Deck 7: Startup Capital: The Injection

Question 1

Most new ventures are started by "bootstrapping", which is initiating the venture on marginal financial resources from personal savings, family, and friends.

Answer 1

True

Question 2

There are only two basic sources of venture financing: Debt and Ownership Equity.

Answer 2

True

Question 3

Ownership equity represents owner's investment in a company and carries a specific date for repayment.

Answer 3

False

Question 4

A short-term loan is one that is scheduled to be repaid within a period of one to ten years.

Question 5

Long-term loans (10 or more years) require collateral but are generally available as an option to new businesses.

Question 6

A venture capitalist will generally see from 50 to 100 proposals a month. Out of that number, 1 may be funded.

Question 7

Angel investors are private individuals who invest informal capital into entrepreneurial ventures. They are usually persons who have moderate to significant business experience and affluent professionals.

Question 8

Under a line of credit, a bank is legally obliged to provide the capital stated in the agreement.

Question 9

The US Small Business Administration (SBA) can guarantee as much as 85 percent repayment on business loans of up to $150,000 and 75 percent repayment on loans of more than $150,000.

Question 10

For warehouse receipt loans, inventory is stored in warehouses, and a receipt for the inventory is given to the bank as security for a loan to pay off the supplier.

Question 11

The ___________ and ______________ impact the appropriate source of financing for an entrepreneurial venture. (Select the two that best apply)

A) Founder's level of experience
B) Level of risk
C) Stage of the firm's development
D) Cost of capital

Question 12

The most common forms of short-term loans are ________________ and ________________.

A) Trade credit created
B) Short-term bank loans
C) Family/friend IOUs
D) Personal contributions

Question 13

Intermediate-term loans typically provide capital for periods from ____________years

A) two to four
B) one to five
C) one to ten
D) five to ten

Question 14

Intermediate and Long-Term loans can require which of the following conditions?

A) Right of the lender to control major expenditures
B) The borrower must furnish the lender with annual financial statements
C) The loan must be secured by collateral
D) All of the above

Question 15

Equity investment, usually through the sale of common stock, is a ____________ part of a firm's capital structure.

A) Permanent
B) Temporary

Question 16

The most frequently used source of startup financing is:

A) Venture Capital
B) Bank Loans
C) Crowdfunding
D) Personal Savings

Question 17

Even with a well-prepared business plan, it takes an average of __________ from initial contact to raise venture capital.

A) 3 to 6 weeks
B) 6 to 8 weeks
C) 12 to 14 weeks
D) 1-2 years

Question 18

Internal Funds, often overlooked by entrepreneurs, are:

A) Monies supplied by current equity investors
B) Contributions from employees
C) Monies kept in the form of the firm's retained earnings
D) None of the above

Question 19

Which of the following is an informal agreement or understanding between a borrower and a bank that does legally commit the bank to a maximum amount of credit that the bank will provide to the borrower?

A) Line of credit
B) Revolving credit agreement
C) Commercial credit agreement
D) Floating Credit

Question 20

______________ are self-liquidating loans, commonly used for both seasonal financing and building up inventories.

A) Straight commercial loans
B) Term loans
C) Trade loans
D) Accounts-receivable loans

Question 21

Warehouse-receipt loans are typically used for ______________ that are ______________, allowing the business to buy back portions of the loan as they sell the merchandise.

A) Non-perishable items; readily marketable
B) Non-perishable items; not readily marketable
C) Perishable items; readily marketable
D) Perishable items; not readily marketable

Question 22

Which of the following can legally be used as security on a collateral loan?

A) Stocks
B) Bonds
C) Life insurance policies
D) Real estate mortgages
E) All of the above

Question 23

Which type of loan can be made against a firm's outstanding receivables; allowing the bank to be repaid as they are collected.

A) Accounts-receivable loan
B) Warehouse-receipt loan
C) Commercial loan
D) Trade loan

Question 24

______________ differ from other financial sources in that they buy accounts receivable, meaning that they purchase them without recourse in the case that a person who owes an ac?count receivable does not pay.

A) Angel investors
B) Collection agencies
C) Factors
D) Finance companies

Question 25

The U.S. Small Business Administration (SBA) was established by Congress for the purpose of:

A) Regulating and controlling the nation's small business enterprises
B) Advising and assisting the nation's small businesses
C) Providing funding and financial services to the nation's small business
D) None of the above

Question 26

____________ is a commonly overlooked capital source, by which suppliers, in ef?fect, help finance operations by agreeing to take payment for merchandise at an agreed upon time after delivery.

A) Supplier loan
B) Trade credit
C) Manufacturer financing
D) Delayed debt

Question 27

What is an informal agreement (no legal obligation) between the borrower and the bank as to the maximum amount of credit the bank will provide the borrower at any one time.

A) Straight commercial loans
B) Line of credit
C) Term loan
D) Accounts Receivable Loan

Question 28

Small Business Investment Companies (SBICs) can only invest in small businesses, defined as businesses with tangible net worth of less than ___________and an average of _________in net income or less over the previous two years at the time of investment

A) $5 million; $1 million
B) $10 million; $2 million
C) $15 million; $4 million
D) $18 million; $6 million

Question 29

The ___________________ and ________________________ are highly competitive programs that encourage small business to explore their technological potential and provide the incentive to profit from commercialization opportunities. (Select 2)

A) Small Business Innovative Research (SBIR)
B) Small Business Technology Transfer (STTR)
C) Small Business Innovators Grant (SBIG)
D) Small Business Commercial Research Fund(SBCRF)

Question 30

___________ seek(s) funding for a new venture by raising monetary contributions from a large number of people in the general public via the internet.

A) Venture capital funds
B) Innovation clubs
C) Crowdfunding
D) Net financing

Question 31

What kinds of loan services do banks provide for new ventures? Describe four of them.

Question 32

Briefly discuss the positive and negative aspects of crowdfunding and how it can assist a small venture seeking startup capital.

Question 33

Discuss the positive and negative aspects of choosing to finance your venture through equity capital.

Question 34

Explain how new ventures use the following capital sources: internal funds, trade credit, and equity sources

Question 35

Describe and explain some of the risks mentioned in the chapter that should be considered before making a crowdfunding investment.