Deck 14: Obtaining Venture and Growth Capital

Question 1

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 1

True

Question 2

Bootstrapping an early stage company is a means of retaining equity.

Answer 2

True

Question 3

Private placements are used for firms that are not in a position to pursue an IPO.

Answer 3

False

Question 4

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

Question 5

Interest from a venture capitalist can be predicted by the amount needed and the required rate of return expected.

Question 6

In the majority of the high-technology startups and early-stage companies,debt is normally secured to fund research and development,prototype development and product marketing,launch,and cover early losses.

Question 7

Effective entrepreneurs set up meetings that allow them to present to more than one informal investor at the same time.

Question 8

While corporate venture capitalists are similar to traditional VCs in that they look for promising young companies on the verge of a spike in sales,corporations tend to be more risk-averse and specialized.

Question 9

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

Question 10

A central idea with obtaining risk capital is that a smaller percentage of a larger pie is preferred to a larger percentage of a smaller pie.

Question 11

It is best to be vague about other investors you are speaking with.

Question 12

Second tier venture capital funds prefer debt instruments to equity investments.

Question 13

Private companies that get into financial trouble can opt to raise funds through a private placement.

Question 14

If an entrepreneur has obtained a referral,he or she needs to get permission to use the name of the person making a referral when the investor is contacted.

Question 15

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

Question 16

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

Question 17

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

Question 18

Mezzanine is a debt instrument that does not require regular interest payments.

Question 19

Angels or wealthy individuals are often sought because they are more easily sold than formal investors (i.e. ,venture capitalists and private placements).

Question 20

Whether or not the outcome of a presentation is continued investment interest,the entrepreneur needs to try to obtain the names of other potential investors from this meeting.

Question 21

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

Question 22

John Savage was an engineer with an idea for a flexible solar-energy material that would have a wide-range of military and civilian apparel applications.He estimates that he will need approximately $300,000 to develop a prototype.Friends and family could provide about $75,000.What would be the best source for the balance?

A) Informal investors
B) Venture capitalists
C) A strategic partnership
D) An SBA loan

Question 23

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 24

The verification of facts,backgrounds,and reputations of key people,market estimates,technical capabilities of the product,proprietary rights,and the like is an investigation for investors called ________.

Question 25

An ESOP is a program in which the employees create an internal source of funding by becoming investors in the company.

Question 26

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

Question 27

Which of the following industry would be least likely to attract mezzanine financing?

A) Retailing
B) Broadcasting
C) Biotechnology
D) Environmental services

Question 28

ESOPs are a potential source of funding used by existing companies that have low to moderate confidence in the stability of their future earnings and cash flow.

Question 29

The venture capital investing process generally occurs over what time frame?

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

Question 30

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

Question 31

An investment at a lower price than the previous round is called a ________.

Question 32

When pushed by a promising investor to discuss what other firms/angels you are talking to,you should:

A) Respectfully decline
B) Reveal only the strongest other prospects
C) Reveal only prospects that have co-invested with the prospective investor
D) Be up front and tell them what they want to know

Question 33

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

Question 34

What is the biggest difference between an IPO and a Private placement?

A) Number of investors
B) Debt versus equity
C) Transaction time
D) Upside potential

Question 35

What are the three central issues that should be considered when beginning to think about obtaining risk capital?
(1)Does the venture need outside equity capital? (2)Do the founders want outside equity capital? and finally, (3)Who should invest?

Question 36

Jill has bootstrapped her business that helps large bakeries increase the efficiency of their deliveries.After a recent spotlight in a trade magazine explaining how her customers can quickly lower their costs,her sales have doubled in three months.Since her system is a combination of proprietary software and hardware,this dramatic increase in installs has created a severe and unexpected cash flow challenge.Which of the following sources would be her best choice of immediate funds?

A) Friends and family
B) Angel investors
C) Advance payments from customers
D) Credit line from a bank

Question 37

ESOP stands for ________.

Question 38

What is the standard form of organization's for a venture capital fund?

A) S-Corp
B) Limited Partnership
C) Corporation
D) The organization's structure varies widely across the industry

Question 39

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

Question 40

What is the range fund size of 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 41

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