Question

Given below are two statements :
Statement I : A startup's valuation is usually lower during the seed funding stage compared to later stages.
Statement II : Venture capital is typically the first source of funding for most start ups.
In the light of the above statements, choose the correct answer from the options given below :

• A. Both Statement I and Statement II are true
• B. Both Statement I and Statement II are false
• C. Statement I is true but Statement II is false
• D. Statement I is false but Statement II is true

Hint:

The funding ladder: Bootstrapping $\rightarrow$ Friends \& Family $\rightarrow$ Angel Investors $\rightarrow$ Venture Capital (VC).

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
Funding cycles for startups move from high-risk, low-value stages to lower-risk, high-value stages as the business model is proven.
Step 2: Detailed Explanation:
1. Analysis of Statement I: At the seed stage, the product is often just an MVP or idea. As a company moves to Series A, B, or C, it has proven its market fit and revenue, leading to a much higher valuation. This statement is true.
2. Analysis of Statement II: The first source of funding for most startups is typically "Bootstrapping" (personal savings) or "Friends and Family". Venture Capitalists (VCs) usually only enter when there is some traction, typically during or after the Seed/Series A stage. They are rarely the "first" source. This statement is false.
Step 3: Final Answer:
Valuation increases as stages progress, and VCs are institutional investors who usually come in after initial personal/angel funding.