ACCA Advanced Financial Management (AFM) Practice Exam

What is usually expected of venture capitalists in terms of their involvement with investments?

1. Passive oversight only

2. Failure to influence decisions

3. Active participation and support

4. Minimal communication with startups

The correct answer is: Active participation and support

Venture capitalists are typically expected to take an active role in their investments, which includes not only providing financial support but also participating meaningfully in the management and strategic direction of the startups they invest in. This involvement can manifest in various ways, such as offering industry expertise, mentoring founders, assisting in hiring key personnel, and providing guidance on business strategies. The rationale behind this level of engagement is that venture capitalists usually have considerable experience in the industry and access to valuable networks that can help the startups grow. Their active participation can significantly enhance the chances of success for the startup, as they can influence critical business decisions, support fundraising efforts in subsequent rounds, and help navigate challenges the business may face. While there may be some variations in the approach of individual venture capitalists, the general expectation is that they should add value beyond just capital injection, making active participation and support a key aspect of their role.