Deck 16: Funding Startup and Growth

Question 1

Most venture capitalists (VCs) invest in the _____ stage, because this stage is more likely to bring them to the liquidity event they need in three to five years to make the investment worthwhile.

A) proof of concept
B) startup
C) business model
D) rapid growth
E) early growth

Answer 1

D

Question 2

Venture capitalists (VCs) are fundamentally risk averse, so it is an entrepreneur's job to reduce risk in the three key areas where VCs typically find it: management risk, technology risk, and _____ risk.

A) business model
B) investment
C) legal
D) research and development
E) operational

Answer 2

A

Question 3

All of the following are costs an entrepreneur may incur after acquiring capital EXCEPT

A) prospectus printing costs.
B) investment banking fees.
C) legal fees .
D) marketing costs.
E) brokerage fees.

Answer 3

A

Question 4

Intrinsic value is the perceived value arrived at by interpreting balance sheet and income statements through the use of ratios, discounting cash flow projections, and calculating liquidated asset value.

Question 5

The principal disadvantage of a public offering is that it provides the offering company with a tremendous source of interest-bearing capital for growth and expansion, paying off debt, or product development.

Question 6

One way to prevent an initial public offering (IPO) failure is to ask for a _____, which is essentially a promise not to charge the full fee if the offering fails.

A) f air market provision
B) s top-loss statement
C) f orfeiture provision
D) l iquidation agreement
E) r egistration statement

Question 7

Social ventures, those that are structured with a focus on providing a benefit to society, are attractive to traditional types of investors because they typically produce a significant return on investment.

Question 8

_____ refers to techniques for getting by on as few resources as possible and using other people's resources whenever feasible.

A) Impact investing
B) Underwriting
C) Bootstrapping
D) Factoring
E) Crowdfunding

Question 9

A(n) _____ takes an equity position through ownership of stock in a company, normally requires a seat on the board of directors, and often brings their management skills to the new venture in an advisory capacity.

A) investment banker
B) commercial bank
C) venture capital firm
D) angel
E) commercial finance company

Question 10

_____ is a particular type of receivable financing wherein the lender takes ownership of a receivable at a discount and then collects against it.

A) Discounting
B) Foreclosure
C) Factoring
D) Crowdfunding
E) Dilution

Question 11

The term sheet is essentially a letter of intent, and it spells out the terms a venture capitalist is prepared to accept.

Question 12

An antidilution provision ensures that the selling of stock at a later date will decrease the economic value of the venture capitalist's investment.

Question 13

After filing a registration statement, an advertisement called a "tombstone" announces a public offering in the financial press.

Question 14

Banks are normally a readily available source of either working capital or seed capital to fund a startup venture.

Question 15

Once chosen to guide a corporation through the initial public offering (IPO) process, an underwriter draws up a _____, which outlines the terms and conditions of the agreement between the underwriter and the entrepreneur/selling stockholder.

A) fair market provision
B) stop-loss statement
C) forfeiture provision
D) prospectus
E) letter of intent

Question 16

One of the advantages of using crowdfunding as a source of funding is there is no cap on the amount of money you can raise.

Question 17

A startup's predicted worth at the end of the valuation period is known as its

A) terminal value (TV).
B) return on investment (ROI).
C) fair market value.
D) going-concern value.
E) intrinsic value.

Question 18

The most popular follow-up source of capital for new ventures is private investors, typically people you know or have met through business acquaintances.

Question 19

In the business model development and testing stage, an entrepreneur will likely require _____, an initial investment typically by the founders and other sources of "friendly money."

A) bridge financing
B) seed funding
C) impact investing
D) a grant
E) mezzanine financing

Question 20

A venture capital firm invests in a growing business through the use of debt and equity instruments to achieve long-term appreciation on the investment within a specified period of time, typically three to five years.

Question 21

_____ value is the price at which a willing seller would sell and a willing buyer would buy in an arm's-length transaction.

A) Going-concern
B) F air market
C) I nvestment
D) Intrinsic
E) Liquidation

Question 22

To qualify for a Small Business Innovative Research (SBIR) grant, a company must

A) employ more than 500 people.
B) be at least 75 percent independently owned by a U.S. citizen.
C) be dominant in its field.
D) be technology-based.
E) be organized as a nonprofit.

Question 23

Any investment deal consists of all of the following components EXCEPT

A) the amount of money to be invested.
B) the timing and use of the investment moneys.
C) a liquidation strategy.
D) the return on investment to investors.
E) the level of risk involved.

Question 24

_____ value refers to the amount that could be recovered by selling off all a company's assets.

A) Liquidation
B) Going-concern
C) I ntrinsic
D) Book
E) I nvestment

Question 25

When the value of a venture increases, but the value of its shares does not achieve a corresponding increase, this discrepancy is known as

A) dilution.
B) valuation divergence.
C) factoring.
D) liquidation.
E) due diligence.

Question 26

If an investor is receiving $75,000 in investment for 20 percent of the company, what is the company's post-money valuation?

A) $375,000
B) $15,000
C) $60,000
D) $450,000
E) None of these are correct.

Question 27

The best way to approach venture capitalists (VCs) is through

A) getting  recommendations from attorneys.
B) contacting a guarantor .
C) getting  recommendations from accountants.
D) looking for VC firms that specialize in your industry.
E) g etting a referral  from someone who knows the VC.

Question 28

Many investors suggest structuring a(n) _____ deal for friends and family because this tactic avoids having to place a valuation on the company that is likely to be wrong.

A) due diligence
B) convertible debt
C) valuation divergence
D) impact investing
E) convertible equity

Question 29

Generally, banks make loans on the basis of what are termed the five Cs: character, capacity, capital, collateral, and condition. In the case of entrepreneurs, _____ and _____ become the leading consideration, because the new business's performance estimates are based purely on forecasts.

A) capital; collateral
B) character; collateral
C) capacity; condition
D) capital; character
E) character; capacity

Question 30

Private investors, who are called _____, are part of the informal risk-capital market, the largest pool of risk capital in the United States.

A) assets
B) guarantors
C) debtors
D) a ngels
E) creditors

Question 31

The time from idea generation through product development, market testing, and product launch is often referred to as the

A) technological imperative.
B) early adopter stage.
C) valley of death.
D) rapid growth stage.
E) tornado.

Question 32

Returning to private status once a company has been a public company

A) is  a way of raising more capital.
B) is easy to accomplish.
C) is not allowed by the Securities and Exchange Commission (SEC).
D) is an almost insurmountable task.
E) occurs almost twice as often today as in the past .

Question 33

A _____, or prospectus, discusses all the potential risks of investing in an initial public offering (IPO).

A) term sheet
B) tombstone
C) stop-loss statement
D) red herring
E) forfeiture provision

Question 34

A simple version of the venture capital method involves estimating the _____, the expected return in the harvest year, the post-money valuation, and the pre-money valuation.

A) forecast period
B) discount rate
C) terminal value
D) book value
E) liquidation value

Question 35

Which of the following is t he first step in the initial public offering  (IPO) process?

A) C hoosing an underwriter
B) Deciding on a stock exchange
C) Filing a registration statement
D) P ublishing a tombstone
E) N one of these are correct.

Question 36

The _____ is a floorless exchange that trades on the National Market System through a network of broker-dealers from respected securities firms that compete for orders.

A) American Stock Exchange (AMEX)
B) National Association of Securities Dealers Automated Quotation (NASDAQ)
C) New York Stock Exchange (NYSE)
D) Securities and Exchange Commission (SEC)
E) Chicago Board of Trade (CBOT)

Question 37

A(n) _____ is an offering document that describes an investment and its risks.

A) registration statement
B) letter of intent
C) term sheet
D) antidilution provision
E) prospectus

Question 38

All of the following disadvantages are associated with being a public company EXCEPT

A) high cost.
B) being subject to stringent disclosure rules.
C) public scrutiny.
D) loss of control.
E) pressure to perform in the long term.

Question 39

The research and development (R&D) limited partnership is useful for entrepreneurs starting _____ ventures that carry significant risk due to the expense of R&D.

A) social
B) h igh-tech
C) low-end
D) r etail
E) sales

Question 40

An early-stage investment in a growing business by a venture capital firm characteristically demands a higher rate of return, as much as _____ percent or more annual cash-on-cash return, whereas a later-stage investment demands a lower rate of return.

A) 50
B) 60
C) 40
D) 30
E) 80

Question 41

What is the difference between the National Association of Securities Dealers Automated Quotation (NASDAQ) and the New York Stock Exchange (NYSE) and American Stock Exchange (AMEX)?

Question 42

Briefly describe crowdfunding.

Question 43

List and briefly describe the four funding stages.

Question 44

List the disadvantages of an initial public offering (IPO).

Question 45

What are the advantages of an initial public offering?

Question 46

List and summarize the six different definitions of value.

Question 47

What is a Small Business Administration (SBA) loan? What are its qualifications?

Question 48

What are angels? List some definable characteristics of angels.

Question 49

What are the four components of an investment deal?

Question 50

Briefly discuss due diligence as it pertains to the sequence of events in securing venture capital (VC) from a VC firm.