Start-up companies financed by venture capitalist have a much lower

Question

Start-up companies financed by venture capitalist have a much lower failure rate than companies financed by other means. Source of financing, therefore, must be a more important causative factor in the success of a start-up company than are such factors as the personal characteristics of the entrepreneur, the quality of strategic planning, or the management structure of the company.

Which of the following, if true, most seriously weakens the argument above?

(A) Venture capitalists tend to be more responsive than other sources of financing to changes in a start-up company’s financial needs.

(B) The strategic planning of a start-up company is a less important factor in the long-term success of the company than are the personal characteristics of the entrepreneur.

(C) More than half of all new companies fall within five years.

(D) The management structures of start-up companies are generally less formal than the management structures of ongoing businesses.

(E) Venture capitalists base their decisions to fund start-up companies on such factors as the characteristics of the entrepreneur and quality of strategic planning of the company.

manishkhare · Accepted Answer

Look at the conclusion :  Source of financing, therefore, must be a more important causative factor in the success of a start-up company . 
This argument can be weakened only if the source of financing itself look at the factors as the personal characteristics of the entrepreneur, the quality of strategic planning, or the management structure of the company.

Option A talks only about the financial responsiveness .
Option E talks about the line of reasoning discussed above.Hence it is the right answer

Regards,
Manish Khare

Press kudos if you like the solution.

alwaysnewbie · Answer

Conclusion:   "Funding by VC" is more important factor than "personal characteristics of the entrepreneur", "quality of strategic planning", or "management structure of the company"
  Simplified conclusion:   F is more important factor than X, Y, Z

Correct answer choice should  weaken  the conclusion.

(A) Venture capitalists tend to be more responsive than other sources of financing to changes in a start-up company’s financial needs.
 This choice talks only about factor F and nothing in relation to X, Y, Z 
(B) The strategic planning of a start-up company is a less important factor in the long-term success of the company than are the personal characteristics of the entrepreneur.
 This talks only about factors Y and X. No mention of relationship to F 
(C) More than half of all new companies fall within five years.
 No factors (F, X, Y ,Z) and their impact is discussed here 
(D) The management structures of start-up companies are generally less formal than the management structures of ongoing businesses.
 Talks only about factor Z. No mention of relationship to F 
(E) Venture capitalists base their decisions to fund start-up companies on such factors as the characteristics of the entrepreneur and quality of strategic planning of the company.
 Discusses the impact of X and Y on F. Shows that factors X and Y are taken into account when deciding F, hence weakening the conclusion.
Implies, F = f(X, Y), => F is made from X and Y, so conclusion of "F more important than X and Y" is challenged/weakened

Thanks

keats · Answer

What about option B ?'

On what basis can we eliminate it. Looking for a sound reasoning.

RFRaj · Answer

The conclusion says Source of financing (X) > Other factors(Y) - such as the personal characteristics of the entrepreneur(Y1), the quality of strategic planning(Y2), or the management structure of the company(Y3). We need an option which somehow weakens the fact that X>Y. Option B states that the strategic planning of a start-up company(Y2) < the personal characteristics of the entrepreneur(Y1). How Y1, Y2 and Y3 contribute towards the success of the start-up company doesn't weaken the conclusion. Since there is no information given in this option regarding X, this option is irrelevant. Hope it helps.

Skywalker18 · Answer

Start-up companies financed by venture capitalist have a much lower failure rate than companies financed by other means. Source of financing, therefore, must be a more important causative factor in the success of a start-up company than are such factors as the personal characteristics of the entrepreneur, the quality of strategic planning, or the management structure of the company.

Type - Weaken
Boil it down - Source of financing is more causative important factor than personal characteristics of the entrepreneur, the quality of strategic planning, or the management structure of the company. for Success of company

Which of the following, if true, most seriously weakens the argument above?

(A) Venture capitalists tend to be more responsive than other sources of financing to changes in a start-up company’s financial needs.
(B) The strategic planning of a start-up company is a less important factor in the long-term success of the company than are the personal characteristics of the entrepreneur.
Out of scope as it does not talk about Financing source
(C) More than half of all new companies fall within five years. Irrelevant
(D) The management structures of start-up companies are generally less formal than the management structures of ongoing businesses. Irrelevant - management structures of ongoing business is beyond scope
(E) Venture capitalists base their decisions to fund start-up companies on such factors as the characteristics of the entrepreneur and quality of strategic planning of the company.
please explain the reasoning. Correct answer - VC funding is not more important because VCs are funding start ups based on a few factors.

Answer E

anairamitch1804 · Answer

Solution 1 :-
Premise :- X financed by Venture lower failure rate than by other means.{ X = start-up companies}
Conclusion :- Source of financing is a more important factor in the success of X than are such factors as the personal characteristics of the entrepreneur, the quality of strategic planning, or the management structure of the company.
Weaken :- Source of financing is not more important in the success of X than are such factors as the personal characteristics of the entrepreneur, the quality of strategic planning, or the management structure of the company.
Option E fits the bill.
Venture capitalists base their decisions to fund start-up companies on such factors as the characteristics of the
entrepreneur and quality of strategic planning of the company.

adkikani · Answer

GMATNinja   VeritasPrepKarishma

Can you please explain how (E) fits in to the bill here?

Conclusion: Causal 
Cause - Effect
Source of financing (ie Finance by VCs) - > Determining success rate of start up.

How to weaken:
Alternate cause -> same effect
Alternate causes are : personal characteristics of entrepreneur, quality of strategic planning or management structure.

(E) says Same cause : Funding of VCs but influenced by alternate causes.

GMATNinja · Answer

We are told that start-ups financed by VCs have a much lower failure rate. This might suggest that those companies have a lower failure rate BECAUSE they are financed by VCs. In other words, the source of financing might impact success.

Choice (E) gives us some additional information. VCs base their funding decisions on factors such as 1) characteristics of the entrepreneur and 2) quality of strategic planning. This implies that the VCs are looking at those factors to try to determine which companies are  likely  to succeed.

So those companies do NOT tend to succeed  because  they are financed by VCs. Rather, the VCs tend to finance companies that already ARE likely to succeed. The source of funding does not CAUSE the success. The VCs are just good at looking at certain factors to determine which companies are likely to succeed. In other words, the VCs are good at betting on the right companies. But if those same companies had been financed by other sources, they should be just as likely to succeed.

I hope that helps!

Sahil9891 · Answer

because we don't know about strategic planning is important whether in long/short term. As no data mention regarding that.

A_Nishith · Answer

Premise :- X financed by Venture lower failure rate than by other means.{ X = start-up companies}
Conclusion :- Source of financing is a more important factor in the success of X than are such factors as the personal characteristics of the entrepreneur, the quality of strategic planning, or the management structure of the company.
Weaken :- Source of financing is not more important in the success of X than are such factors as the personal characteristics of the entrepreneur, the quality of strategic planning, or the management structure of the company.
Option E

Start-up companies financed by venture capitalist have a much lower

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Start-up companies financed by venture capitalist have a much lower

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