Question

Given below are two statements :
Statement I : Venture capital firms are usually organized as limited partnerships.
Statement II : Venture capitalist is a money manager who is involved in making risk investments from equity capital with the objective of gaining better returns.
In the light of the above statements, choose the most appropriate answer from the options given below

• A. Both Statement I and Statement II are correct
• B. Both Statement I and Statement II are incorrect
• C. Statement I is correct but Statement II is incorrect
• D. Statement I is incorrect but Statement II is correct

Answer 1

The Correct Option is A

To evaluate the given statements, we need to understand the context of venture capital and the role of venture capitalists.

1. Statement I: "Venture capital firms are usually organized as limited partnerships."
   • Venture capital firms typically operate as limited partnerships. In this structure, venture capitalists act as the general partners, managing the investment funds, while the investors are the limited partners who provide capital and benefit from the returns without being involved in the daily operations.
   • This structure is common because it provides flexibility in investment decisions, limits the liability of investors, and aligns the incentives of both the venture capitalists and investors.
   • Thus, Statement I is correct.
2. Statement II: "Venture capitalist is a money manager who is involved in making risk investments from equity capital with the objective of gaining better returns."
   • Venture capitalists indeed manage funds by investing in early-stage or high-growth-potential companies, which are typically high-risk investments.
   • The primary objective of venture capitalists is to achieve significant returns through the appreciation of equity stakes in these companies.
   • This is a defining feature of venture capitalists, and therefore, Statement II is correct.

Based on the explanations above, the most appropriate answer is: Both Statement I and Statement II are correct.