Final answer:
A) A venture capitalist is a professional who invests in small firms for potentially high returns, often taking a significant share in the company to ensure close management oversight. These investors provide an alternative to traditional financing like issuing bonds, alleviating the burden of mandatory repayments and offering expertise and guidance instead.
Step-by-step explanation:
A venture capitalist is a professional money manager who invests in companies with the aim of achieving a high rate of return. These private investors often provide capital to small emerging firms or startups that exhibit high growth potential but may be earning little or no profits. Venture capitalists are critical in supporting these companies at a stage where more traditional financial institutions may shy away due to the inherent risks.
When a small company receives investment from a venture capitalist, it often means that the venture capitalist will own a significant share of the company. This ownership allows the investor to keep a close watch on the company's management and strategy, greatly reducing the risk of imperfect information regarding the company's prospects and operations. This close relationship is beneficial not only for the venture capitalist, who maintains better control over their investment, but also for the company, which may benefit from the expertise and guidance of the investor.
Unlike issuing bonds or borrowing money, which requires a company to make interest payments, receiving funding from a venture capitalist does not obligate the company to repay the money in the same way. However, it does typically require ceding a portion of ownership and potentially some control over business decisions. The trade-off can be worthwhile for the growth and development of the company, especially for small businesses that prioritize reinvestment over immediate profits.