ACCA Advanced Financial Management (AFM) Practice Exam

Venture capital funds are typically structured as:

1. Public corporations

2. Non-profit organizations

3. Usually limited private partnerships

4. Sole proprietorships

The correct answer is: Usually limited private partnerships

Venture capital funds are typically structured as usually limited private partnerships due to their unique investment strategies and the need for flexibility and limited liability. In this structure, there are general partners who manage the fund and have the authority to make investment decisions, while limited partners invest capital but have limited involvement in day-to-day operations. This allows investors to limit their risk to the amount they invest, while the general partners can leverage their expertise to seek high returns on the investments made in startup companies or early-stage businesses with high growth potential. The limited partnership model is advantageous because it combines pooling of funds from various investors to finance ventures that require significant amounts of capital, while also adhering to regulatory requirements. This structure is widely accepted in the venture capital industry, which thrives on the ability to invest in high-risk ventures with the potential for substantial returns. Other structures, like public corporations or non-profit organizations, do not fit the primary aims and investment strategies of venture capital. Public corporations are more about shareholder return through public markets rather than high-risk private investments. Non-profit organizations typically focus on social objectives rather than profit-making, which is contrary to the motive behind venture capital investments. Sole proprietorships do not allow for the pooling of resources from multiple investors at the scale needed for