Five years after the crash in technology shares, its residual effects

Question

Five years after the crash in technology shares, its residual effects remain in the area of venture capital. One sign is the massive amount of new money being committed to American venture funds by investors who feel they missed, or hope to resurrect, the terrific returns of the late 1990s. Another aspect is that some of the money raised during the boom is only now being invested. The result is that startups are seeing a fast influx of financing, pushing up valuations. "There is a lot of  recidivist ," says the managing partner of one fund with over $2 billion under management.

America's venture capitalists put $20.4 billion into deals in 2004. Although this sum was far below the amounts of the bubble years, it marks the first increase after three years of declining investment. The biggest rise by far was in software, where investment grew from $4.1 billion in 2003 to $4.9 billion last year. In addition, money appraisals for American startups in 2004 were $13m—the highest since 2001 and a 30% increase compared with 2003.

Venture-capital funds did not invest much after the crash because good deals were scarce. Meanwhile, many veteran venture capitalists are fretting, especially now that pension funds and endowments are racing to place money in venture capital. "I am concerned that the inflow of so many dollars will result in overvaluations and inflated prices that we can't recapture on exit," rightly said Peter Barris of New Enterprise Associates, a large venture fund.    1 
 1. According to the passage, one of the reasons for the inflow of money into the said share market is:

A. After the revival of the share market, investors opportunistically advanced their funds believing in the quick returns on money invested.
B. The promising future of the software industry pushes investors to invest money.
C. Keeping in view the massive returns of the pre-crash age, the financiers funds their money.
D. To recover their funds lost during the market downfall, the investor keenly invested their money in the share market.
E. Most veteran investors invest their vast available pension funds and endowments to gain from the market.

2 
 2. The author mentioned the word “recidivist” ( Highlighted ) most probably in order to

A. Explain when a market crashes, its aftershocks remain for several years
B. Stress that huge inflow of money in the market is not favorable
C. Show that managing as big funds as $2 billion is a massive responsibility
D. Identify that the investments by people in the boom period are inevitable
E. Highlight that people has started reinvesting their money in the market

3 
 3. The following can be inferred from the passage

A. The investments by the venture capitalist were significantly greater than $20 billion in 2003
B. The investments by the venture capitalist during the bubble years were greater than $40 billion
C. Money appraisals for American startups were less than 10m in 2001
D. Money appraisals for American startups were 10m in 2003
E. After the crash of the market, the scarcity of good deals was the prime reason for zero investments by venture-capital funds

4 
 4. The author's main point is to highlight that:

A. Due to the complicated nature of the share market, the investors hesitate to risk their money
B. The sudden inject of excessive money in a recovering market is unfavorable
C. During the dwindling situation of the market, the huge influx of money, although favorable, is only possible after some years.
D. Venture-capitalists played a vital role to bring back the market to its normal
E. Investors fund their money when they find good deals, without keeping in view the market situation

RC Butler 2022  -  Practice Two RC Passages Everyday.   
Passage # 02 Date: 01-Jan-2022
 This question is a part of RC Butler 2022 .  Click here for Details

karnavora1 · Accepted Answer

1. According to the passage, one of the reasons for the inflow of money into the said share market is:

A. After the revival of the share market, investors opportunistically advanced their funds believing in the quick returns on money invested.
  Incorrect - We are not talking about share markets and nor does the passage talk about quick returns 
B. The promising future of the software industry pushes investors to invest money.
  Incorrect - This is talking about the software industry even though the passage doesn't mention it. 
C. Keeping in view the massive returns of the pre-crash age, the financiers funds their money.
  Correct - This is correct because of this line."American venture funds by investors who feel they missed, or hope to resurrect, the terrific 
 returns of the late 1990s" 
D. To recover their funds lost during the market downfall, the investor keenly invested their money in the share market.
  Incorrect - This is not mentioned anywhere in the passage 
E. Most veteran investors invest their vast available pension funds and endowments to gain from the market.
  Incorrect - In fact veteran investors were not investing due to the high valuations.

2. The author mentioned the word “recidivist” (Highlighted) most probably in order to

To answer this question one needs to know the meaning of "recidivist", it means something that relapses

A. Explain when a market crashes, its aftershocks remain for several years
  Incorrect - Totally irrelevant 
B. Stress that huge inflow of money in the market is not favorable
  Incorrect - There is inflow of money but doesn't mention if it's unfavorable 
C. Show that managing as big funds as $2 billion is a massive responsibility
  Incorrect - Irrelevant 
D. Identify that the investments by people in the boom period are inevitable
  Incorrect - Irrelevant 
E. Highlight that people has started reinvesting their money in the market
  Correct - People are "reinvesting", basically means that the relapse of investment has begun

3. The following can be inferred from the passage

A. The investments by the venture capitalist were significantly greater than $20 billion in 2003
  Incorrect - The passage clearly states that 2004 saw higher investment 
B. The investments by the venture capitalist during the bubble years were greater than $40 billion
  Incorrect - We don't know how much investment was made 
C. Money appraisals for American startups were less than 10m in 2001
  Incorrect - Doesn't talk about 2001, instead compares to 2003 "In addition, money appraisals for American startups in 2004 were $13m—the highest since 2001 and a 30% increase compared with 2003" 
D. Money appraisals for American startups were 10m in 2003
  Correct - There was 30% increase compared to 2003 and the increase was 3 million 
E. After the crash of the market, the scarcity of good deals was the prime reason for zero investments by venture-capital funds
  Incorrect - This was one of the reasons, not the prime reason.

4. The author's main point is to highlight that:

A. Due to the complicated nature of the share market, the investors hesitate to risk their money
  Incorrect - Investors hesitate to over valuations 
B. The sudden inject of excessive money in a recovering market is unfavorable
  Correct - Due to excessive money valuations are high and hence making it unfavorable 
C. During the dwindling situation of the market, the huge influx of money, although favorable, is only possible after some years.
  Incorrect - This is just an assumption 
D. Venture-capitalists played a vital role to bring back the market to its normal
  Incorrect - Venture capitalists didn't bring the market to normal 
E. Investors fund their money when they find good deals, without keeping in view the market situation
  Incorrect - Investors fund their money when they find good deals but the passage doesn't talk about the market situation

Buggs23Bunny · Answer

Can anyone explain how its B for question 4?

Aravind04 · Answer

Can any one please Help me why it is not D for For Question number 1 
as in para 1 there is support for this where it states

"One sign is the massive amount of new money being committed to American venture funds by investors who feel they missed"

100mitra · Answer

Paraphrase:   
  Para 1:    
It’s about “venture capital investment in technology sector”, 
despite of drop in technology shares, 
still investor’s want to invest, re-invest profits, and to start "new start-ups" by funding, which 
can cause to increase technology sector valuation.
  Para 2:    Brief about invested returns till 2004, highest returns by “Software technology” from 2001 to 2003.
  Para 3:    After crash effects, overall, less new investment but more new re-investment by veteran.
  Assumption:    Many still invest reason to capture on ROI will be high on once’s exit.
  Personal Learning   "when market is down, invest, when market is Up, withdraw with good returns"

1. According to the passage, one of the reasons for the  inflow of money into the said share market  is:

A.  After the revival  of the share market, 
 investors opportunistically advanced their funds  believing in the quick returns on money invested.
  Wrong:    this stem, gives information about revival and then investment.

B. The promising future of the  software industry  pushes investors to invest money.
  Wrong:    No, we need about investors & their returns, in technology shares, 
this can be trap, as software industry is mentioned in passage, 
which is an example of rise and fall journey of technology shares.

C. Keeping in view the massive returns of the pre-crash age, 
the financiers fund their money.
  Correct:    as mentioned in  paragraph 2 , 
the investment returns of investors in venture capital were very high from year 2001 to end of 2004 (i.e. pre-crash era).
Investors anticipating same returns, which motivated them to re-invest again.

D. To recover their funds lost during the market downfall, 
the investor keenly invested their money in the share market.
  Wrong:    this is not the intention of investor, in fact many veteran reinvested, anticipating high investment returns.

E. Most veteran investors invest their vast available pension funds and endowments to gain from the market
  Wrong:    Again a trap! interesting its intended cause, why veteran invested is the answer of the question,  that is option C

2. The author mentioned the word “ recidivist ” (Highlighted) most probably in order to 
  Recidivist   meaning "convicted criminal who reoffends, especially repeatedly"
  Interpretation  : investors who have had done investment and have had good returns/rewards 
they wanted to gain same again, repeating same investment again.

A. Explain when a market crashes, its aftershocks remain for several years  -  No  
B. Stress that huge inflow of money in the market is not favourable  -  No  
C. Show that managing as big funds as $2 billion is a massive responsibility  -  No  
D. Identify that the investments by people in the boom period are inevitable  -  No  
E. Highlight that    people has started reinvesting their money in the market    -  Yes ]

3. The following can be  inferred from the passage

A. The investments by the venture capitalist were significantly greater than $20 billion in 2003
  Wrong:   we have information about “America's venture capitalists put $20.4 billion into deals in 2004.” Para 2, line 1

B. The investments by the venture capitalist during the bubble years were greater than $40 billion
  Wrong:   we have information about “Although this sum was far below the amounts of the bubble years, it marks the first increase after three years of declining investment.” Para 2 line 2

C. Money appraisals for American start-ups were less than 10m in 2001
  Wrong:   Information not mentioned in passage

D. Money appraisals for American start-ups were 10m in 2003
  Correct:   based on information para 2: last line
 “Money appraisals for American start-ups in 2004 were $13m
—the highest since 2001 and a 30% increase compared with 2003” 30% drop of $13m of 2004 ~10m in 2003

E. After the crash of the market, the scarcity of good deals was 
the prime reason for zero investments by venture-capital funds
  Wrong:   Well, it’s a Trap! If one misses the Option D logic, then Option E would have max acceptance as it is mentioned in passage para 4, 1st line, this stem mention’s “Prime reason” and “Zero” investment, it means involvement of all venture capital, as it cannot be 100%, if stem would have mentioned “Some venture capital funds” it would have dominated option D.

4.  The author's main point is to highlight tha t:

A. Due to the complicated nature of the share market, the investors hesitate to risk their money
  Wrong  : as per paragraph 1, interpretation can be investors invested or some re-invested profit returns, it was only Peter Barris of New Enterprise Associates, who was hesitated of overvaluation by over flow of money invested, none mentioned about risk their money.

B. The sudden inject of excessive money in a recovering market is unfavourable
  Correct: ] 1st, I didn’t go well with this option, but it has a logic in it, let say:
- 2001 – one invested $100 and share price in 2003 grew about 300% and 2004 dropped 150% i,e still 150% growth, now 2005 it went up by 100% , person who has invested $100 in 2005 its again 300% growth
- Now another one invested $300 in 2003 recovering market and share dropped 150%, its returns in 2004 is $150, & when 2005 shares rise by 100%, its still $300 i.e 0% growth, 
its unfavourable for investor who invested in recovering market, this correctly defined in passage.

C. During the dwindling situation of the market, the huge influx of money, although favourable, is only possible after some years.
  Wrong:   as example quoted above for OptionB, it can be or cannot be, as mentioned in passage, it the investors, who thought that market will respond as it did in 2001 to 2003, same now rise in share will happen, but, its only the instinct to have quick and good returns.

D. Venture-capitalists played a vital role to bring back the market to its normal
  Wrong:   easy elimination

E. Investors fund their money when they find good deals, without keeping in view the market situation
  Wrong:   easy elimination, irrelevant

Sajjad1994 · Answer

Official Explanation

4. The author's main point is to highlight that:

Difficulty Level:   600

Explanation

This is a primary purpose question, so we cannot read any specific portion of the passage again; instead, we need to concentrate on trigger words while reading the passage initially.

In the first paragraph:

"The result is that startups are seeing a fast influx of financing, pushing up valuations."

In the third paragraph:

"now that pension funds and endowments are  racing  to place money in venture capital. "I am  concerned  that the  inflow of so many dollars will result in overvaluations and inflated prices  that we can't recapture on exit,"  rightly said  Peter Barris of New Enterprise Associates, a large venture fund.

Now connect the information and reach the answer.

A. Due to the complicated nature of the share market, the investors hesitate to risk their money

This is unrelated! One problem with the option is the introduction of outside information. The passage doesn't tell us anything about the nature of the share market, whether it is complicated or not. The second major problem is that this option does not capture the passage's main idea.

B. The sudden inject of excessive money in a recovering market is unfavorable

According to the two quoted text pieces above, this is true that captures the main idea.

C. During the dwindling situation of the market, the huge influx of money, although favorable, is only possible after some years.

This is the opposite because the one word "although favorable" passage clearly states that the influx of money is not favorable.

D. Venture-capitalists played a vital role to bring back the market to its normal

This is correct according to the passage but did not capture the purpose of writing the passage or the message the author wants to convey.

E. Investors fund their money when they find good deals, without keeping in view the market situation

This is again an example of opposite answer choices. Investors do their homework before they invest money.

Answer: B

Sajjad1994 · Answer

(D)  is incorrect! Although it is mentioned in the passage "who feel they missed" that doesn't mean the author is talking about the people who lost their money during the market crash. One possible explanation for this quoted text is that it might suggest that the people who initially missed investing money are now investing money. This is an example of a could be true answer, and we need a must be true answer. So  (D)  unnecessarily assume something not validated by the passage.

Cheers

anujleo · Answer

the line u wrote means.. one sign of massive inflow of money in market is bcoz who feel the missed to grab huge return during pre market crashed are eager to earn this time..

Anonymous98 · Answer

Read the last para, you will get it right

Prob2303 · Answer

Can I pls get the explanation of the passage and the OE for Q1, Q2 and Q3?

Sajjad1994 · Answer

Official Explanation

1. According to the passage, one of the reasons for the inflow of money into the said share market is:

Difficulty Level:   700

Explanation

The passage mentions that the residual effects of the crash in technology shares are still being felt in the venture capital area. It notes that one sign of this is the massive amount of new money being committed to American venture funds by investors who feel they missed, or hope to resurrect, the terrific returns of the late 1990s.  Option C  accurately reflects this by stating that financiers fund their money, with the implication that they are doing so with the expectation of recapturing the massive returns of the pre-crash age.

Now, let's analyze why the other options are incorrect:

A. After the revival of the share market, investors opportunistically advanced their funds believing in the quick returns on money invested.

This option suggests that investors are advancing their funds after the revival of the share market, which is not mentioned in the passage. The passage talks about a revival in the venture capital area rather than the share market as a whole.

B. The promising future of the software industry pushes investors to invest money.

The passage does mention a rise in investment in the software industry, but it doesn't specify that the promising future of the software industry is the primary reason for the inflow of money into the share market.

D. To recover their funds lost during the market downfall, the investor keenly invested their money in the share market.

While the passage discusses investors hoping to resurrect terrific returns, it does not state that the primary motivation is to recover funds lost during the market downfall. It's more about recapturing the returns of the late 1990s.

E. Most veteran investors invest their vast available pension funds and endowments to gain from the market.

The passage does not provide information about the specific sources of funds, such as pension funds or endowments, being the main driver for the inflow of money into the share market. It focuses more on the general commitment of new money by investors.

Answer: C

Sajjad1994 · Answer

Official Explanation

2. The author mentioned the word “recidivist” (Highlighted) most probably in order to

Difficulty Level:   700

Explanation

The term  "recidivist"  is used metaphorically in the context of the passage to describe investors who participated in the boom period of the late 1990s and are now returning to invest again. While the term itself doesn't explicitly convey "reinvestment," it does imply a return to a previous behavior or activity.

Therefore, option E, which suggests that people have started reinvesting their money in the market, captures the essence of the metaphorical use of  "recidivist."

Now, let's consider why the other options might be incorrect:

A. Explain when a market crashes, its aftershocks remain for several years.

The term  "recidivist"  is not directly related to the aftershocks of a market crash. It is more about the return of investors.

B. Stress that the huge inflow of money in the market is not favorable.

The passage does not provide information to suggest that the author sees the huge inflow of money as unfavorable. The term  "recidivist"  is about describing the behavior of returning investors, not passing judgment on the inflow of money.

C. Show that managing as big funds as $2 billion is a massive responsibility.

The use of  "recidivist"  is not directly related to the management responsibility of the funds. The term is more about describing the behavior of investors returning to the market.

D. Identify that the investments by people in the boom period are inevitable.

While this option is reasonable, it does not explicitly capture the return to investing, as the term "inevitable" suggests something that is bound to happen but not necessarily a return to a previous behavior.

E. Highlight that people have started reinvesting their money in the market.

This option aligns closely with the metaphorical use of "recidivist," suggesting a return to investment activities.

Answer: D

Sajjad1994 · Answer

Official Explanation

3. The following can be inferred from the passage

Difficulty Level:   650-700

Explanation

A. The investments by the venture capitalist were significantly greater than $20 billion in 2003.

The passage does not provide information about the specific investments by the venture capitalist in 2003. It mentions the overall investments by American venture capitalists, which were $20.4 billion in 2004.

B. The investments by the venture capitalist during the bubble years were greater than $40 billion.

The passage does not provide information about the specific investments by the venture capitalist during the bubble years. It mentions the overall investments by American venture capitalists, which were far below the amounts of the bubble years.

C. Money appraisals for American startups were less than $10 million in 2001.

The passage does not provide specific information about money appraisals for American startups in 2001. It mentions that money appraisals in 2004 were $13 million, the highest since 2001.

D. Money appraisals for American startups were $10 million in 2003.

This is the correct answer based on the implied information from the passage about the baseline for the 30% increase in 2004. It is mentioned in the passage: "money appraisals for American startups in 2004 were $13m—the highest since 2001 and a 30% increase compared with 2003."

E. After the crash of the market, the scarcity of good deals was the prime reason for zero investments by venture-capital funds.

This option is not explicitly supported by the passage. While the passage suggests a decline in investments after the market crash, it does not state that there were zero investments, and it doesn't specifically attribute the decline to the scarcity of good deals.

Answer: D

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Five years after the crash in technology shares, its residual effects

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Five years after the crash in technology shares, its residual effects

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