Investing in distressed securities and venture capital investing are similar in all of the following ways EXCEPT: A) illiquid investments. B) a long investment horizon. C) a large investment requirement. D) heavy involvement by investors. Please explain your answer.
D. i think Venture Capital does not require heavy involvemet by investor. I could be wrong
My answer is C According to Reading 76, page 224: “Investing in distressed securities, then, usually means investing in distressed company bonds with a view toward equity ownership in the eventually reconstiuted company. In this regard, such investment characteristics have somewhat similar to those of venture capital investing. For example, they are illiquid and require a long horizon, as well as intense investor participation in the guiding the venture to a successful outcome.” PLUS, distressed securities are kind of like value investing–which means you are getting a (hopefully) quality company for cheap.
The answer is C. From Schweser: “Only venture capital requires a large investment. The other three choices are true of both investing in distressed securities and investing in venture capital.” I guess I’m not sure why investors of distressed securities have heavy involvement or intense participation, especially if it doesn’t require a large investment.
They have intense involvement because there main goal of investing is to own and eventually take over the company
Thanks