Deck 13: Obtaining Venture and Growth Capital

Question 1

The more mature a company is when it makes a public offering,the higher the equity given up by the founders for the required capital.

Answer 1

False

Question 2

If the goal of a company is to raise a specific amount of capital in a short time,it can opt for private placements.

Answer 2

True

Question 3

One of the toughest trade-offs for any young company is to balance the need for startup and growth capital with preservation of equity.

Answer 3

True

Question 4

It is best to be vague about other investors one is considering for a venture while discussing with a potential venture capitalist.

Question 5

Most venture capital funds are organized as partnerships,where the fund managers are the general partners and the investors are the limited partners.

Question 6

A typical informal investor is not appropriate for funding high-technology inventors that have not developed a prototype.

Question 7

Companies preparing for initial public offerings (IPOs)are attractive to mezzanine investors.

Question 8

The single most important criterion for selecting an investor is the size of fund it can provide to an organization.

Question 9

A private placement should not be offered after a company has already gone public.

Question 10

The greatest source of seed and startup capital comes from organized venture capital groups.

Question 11

Although corporate venture capitalists look for promising young companies on the verge of a spike in sales like traditional venture capitalists,corporations tend to be more risk-averse and specialized.

Question 12

With mezzanine financing,the principle amount may be converted into equity.

Question 13

A private placement has an unlimited audience;hence,it requires more regulatory paperwork than a public offering.

Question 14

Angels or wealthy individuals are often sought because the evaluations they provide of potential investments are more thorough than formal investors.

Question 15

Creative bootstrapping strategies can preserve equity as long as it is done in an optimal way so the opportunity does not get away from the company.

Question 16

A venture should look for capital only when it has a serious cash shortage.

Question 17

An equity investment requires that the management team firmly believe that investors can and will add value to the venture.

Question 18

Going public enables a firm to raise more capital with less dilution than occurs with private placements or venture capital through a higher valuation.

Question 19

Mezzanine capital does not require regular interest payments.

Question 20

Regulation D is the result of the first cooperative effort by the small business investment companies (SBICs)to develop customized exemptions from securities registration for small issuers.

Question 21

An employee stock ownership plan (ESOP)is a tax-qualified retirement benefit plan that borrows money and uses the cash proceeds to buy a company's stock.

Question 22

What is the average number of hours that a venture capitalist will spend conducting due diligence on a promising venture?

A) 25
B) 60
C) 120
D) 400

Question 23

Salim,who runs a business,decides to invest in a high-technology inventor that has not developed a prototype yet.He requires about $60,000 and opts to seek an investor who adds more than money to this project.However,he realizes that the evaluation provided by this type of investor is not likely to be thorough.Which of the following does Salim consider as a potential investor for the new venture?

A) Contribution from close friends and family
B) Fund from an angel investor
C) Advance payment from customers
D) Credit line from a bank

Question 24

Employee stock ownership plans (ESOPs)are potential sources of funding used by existing companies that have low to moderate confidence in the stability of their future earnings and cash flow.

Question 25

Name three non-monetary capabilities a venture capitalist brings to an investment.

Question 26

Discuss how timing is a critical aspect of raising risk capital.

Question 27

Which of the following is an advantage of an initial public offering (IPO)?

A) The legal costs of raising money via a public offering are lesser than that of other ways of raising money.
B) Management need not invest effort,time,and expense to comply with SEC regulations.
C) It creates options to acquire other companies with stock rather than cash.
D) Management becomes more interested in maintaining the price of a company's stock than in running the company.

Question 28

What are the three central issues that should be considered when beginning to think about obtaining investment capital?

Question 29

Which of the following industries would least likely attract mezzanine financing?

A) Retailing industry
B) Broadcasting industry
C) Educational industry
D) Environmental services industry

Question 30

Subordinated debt often carries an equity _____ consisting of warrants,or a conversion feature into common stock.

Question 31

A(n)______ raises capital through federally registered and underwritten sales of a company's shares.

Question 32

Farah is an engineer with an idea for a flexible solar energy material that would have a wide range of military and civilian applications.She estimates that she will need approximately $300,000 to develop a prototype.Friends and family could provide about $75,000.She contacts Natalie,an angel investor,for this purpose.In this case,which of the following is likely to be true?

A) Farah is likely to receive a report from Natalie that is more thorough than those by formal venture capitalists.
B) Natalie is likely to be a wealthy individual with expertise in the field.
C) Farah is unlikely to expect more than just financial support from Natalie.
D) Natalie is unlikely to be a private investor.

Question 33

ESOP stands for ____.

Question 34

Capital that is between senior debt financing and common stock is called ______ financing.

Question 35

The subordinated-debt capital is generally unsecured,with a fixed coupon and maturity of ____.

A) 1-3 years
B) 3-5 years
C) 5-10 years
D) 10-15 years

Question 36

What is the size of funds provided by mainstream venture capitalists?

A) $25-$50 million under management
B) $50-$100 million under management
C) $250-$499 million under management
D) Over $500 million under management

Question 37

Most organizations that are funded by venture capital investors are in the form of ____.

A) S-Corps
B) partnerships
C) corporations
D) public companies

Question 38

The investigation that an investor undertakes for verification of facts,backgrounds,and reputations of key people,market estimates,technical capabilities of a product,and proprietary rights refers to _____ on the part of the investor.

Question 39

Describe the stages in the venture capital fund investing process,including fund formation and adding value to investments.

Question 40

What is the best way for an entrepreneur to learn about the reputation of a particular venture capital firm?