Deck 15: The Deal: Valuation, structure, and Negotiation

Question 1

While follow-on rounds can severely dilute the equity of the founders,early-round investors are insulated from that risk.

Answer 1

False

Question 2

Staged investments are a method used to manage risk.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

ROR stands for ________.

Question 6

How long 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 7

How long 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 8

What range of return 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

Question 9

Which of the following is not an example of a valuation method?

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

Question 10

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

Question 11

Strategic circumference is never an intentional outcome.

Question 12

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

Question 13

Experienced entrepreneurs are able to avoid creating strategic circumference by carefully structuring deals.

Question 14

The goal of valuation techniques is to be able to arrive at a single number.

Question 15

Staged capital commitments favor the equity position of the

A) Investor
B) Entrepreneur
C) Underwriters
D) Depends on the deal

Question 16

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 17

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

Question 18

Venture capitalists may dilute a founder's equity with each additional round of capital,but they are not permitted to fire them.

Question 19

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

Question 20

The ROR required by a venture capitalist determines the required share of ownership.

Question 21

What are the three ingredients to an entrepreneurial valuation?

Question 22

Name three factors that can affect the price of an investment deal.

Question 23

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

Question 24

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

Question 25

Discuss the characteristics of successful deals.

Question 26

Discuss some of the inherent conflicts that exist between users of capital (entrepreneurs)and suppliers of capital (investors).

Question 27

_________ is a stock ownership mechanism that limits the number of shares employees are entitled to if they leave the venture prematurely.

Question 28

Explain how legal circumference relates to fund raising.

Question 29

Why is it important that an entrepreneur understand the capital markets' food chain?

Question 30

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

Question 31

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 32

Under a ________ 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 33

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

Question 34

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

Question 35

Explain how strategic circumference relates to fund raising.