Deck 13: Financing for Startups

Question 1

Which of the following is another term for convertible debt?

A)convertible bond
B)convertible stock
C)loan forgiveness
D)revolving debt

Answer 1

A

Question 2

What qualifies someone as an accredited investor?

A)only a willingness to invest
B)net worth of the equivalent being invested
C)net worth over $1 million or income over $200,000
D)net worth over $500,000

Answer 2

C

Question 3

Equity financing is defined as ______.

A)the value of the total company assets
B)the value a company earns and borrows against
C)the sale of shares of stock in exchange for cash
D)a debt incurred by a company

Answer 3

C

Question 4

Even though your business may not currently be profitable,investors will want to know how many customers you have,primarily because it will show the potential ______.

A)for customer satisfaction
B)to scale the business
C)marketability
D)revenue from that base

Question 5

______ is the company's value before it receives outside investment.

A)Post-money valuation
B)Seed money valuation
C)Pre-money valuation
D)Startup valuation

Question 6

______ is a short-term loan that can be turned into equity when future financing is issued.

A)Convertible debt
B)Angel funding
C)A business loan
D)An equity loan

Question 7

One of the main advantages of convertible debt is that it ______.

A)doesn't need money to be paid back
B)removes the need for valuation
C)is less expensive than other types of loans
D)eliminates a need for venture capitalist funds

Question 8

A/an ______ is a type of investor who uses his or her own money to provide funds to young startup private businesses run by entrepreneurs who are neither friends nor family.

A)seed investor
B)bridge investor
C)equity investor
D)angel investor

Question 9

The typical investment range for angel investors is generally thought to be ______.

A)up to $5,000
B)up to $20,000
C)between $25,000 and $100,000
D)between $75,000 and $150,000

Question 10

The easiest way for startups to determine their company's potential is to ______.

A)check out how similar companies in the same industry are being valued
B)determine the economic health of the market area
C)look at the track record of the cofounding team
D)analyze the company's financial forecast

Question 11

______ consist(s)of small amounts of capital given to help prove a concept.

A)Direct cross-subsidies
B)Seed-stage financing
C)Startup financing
D)Early-stage financing

Question 12

The general rule of thumb for new startups is to ______.

A)avoid seeking investment for as long as possible
B)try to get as much funding as possible as soon as possible
C)immediately line up one committed investor with deep pockets
D)seek many small investments from a wide range of people right away

Question 13

Convertible debt can turn into ______ when money is received from a venture capitalist.

A)equity
B)conventional debt
C)a convertible note
D)venture capital funds

Question 14

If an entrepreneur receives $275,000 from venture capitalists in exchange for stock,what do the investors receive in return?

A)royalties from future sales
B)equity in the business
C)access to the first round of product
D)guaranteed board appointments

Question 15

______ consist(s)of larger amounts of funds provided for companies that have a team in place and a product or service tested or piloted,but as yet show little or no revenue.

A)Direct cross-subsidies
B)Seed-stage financing
C)Startup financing
D)Early-stage financing

Question 16

Which of the following is a professional investor who generally invests in early-stage and emerging companies because of perceived long-term growth potential?

A)crowdfunder
B)angel investor
C)venture capitalist
D)friend

Question 17

______ is the company's value after it receives a round of financing.

A)Post-money valuation
B)Seed money valuation
C)Pre-money valuation
D)Startup valuation

Question 18

How is a seed-stage company valued?

A)on the anticipation of future growth
B)on the value that it has on hand
C)by the number of shareholders
D)on the basis of its financial history

Question 19

______ is/are provided to help implement an entrepreneur's research and development.

A)Direct cross-subsidies
B)Seed-stage financing
C)Startup financing
D)Early-stage financing

Question 20

One of the main advantages of convertible debt is that it is attractive to investors because ______.

A)their risk of loss is minimized
B)they will be repaid for the loan when the company is successful
C)they may be entitled to discounts on the share price
D)they will be the first to own stock in your company

Question 21

The term ______ refers to a rigorous process that evaluates an investment opportunity prior to a deal being finalized.

A)investment investigation
B)valuation
C)due diligence
D)investor assessment

Question 22

Generally speaking,many corporate angels seek what within the venture?

A)a match to his or her own values
B)a higher rate of return than other investors
C)a paid position
D)global expansion

Question 23

______ angels sometimes seek to be paid advisers.They generally come from a profession such as lawyers or accountants.

A)Corporate
B)Entrepreneur
C)Professional
D)Enthusiast

Question 24

______ angels are usually former business executives seeking profit who often are also looking to play a large part in the company.

A)Corporate
B)Entrepreneur
C)Professional
D)Enthusiast

Question 25

______ angels are successful entrepreneurs who want active involvement in the companies they invest in.

A)Entrepreneur
B)Professional
C)Enthusiast
D)Micromanagement

Question 26

Which of the following spawned the growth of a whole new generation of venture capitalist companies?

A)general business growth
B)the improving economy of second- and third-world countries
C)the rise of smartphones and tablets
D)the 10-year cycle of venture capitalists

Question 27

Minority business angels account for what percentage of the total angel investor population in the United States?

A)13%
B)0%
C)20%
D)25%

Question 28

In short,VCs look for ______,big markets,and innovative ideas.

A)early seed funding
B)midsize companies
C)great teams
D)local companies

Question 29

In general,entrepreneurs may raise what amount through the 3 Fs?

A)up to $1,000
B)between $500 and $20,000
C)between $25,000 and $200,000
D)between $1,000 and $100,000

Question 30

What will be the first opportunity for the investor to sell stocks on the stock market?

A)at any time after the initial investment
B)when the company is profitable,usually after 5 years
C)with the company's initial public offering (IPO)
D)whenever there is a buyer

Question 31

______ angels,often independently wealthy,tend to invest for pleasure.

A)Corporate
B)Entrepreneur
C)Professional
D)Enthusiast

Question 32

Which type of angel is most likely to intervene if the business is not going well?

A)entrepreneur
B)professional
C)enthusiast
D)micromanagement

Question 33

In 1979,the venture capital industry benefited from what action?

A)an economic boom
B)the ability of a pension fund to invest in venture capital
C)federal fund availability to entrepreneurs
D)the ability of small businesses to offer stock

Question 34

Which of the following describes an angel group?

A)a group formed from entrepreneur and professional angels
B)a group of investors who listen to your pitch as a group
C)a group of angels who share knowledge and collaborate in their investments
D)an angel who invests on behalf of others

Question 35

What signals the end of the due diligence period?

A)within 30 days of the initial offer
B)within 6 months of the initial offer
C)when the investor has resolved all questions and issues
D)when all the issues of both parties have been resolved

Question 36

How often will additional funding be awarded by a VC,assuming the company is growing?

A)every 8 years
B)every 10 years
C)every year or two
D)every 5 years

Question 37

______ angels are individuals who have already started and successfully operated their own businesses.

A)Corporate
B)Entrepreneurial
C)Professional
D)Enthusiast

Question 38

What type of investment vehicle do venture capital money managers typically use?

A)bank loan
B)limited partnership fund
C)angel account
D)investment bonds

Question 39

What is the ultimate reason for trading equity for financial support?

A)It is more likely that the entrepreneur will build a more valuable company.
B)It is usually a deal/no deal option.
C)There will be more people interested in the company's success.
D)Preparing for the questions asked in pitching and due diligence will ultimately improve the company.

Question 40

How much return does a typical angel investor expect from his or her investment?

A)Angel investors have no expectation of return.
B)double the amount invested within 2 years
C)10 times the investment in 5 years
D)3 times the investment within 3 years

Question 41

When valuing a seed-stage,startup,or early-stage company,which of the following is most likely to be considered?

A)the company's history of sales
B)how much time it will take for the business to become profitable
C)the length of time invested in developing the product or service
D)the amount of capital already raised by the founders

Question 42

A study of 212 U.S.startups form the late 1990s and early 2000s showed that what percentage of the founders were no longer CEO after three years?

A)50%
B)80%
C)20%
D)12%

Question 43

Pre-money valuation is the post-money valuation minus the ______.

A)the value of the company at the end of 1 year
B)the value of the company at the end of 5 years
C)outside investment
D)cost of the obtaining the investment

Question 44

What exit strategy allows the entrepreneur an opportunity to purchase back venture capital stock at cost and an additional premium?

A)IPO
B)exit clause
C)buyback
D)retract clause

Question 45

Karen has formulated a line of green cleaning products,which she has tested with local commercial entities with great results.She is now ready to seek money to place the product in stores.What stage of financing is Karen interested in?

A)seed-stage financing
B)startup financing
C)early-stage financing
D)continuity financing

Question 46

An investor offers $150,000 for 30% of the company.What is the post-money valuation of the company?

A)$350,000
B)$500,000
C)$50,000
D)It cannot be determined.

Question 47

This action allows the stock to be purchased on the open market and gives investors a chance to get a return of cash.

A)liquidation
B)IPO
C)exit plans and clauses
D)company registration

Question 48

Venture capitalists look for ventures that will earn them ______ times their original investment.

A)two to five
B)five to ten
C)seven to 12
D)10 to 15

Question 49

How far back can we track the history of venture capital?

A)to the dot com investments of the early 90s
B)to venture capital startups in the 1980s
C)to the 1958 Small Business Investment Act
D)to early 20th-century investors such as the Rockefellers and the Bessemers

Question 50

An entrepreneur has conducted crowdfunding to raise enough money for patents and building the founding team.He is now looking for funds to form a prototype and pitch the product to new investors.Which of the following is the most likely source of funds?

A)angel investor
B)venture capitalist
C)family and friends
D)venture capitalist groups

Question 51

Seed-stage financing consists of small amounts of capital to help entrepreneurs prove a concept.

Question 52

In 2018,venture capitalists invested in ______ of seed-stage companies.

A)15%
B)7.5%
C)25%
D)1.5%

Question 53

IPOs,mergers and acquisitions,and buybacks are all types of ______ strategies.

A)investment
B)exit
C)growth
D)retrenchment

Question 54

An investor has offered $150,000 for 20% of the company.The company has a pre-money valuation of $350,000.Should the entrepreneur consider the offer?

A)No; the investor is asking too great a percentage.
B)Yes; the investor is asking for less than the value of the investment.
C)No; the investor is not offering enough for the value of the company.
D)It cannot be determined.

Question 55

If a VC offers you $2 million for a third of your company,what was your pre-money valuation?

A)~$2 million
B)~$3 million
C)~$4 million
D)~$6 million

Question 56

The average partner in a VC firm will do ______ deals per year.

A)100
B)roughly 50
C)five to 10
D)one to three

Question 57

What practice allows larger companies to purchase smaller companies to increase profitability or eliminate competition?

A)acquisitions
B)LLCs
C)IPOs
D)buybacks

Question 58

An entrepreneur is asking for $1 million for 30% of his company.What is the entrepreneur's post-money valuation?

A)$3.33 million
B)$300,000
C)$2 million
D)it cannot be determined

Question 59

A company's pre-money valuation is $500,000 and the post-money valuation is $600,000.How much did the angel invest?

A)$5,000
B)$50,000
C)$100,000
D)It cannot be determined.

Question 60

In early-stage financing,small amounts are given so that entrepreneurs can prove a business concept.

Question 61

Angel investors usually look for opportunities in young startups that can be expected to return 10 times their investment in five years.

Question 62

An entrepreneur should keep 90% of the equity until the financing has been worked out.

Question 63

Angel investors and venture capitalists are mostly professional money managers.

Question 64

By issuing convertible debt,the entrepreneur will become the minority stockholder and lenders will assume control over how the company is run.

Question 65

The authors recommend finding investors early in the game so that you can focus on building the company.

Question 66

The cofounders' experience and previous successes will influence an investor's willingness to invest in a company.

Question 67

When working with a venture capitalist,it is possible to be demoted within your own company.

Question 68

Venture capital became more organized and professional with the 1946 creation of American Research and Development.

Question 69

Entrepreneurs can seek advice from lawyers and accountants to help determine the market rates for companies like theirs.

Question 70

Entrepreneurs should not conduct due diligence on potential venture capital investors.

Question 71

An angel investor is frequently a family member or close friend.

Question 72

There is a reliable formula to determine how much equity you should keep and how much you should give away.

Question 73

If an entrepreneur issues convertible debt,he or she will lose control of the company.

Question 74

Very few founding CEOs are pushed out after giving up equity to VCs.

Question 75

Typically,entrepreneurs value their companies based on its current financial performance.

Question 76

Generally speaking,there are more minority angel funding groups in the United States than women angel groups.

Question 77

Research suggests that women are better investors than men,as they take more time researching potential entrepreneurial ventures,and take on less risk.

Question 78

Because they are investors,angel investors and venture capitalists do not usually have an exit plan.

Question 79

Generally,if a venture is at an early stage,then venture capital is the most likely source of funding.

Question 80

Angel investors are eligible to invest as long as they are accredited investors.