ACCA Advanced Financial Management (AFM) Practice Exam

What is the success rate of investments in venture capital, where typically only a fraction are successful?

1. 1 out of 10

2. 2-3 out of 10

3. 4-5 out of 10

4. 6-7 out of 10

The correct answer is: 2-3 out of 10

The success rate of investments in venture capital is commonly understood to be relatively low due to the high-risk nature of backing early-stage companies. Generally, statistics indicate that about 20-30% of venture capital investments yield significant returns or are considered successful. This aligns well with the choice that states 2-3 out of 10 investments are successful. In venture capital, the dynamics of success often hinge on a small number of investments generating the majority of returns, while many may fail to achieve expected growth. This is a key characteristic of the venture capital model, where investors must diversify their portfolios to spread risk, knowing that a significant percentage of their investments may not yield the desired outcome. Thus, the choice indicating a success rate of 2-3 out of 10 reflects a realistic assessment of venture capital performance and aligns with industry analysis cited by professionals in the field.