B is corrent. At the rapid growth stage, if a company is reasonably profitable it will experience financing needs in excess of funds available either internally or from trade credit or bank credit. Additional debt financing would often result in an unreasonable amount of financial leverage at this stage of development and public equity financing is not yet available to the company. This is the stage at which the company is most likely to seek and obtain venture capital financing.
A is incorrect. During the formation stage, personal savings, trade credit, and government agencies are the main sources of financing. Prior to demonstrating initial success, a company is not likely to easily attract venture capital financing.
C is incorrect. The decline phase is characterized by more than adequate cash flows, relative to available investment opportunities, so venture capital is not likely to be sought at this stage of development.
D is incorrect. In the growth to maturity stage of development, the company is able to access formal markets for debt and equity because it has a track record of success and a better balance between cash in-and outflows than it had in the rapid growth stage. Formal capital markets provide financing at lower cost than venture capitalists, so venture capital is not likely to be sought at this stage.
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