Considering our class discussion on startups and investing, which of the below are correct? (select all that apply)

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BlackTom AI · Accepted Answer

The question asks to select all correct statements about startups and investing based on class discussion.

Option a: 'a higher valuation generally tracks with less control on decision-making for an investor.' The intuition here is that when a startup raises money at a higher valuation, the investor receives a smaller percentage of equity for the same investment, which typically translates to reduced ownership and, consequently, less influence over major decisions. While terms like board seats, veto rights, or protective provisions can still grant influence, the general relationship is that higher valuation tends to mean less control for the investor. This makes the statement plausible and aligns with standard funding dynamics.

Option b: 'venture capital investment can incentivize rapid scaling that might be bad for the venture.' This captures a well-known tension in VC funding. VCs often push for aggressive growth to achieve big returns, which can lead to overexpansion, misallocation of resources, or burnout of operational capacity if the startup is not prepared. Such incentives can indeed be detrimental if the company prioritizes velocity over sustainable unit economics or product/market fit. Therefore, this statement is also accurate.

In summary, both statements reflect common realities discussed in startup finance: valuation effects on control and the growth-at-all-costs pressure from VC funding can carry risks.

ES 212 003 FA 2025 Quiz 7

Considering our class discussion on startups and investing, which of the below are correct? (select all that apply)

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