CFA Practice Question

There are 191 practice questions for this study session.

CFA Practice Question

Which of the following statements about venture capital investments is least accurate?
A. Venture capital returns tend to be higher when there are fewer venture capitalists in the market.
B. The venture capital market is probably not efficient.
C. Venture capitalists typically invest in countercyclical industries so that returns tend to be high during periods of weak equity markets.
Explanation: Venture capital returns depend upon financial markets. In periods of strong equity markets, venture capital investment returns (like most other investments) tend to be high. Venture capital markets are small and there is generally not a lot of information available about the companies. Studies show that venture capital returns are high when fewer venture capital funds are raised. The returns tend to be lower during periods when large amounts of venture capital are raised. Like many other investments, the time to invest is when few people want to invest.

User Contributed Comments 2

User Comment
dan1987 Surely venture capital returns all depends on what company is invested in, i am fairly sure that venture capital would make 0 money selling ice to eskimos whether there are many or lots of idiots investing in ice selling companies?
CIDan Venture capitalists invest in a sector where they have expertise generally from previous industry experience. They make many relatively small investments with most being total losses. However, a few investments have extraordinary returns through an IPO or selling their stakes in later funding rounds. IPOs occur much less frequently during weak equity markets.
You need to log in first to add your comment.