Deck 4: Getting Your E-Business Off the Ground

Question 1

An entrepreneur must be prepared to invest his or her own cash in a startup e-business in addition to sweat equity.

Answer 1

True

Question 2

Two major sources of funding for startup e-businesses are informal investors and venture capitalists.

Answer 2

True

Question 3

An entrepreneur rarely has to use personal savings, mortgage assets, or take out a personal loan to help finance his or her startup e-business.

Answer 3

False

Question 4

Professional investors in the U.S. contribute more money for startups and growing businesses than informal investors.

Question 5

Many entrepreneurs discover that they can tap their network of friends and family for the financing necessary to cover basic startup costs.

Question 6

Friends and family members that invest in a startup e-business are typically investing in the e-business idea.

Question 7

The downside to accepting startup funds from family and friends is the risk of jeopardizing personal relationships through business misunderstandings or a business failure.

Question 8

An angel investor is a wealthy individual who enjoys the excitement of investing in the early stages of a new business and is not averse to some risk.

Question 9

Angel investors typically base an investment decision on a new business idea rather than on the strengths of the entrepreneur who has the idea.

Question 10

Anyone can join an angel investment club regardless of his or her net worth or annual income.

Question 11

Angel investors can provide experience and advice as well as the first significant funds for a startup e-business.

Question 12

A venture capitalist firm is a professional investment company that provides funds for startup businesses in exchange for an equity position in the new business.

Question 13

In addition to significant financing for a startup e-business, venture capitalist firms may also be able to offer an entrepreneur extensive knowledge about a specific industry and access to important contacts in that industry.

Question 14

Venture capitalist firms rarely focus their investment activities in a specific industry, funding round, or geographic location.

Question 15

Many venture capitalist firms focus their investments on a portfolio of complementary businesses, each of which adds value to the overall portfolio.

Question 16

The first meeting with a potential investor of any type is a sales meeting.

Question 17

An entrepreneur will likely review all the details of his or her business plan during the first meeting with potential investors.

Question 18

An entrepreneur should be prepared, be on time, and bring everything he or she needs when meeting with potential investors.

Question 19

When preparing for a meeting with potential investors, an entrepreneur can safely assume that audio visual equipment, laptop computers, copy machines, and other equipment will be available for his or her use at the meeting site.

Question 20

It is unusual for potential investors to ask questions during the initial meeting to discuss a new business proposal.

Question 21

When a potential investor asks a question that cannot be immediately answered, an entrepreneur should just "wing it" by making up a plausible answer.

Question 22

A business incubator may be a non-profit organization sponsored by local businesses, governments, and universities to nurture entrepreneurship in a local geographic area.

Question 23

A commercial business incubator is usually a cooperative venture between a university and local business community or government and focuses on stimulating and supporting growth in a local economy.

Question 24

The Austin Technology Incubator (ATI), the Advanced Technology Development Center (ATDC), and the Illinois Technology Enterprise Center (ITEC) are all examples of a non-profit business incubator.

Question 25

Venture capitalist firms generally offer fee- or equity-based business development and administrative services such as office space, telecommunications hookups, reception and conference room areas, computer networking facilities, mentoring, and referrals to potential investors.

Question 26

A commercial business incubator generally offers the same development and support services as a non-profit business incubator.

Question 27

Commercial business incubators generally require hefty fees for business development services plus a large equity position in a startup business.

Question 28

For many entrepreneurs, starting a new e-business under the wing of a commercial business incubator may be most appealing because it offers access to expensive services at a low cost.

Question 29

One of the primary advantages of joining a business incubator portfolio of companies is the ability to share ideas and discuss startup problems with other entrepreneurs whose companies are also in the portfolio.

Question 30

An alternative to non-profit or commercial business incubators is self-incubation by joining a group of entrepreneurs whose members share ideas, discuss entrepreneurial problems, and generally support each other's businesses.

Question 31

Finding unique and inventive ways to acquire resources for a startup is a form of self-funding called:

A) sweat equity
B) bootstrapping
C) angel investing
D) friends and family investing

Question 32

The first source of startup money an entrepreneur often taps is:

A) a list of angel investors provided by business associates
B) his or her network of friends and family members
C) his or her own personal savings
D) a venture capitalist firm

Question 33

More than half of all informal investing in U.S. startups and growing companies is by:

A) friends
B) angel investors
C) family members
D) a and b

Question 34

Which of the following investor categories has been called the "lifeblood of U.S. entrepreneurship?"

A) business incubators
B) venture capitalist firms
C) informal investors
D) self-incubation groups

Question 35

The investor group that primarily invests in an entrepreneur's strengths rather than his or her new business idea is:

A) commercial business incubators
B) venture capitalist firms
C) angel investors
D) friends and family members

Question 36

The easiest startup money an entrepreneur may ever find can come from his or her:

A) contacts with angel investors
B) friends and family network
C) fellow entrepreneurs
D) a and c

Question 37

To avoid misunderstandings, an entrepreneur soliciting startup money from his or her network of family members and friends should:

A) hide the risks involved in the startup venture
B) forego legal documentation because a verbal agreement is sufficient
C) find out whether or not the family member or friend can afford to lose the money he or she wants to invest
D) not bother providing a copy of a business plan or other marketing materials

Question 38

Which of the following issues reflects the downside of accepting startup funds from family members and friends?

A) may be the easiest startup money to find
B) family members and friends are likely to continue to be supportive during tough times
C) business misunderstanding might undermine personal relationships
D) family members know and trust the entrepreneur

Question 39

After tapping into his or her friends and family network, the next step an entrepreneur might take in seeking startup funding is to approach:

A) commercial business incubators
B) angel investors
C) venture capitalist firms
D) self-incubation groups

Question 40

An accredited investor who joins an angel investment club must have:

A) a minimum net worth of $1 million, or an individual income of at least $200,000 per year, or a household income of at least $300,000 per year in each of the last two years
B) a minimum net worth of $5 million, or an individual income of at least $300,000 per year
C) a minimum net worth of $10 million, or an individual income of at least $500,000 per year, or a household income of at least $200,000 per year in each of the last two years
D) None of the above

Question 41

Which of the following is a well-known investment club of high-tech entrepreneurs and retired executives?

A) Starve Ups
B) Band of Angels
C) Kleiner Perkins Caufield & Byers
D) Women's Technology Cluster

Question 42

An angel investor is likely to:

A) invest in a few thousand to a few hundred thousand dollars in a startup
B) focus on the entrepreneur and his or her strengths instead of the new business idea
C) expect a large equity position in the startup business
D) a and b

Question 43

Which of the following organizations focuses on matching entrepreneurs with angel investors?

A) Active Capital
B) Draper Fisher Jurvetson (DFJ)
C) SCORE
D) Advanced Technology Development Center (ATDC)

Question 44

Which of the following investor groups often provides not only the first significant startup funds for a new business but also useful business experience and advice.

A) friends and family network
B) venture capitalist firms
C) angel investors
D) commercial business incubators

Question 45

A professional investment firm that provides startup funds generally in exchange for a large equity position in a new business is a(n):

A) angel investor
B) non-profit business incubator
C) commercial business incubator
D) venture capitalist firm

Question 46

VC firms raise hundreds of millions of dollars in funding for new businesses from sources such as:

A) friends and family members
B) corporate funding programs
C) endowments, insurance companies, and pension funds
D) angel investors

Question 47

Some high-tech companies invest in technology startups as a way to:

A) encourage entrepreneurship in the local area
B) extend their own research and development interests
C) provide a venue for entrepreneurs to share ideas and solve common business problems
D) enjoy the risks associated with a startup venture

Question 48

When seeking VC funding, an entrepreneur should:

A) look for a VC firm whose interests fit well with his or her new business idea
B) send the VC firm an unsolicited copy of his or her business plan
C) call the president of the VC firm to set up an appointment
D) b and c

Question 49

A pitch document:

A) specifies the terms of an investment agreement
B) discloses the benefits and risks of an investment to potential investors
C) highlights a market need and briefly explains how a new business can profitability exploit that need
D) provides evidence that an individual is qualified to be an accredited investor

Question 50

A pitch to potential investors should:

A) define a new business's products and services
B) identify a new business's major competitors
C) illustrate planned exit strategies
D) All of the above

Question 51

A quick one- or two-minute explanation of a new e-business idea is often called a(n):

A) quick pitch
B) elevator pitch
C) fast pitch
D) landing pitch

Question 52

A list of the major terms or conditions of an investor's proposed financing arrangement is called a(n):

A) term sheet
B) private placement memorandum
C) pitch document
D) worksheet

Question 53

The average startup business remains in a business incubator's portfolio for approximately:

A) one year
B) three years
C) five years
D) ten years

Question 54

Commercial business incubators who, during the dot.com boom of the late 1990s, focused on developing e-business startups that could be spun out on their own within three to twelve months were sometimes called:

A) growth accelerators
B) Web developers
C) Internet accelerators
D) turnaround accelerators

Question 55

_______________investors include friends, family members, and angel investors.

Question 56

A(n)_______________of tapping a friends and family network for startup money is that friends and family know and trust the entrepreneur.

Question 57

The term_______________investor originally meant a wealthy investor who swooped down and saved a Broadway theatrical production when it was in financial trouble.

Question 58

Before accepting startup funds from friends and family members, an entrepreneur should make certain they understand that a startup venture is a(n)_______________proposition.

Question 59

When soliciting startup funds, an entrepreneur should provide the same_______________to a family member or friend that he or she would provide to any potential investor.

Question 60

_______________from a network of friends and family members is a great way to obtain enough money to get a new business started.

Question 61

An investor who wishes to join an angel investment club must meet the stringent financial qualifications needed to become a(n)_______________investor.

Question 62

An individual_______________typically invests a small amount in several new businesses that catch his or her interest.

Question 63

When presenting an e-business idea to a(n)_______________, an entrepreneur should remember that the investor's primary interest is how well the new e-business idea fits a market need.

Question 64

A(n)_______________is a professionally managed investment company or partnership that provides funding for startup or growth companies in exchange for ownership equity and, often, a seat on the board of directors.

Question 65

In general, a(n)_______________invests from $250,000 to $1,500,000 in the early stages of a new business, and may invest several million dollars over the course the business's life.

Question 66

_______________is an example of a successful and well-known e-business that received early VC funding.

Question 67

Many_______________focus their investments in a specific industry, such as technology or energy.

Question 68

An entrepreneur should research the principal investors, investing history, investment strategies, and management team of a(n)_______________to make certain of a good fit with his or her business idea.

Question 69

One of the best ways for an entrepreneur to approach a(n)_______________is to arrange to have his or her business plan submitted through a mutual trusted source.

Question 70

The downside of receiving funding from a(n)_______________is giving up a sizable ownership stake in the new business.

Question 71

The typical equity percentage required by a(n)_______________is in the 30-40 percent range.

Question 72

A(n)_______________will want to be actively involved in any strategic business decisions that could change a new business's direction or deplete its resources.

Question 73

The first meeting with a potential_______________will be a brief sales meeting.

Question 74

A short marketing document that summarizes a new business idea is called a(n) _______________document.

Question 75

A(n)_______________document is the basis for a verbal presentation to potential investors.

Question 76

An entrepreneur should consider using an easy-to-understand slide show presentation when_______________a new business idea to potential investors.

Question 77

If an entrepreneur uses a(n)_______________presentation during a pitch to investors, he or she must remember to bring a laptop, projector, extra projector bulb, and an extra copy of the presentation to the meeting.

Question 78

During a(n)_______________to potential investors, an entrepreneur should be prepared to answer questions about any risks or problems associated with his or her business idea and how these risks or problems will be handled.

Question 79

Business incubators are sometimes called business_______________.

Question 80

Describe how an entrepreneur might secure funding for his or her startup from personal sources, informal investors, and professional investment firms.