot.