Discussion
Which of the following risk area is not considered before venture capital financing ?
Answer: C
The risk not considered before venture capital financing is dividend risk.
A venture capitalist invests in young, unproven businesses, usually through equity, and expects to earn its return from capital gains when it exits by a sale or a public issue, not from regular dividends. Before investing, it therefore evaluates the risks that could make the venture fail: whether the product will work and be accepted (product risk), whether there is a market and how competitors will react (market risk), whether the technology is sound and will not be overtaken (technological risk), and the competence of the management.
Product, market and technological risk are all central to the appraisal. Dividend risk is not, since the investor does not expect dividends from a start-up in the first place.
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