Deck 14: The Deal: Valuation, Structure, and Negotiation

Question 1

What rate of return (ROR)will a venture capital investor seek from a first stage investment?

A) 30 percent annual ROR
B) 30-40 percent annual ROR
C) 40-60 percent annual ROR
D) 60-80 percent annual ROR

Answer 1

C

Question 2

The rate of return (ROR)required by the investor can affect the investor's required share of the ownership.

Answer 2

True

Question 3

Staged investment is a method used to manage risk.

Answer 3

True

Question 4

What is the typical expected holding period for a venture capital investment at the seed stage?

A) 3-5 years
B) 4-7 years
C) 5-10 years
D) More than 10 years

Question 5

Investors stage their capital commitments as a way to motivate the entrepreneurial team.

Question 6

Investors do not discontinue funding to ventures that are economically viable.

Question 7

Valuations of private companies have standard methodologies to determine value.

Question 8

Entrepreneurs should rely on expert legal and accounting advice to protect them during the deal-making process.

Question 9

ROR stands for ____.

Question 10

A cram-down round has no effect on founders' ownership as founders are normally protected against dilution.

Question 11

Strategic circumference is never an intentional outcome.

Question 12

Share price equals the price paid divided by the number of shares.

Question 13

The First Chicago evaluation method employs a higher discount rate and applies it to an expected cash flow.

Question 14

Staged capital commitments give strategic advantage to the:

A) investor.
B) entrepreneur.
C) underwriters.
D) advisors.

Question 15

A venture investment round that is priced less than the previous round is referred to as a _____ round.

Question 16

In the venture capital valuation method,terminal value is found by multiplying net income and the P/E ratio.

Question 17

A cram-down round is an investment round where follow-on investors are compelled by favorable conditions to accept a higher valuation than they would prefer.

Question 18

Which of the following valuation methods is appropriate for investments in a company with negative cash flows at the time of the investment,but has the potential to generate significant earnings?

A) Venture capital method
B) Fundamental method
C) Experimental method
D) The First Chicago method

Question 19

The goals of users and suppliers of capital are often contradictory.

Question 20

What is the typical expected holding period for a second stage venture capital investment?

A) 3-5 years
B) 4-7 years
C) 5-10 years
D) More than 10 years

Question 21

Under the _____ provision,if management does not find a buyer or cannot take the company public by a certain date,then the investors can proceed to find a buyer at terms they agree upon.

Question 22

Discuss the characteristics of successful deals.

Question 23

Explain how legal circumference relates to fund raising.

Question 24

A company currently has 500,000 shares outstanding,which are owned by the current owners.If the venture capitalist requires a 28.5 percent ownership,what will be the total number of shares outstanding after the investment?

Question 25

In the context of venture capital investment,discuss the consequences of venturing into an unknown territory.

Question 26

Name the factors that influence an actual deal in reality.

Question 27

Explain how strategic circumference relates to fund raising.

Question 28

Investors can tender their shares of stock before an initial public offering using _____ provision.

Question 29

By _____ their capital contributions,venture capitalists maintain the right to abandon a project whose prospects look dim.

Question 30

A venture capitalist is investing $5 million to acquire 200,000 shares.What is the price per share?

Question 31

_____ financing is a strategy of last resort that wipes out all previously issued stocks when existing preferred shareholders will not commit additional funds.

Question 32

In the case of a private company raising money,what is the most critical element of valuation?

Question 33

_____ are defined as economic agreements between at least two parties.