Deck 10: Financing Entrepreneurial Ventures Worldwide

Question 1

The term, "business angels," strictly refers to just former entrepreneurs who invest some of their wealth in seed and early stage businesses.

Answer 1

False

Question 2

Most business angel networks in developed nations look for high-potential startups that have prospects of growing into substantial enterprises.

Answer 2

True

Question 3

The businesses that need the most startup capital are those created with the intent to grow and hire employees.

Answer 3

True

Question 4

The general partners' share of investment returns is called carried interest.

Question 5

It is generally agreed that wealth-substitution is a powerful tool in the fight to reduce poverty in less-developed nations.

Question 6

Self-funding by entrepreneurs, along with funding from informal investors, is the life blood of an entrepreneurial society.

Question 7

Entrepreneurs in search of startup funding should target self-made entrepreneurs with high incomes. More specifically, they should first talk with entrepreneurs among their relatives, friends, and neighbors.

Question 8

For all the GEM nations combined, generally speaking, the amount needed to start a business is highest in the business services sector and lowest in the consumer-oriented sector.

Question 9

Microfinancing is not available in very many nations.

Question 10

Using GEM data for the United States, we can point out that the informal investor prevalence rate among entrepreneurs is much higher than the rate among non-entrepreneurs.

Question 11

The median expected payback time of an investment is one year, and the median amount returned is two times the original investment.

Question 12

Angel investment frequently precedes formal venture capital.

Question 13

The highest return on a venture capital investment is produced when the company has a management buyout.

Question 14

The limited partners of venture capital funds raise money from the general partners.

Question 15

Usually, businesses started by men require less capital than those started by women.

Question 16

Japan has almost two-thirds of the world's total venture capital.

Question 17

In 1976 Muhammad Yunus, an economist, started what today is the Grameen Bank.

Question 18

In general, venture capital is invested in companies that are already in business.

Question 19

The formal venture capital industry was born in Massachusetts at the end of WWII when a group of investors were inspired by General Georges Doriot.

Question 20

It is very difficult for entrepreneurs to raise debt financing from conventional banks because they require as many as three years of actual-not projected-financial statements and assets that adequately cover the loan.

Question 21

In contrast to informal investments, classic venture capital invests only to companies with a ______.

A) low degree of innovation and a low rate of growth
B) high degree of innovation but a low rate of growth
C) high degree of innovation and a high rate of growth
D) low degree of innovation but a high rate of growth
E) All of the above

Question 22

One of the principal reasons for the failure of classic venture capital in Europe at the start of the 1990s was the failure of the secondary markets after the general stock market crash of October 1987.

Question 23

Who comprises the "4Fs"?

A) Founders, Family, Friends, and Financial advisors.
B) Founders, Family, Financial advisors, and Foolhardy investors.
C) Founders, Financial advisors, Friends, and Foolhardy investors.
D) Financial advisors, Family, Friends, and Foolhardy investors.
E) Founders, Family, Friends, and Foolhardy investors.

Question 24

Eighty percent of the venture capital invested in the United States finances hi-tech companies; by contrast only 29 percent of the venture capital invested in other G7 nations is in hi-tech companies.

Question 25

In every nation, there is far more informal than formal investment from venture capitalists.

Question 26

According to Figure 9.5, an R² of 0.86 indicates that 86% of the variation in annual amount per informal investor is explained by:

A) amount of startup funding
B) total entrepreneurial activity (TEA)
C) Income per capita
D) GDP per capita
E) Expected IRR

Question 27

While classic venture capitalists finance very few companies, some of the ones that they do finance play a crucial role in the development of ______industries.

A) knowledge-based
B) return-based
C) risk-based
D) core economy-based
E) none of the above

Question 28

What is the average amount of a microenterprise loan through the Grameen Bank?

A) $150
B) $149
C) $420
D) $530
E) $670

Question 29

In general, trade sales produce nearly as big a capital gain as IPOs. When a company executes a trade sale, it almost always has the option of an IPO, as well.

Question 30

The companies are often up and running before ____ is raised.

A) the first investment from venture capital
B) the second investment from venture capital
C) trade credit
D) the investment from family and friends
E) the investments from IPO

Question 31

The split of the percent of entrepreneurs who expect to profit from their ventures and the percent of those that do not is almost ________ of the split among informal investors.

A) the same
B) the reverse
C) positively correlative
D) in-correlative
E) None of the above.

Question 32

Venture capital funds are limited partnerships that typically begin with how long of a term?

A) Two years.
B) Four years.
C) Six years.
D) Eight years.
E) Ten years.

Question 33

The amount of capital that entrepreneurs need to start their ventures depends mainly on______.

A) the type of business
B) the ambitions of the entrepreneur
C) the location of the business
D) the country of origin
E) all of the above

Question 34

Which of the following categories of informal investors expects the highest return on his or her investment, since it is made in a more detached manner?

A) Founders.
B) Family.
C) Friends.
D) Foolhardy investors.
E) All of the above expect the same returns.

Question 35

What subset of informal investor is relatively sophisticated and invests primarily in glamorous companies?

A) Friends
B) Family
C) Founders
D) Financial advisors
E) Business angels

Question 36

The expected internal rate of return or IRR (compound annual return on investment) is calculated from the expected payback time and the times return for formal investors and entrepreneurs who reported both.

Question 37

For all the GEM nations, the prevalence rate of informal investors is positively correlated with social security taxes and with taxes on capital and property.

Question 38

Almost every new business raises its initial money from the founders themselves and what we call informal investors, including:

A) Venture capitalists.
B) Family members.
C) Private equity firms.
D) Institutional investors.
E) All of the above.

Question 39

The fact that a country has sufficient startup capital overall means that every deserving nascent business receives funding.

Question 40

The rarest source of capital for nascent entrepreneurs is______.

A) friends
B) family
C) venture capital
D) financial advisors
E) foolhardy investors

Question 41

Since the mid-1990s, venture capital grew rapidly, and most nations were striving to emulate the classic venture capital model of which country?

A) India
B) Japan
C) The U.S.
D) China
E) None of the above.

Question 42

What category of venture capital participant employs gatekeepers to advise it on what projects to invest in and to monitor the investment afterwards?

A) General partners.
B) Limited partners.
C) Investment advisors.
D) All of the above.
E) None of the above.

Question 43

For informal investment, the amount invested by _______ is the highest, and the median return expected is ____ times the original investment.

A) Strangers; 1.5
B) Friends; 2.0
C) Venture Capitalists; 1.0
D) Relatives; 1.0
E) Work Colleagues; 1.5

Question 44

From 1970 to 2014, how many companies did the venture capital industry invest in?

A) 1,000
B) 5,000
C) 11,000
D) 25,600
E) 49,500

Question 45

According to the GEM study, entrepreneurs contribute about ______ of the capital needed to launch their ventures.

A) one-third
B) two-thirds
C) one hundred percent
D) half
E) none of the initial capital needed

Question 46

The capital gain on the harvest is shared with ____% for the limited partners and ____% for the general partners, once the limited partners have received their entire original principal.

A) 80% - 20%
B) 20%-80%
C) 40%-60%
D) 60%-40%
E) 50%-50%

Question 47

If a venture capital fund is successful, as measured by the financial return to the limited partners, the general partners usually raise another fund ______ years later.

A) 1 - 3 years
B) 4 - 6 years
C) 7 - 9 years
D) 10 - 12 years
E) 13 - 16 years