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Multiple Choice
Which type of investment vehicle do venture capital money managers typically use to pool funds from investors?
A
Exchange-traded fund (ETF)
B
Open-end mutual fund
C
Limited partnership
D
Unit investment trust
Verified step by step guidance
1
Understand the concept of venture capital: Venture capital involves funding startups or early-stage companies with high growth potential. Venture capitalists pool funds from investors to invest in these companies.
Learn about the structure of a limited partnership: A limited partnership is a business structure where general partners manage the operations and limited partners contribute capital but have limited liability and no active role in management.
Recognize why limited partnerships are used: Venture capital money managers typically use limited partnerships because they allow pooling of funds from multiple investors while providing flexibility in management and liability protection for limited partners.
Compare with other investment vehicles: Exchange-traded funds (ETFs), open-end mutual funds, and unit investment trusts are not suitable for venture capital investments because they are designed for public market investments and lack the flexibility needed for private equity or startup funding.
Conclude that limited partnerships are the preferred structure for venture capital funds due to their ability to pool investor funds, provide liability protection, and offer flexibility in managing private equity investments.