Deck 8: Financial Sources for Startups and Corporate Ventures

Question 1

What is investment made by an individual, partnership, or corporation in return for some form of ownership in a venture called?

A) Debt capital
B) Founders' capital
C) Sweat equity
D) Equity capital

Answer 1

D

Question 2

What is the most significant source of seed or early-stage financing for all new ventures?

A) Venture capital
B) Angel investors
C) Founders' personal savings
D) Bank financing

Answer 2

C

Question 3

Which stage of venture development is unlikely to be funded by venture capital?

A) Development stage
B) Launch stage
C) Seed stage
D) Expansion stage

Answer 3

C

Question 4

A common rule of thumb is to have enough cash saved cover at least ______ of basic personal living expenses before starting a business

A) 4 Months
B) 6 Months
C) 9 Months
D) 12 Months

Question 5

Why do investors in new ventures prefer to take preferred stock in a venture instead of common stock?

A) Because preferred shareholders get paid dividends before common shareholders
B) Because preferred stock is much cheaper
C) Because preferred stock is always worth double common stock
D) Because preferred stock is easier to sell

Question 6

What do corporation firms investing in other early-stage companies use to invest?

A) Debt financing
B) Commercial loans
C) Corporate venture capital
D) None of the above

Question 7

What does the venture capital firm look at when determining whether to fund your venture?

A) Management team
B) Size
C) Growth
D) All of the above

Question 8

What is money that an entrepreneur tries to borrow for working capital to pay for salaries and other operating expenses, or to purchase equipment needed for operations, and that is to be repaid with interest over time called?

A) Equity capital
B) Debt capital
C) Founders' capital
D) Sweat equity capital

Question 9

Using funds from the venture team itself, or from family or friends at the startup stage of the new venture is called?

A) Venture capital
B) Bootstrapping
C) Series A
D) Series B

Question 10

What is the term used to refer to working in a startup for no money in return for equity participation in the venture?

A) Equity investment
B) Debt investment
C) Startup investment
D) Sweat equity investment

Question 11

The majority of angel investments take place at what stage?

A) Seed & Series A
B) Series B
C) Series C
D) IPO

Question 12

Which of the following is NOT a round of investment capital?

A) Seed
B) Series A
C) Series B
D) Sweat equity

Question 13

What are professional, institutional managers of risk capital who invest in new ventures called?

A) Limited partnership
B) Venture capitalists
C) S- corporations
D) All of the above

Question 14

What are two ways a venture can achieve an exit?

A) IPO/acquisition
B) Divestment/merger
C) Expansion/decline
D) Retrenchment/IPO

Question 15

What is the investment capital funding sought at the development and initial launch stage of the venture called?

A) Seed
B) Series A
C) Series B
D) Series C

Question 16

At the startup stage of venture development, the type of relevant investment funding a venture would seek is?

A) Series B funding
B) Series A funding
C) Seed funding
D) Series C funding

Question 17

What are the two main types of capital available for a new venture?

A) Seed and Series A
B) Seed and debt
C) Equity and debt financing
D) Equity and Series B

Question 18

What is the investment capital funding sought at the expansion or growth stage of the venture called?

A) Seed
B) Seed A
C) Series B
D) Series C

Question 19

Who are angel investors?

A) Wealthy individuals who invest in startups
B) Corporations who invest in startups
C) Small lobby groups working to fund ventures according to specific industries
D) Groups of people who sit on several Boards of Directors

Question 20

Which of the following would be a self-financing option for a new venture?

A) Personal cash
B) Unsecured personal credit
C) Second mortgage on property
D) All of the above

Question 21

On a typical institutional investment how much should your venture expect to be paying in legal fees?

A) Zero, this is handled by the VC
B) $5,000 to $10,000
C) $20,000 or more
D) 50% of the amount you are raising

Question 22

What is the advantage of convertible debt?

A) It allows an angel investor to convert his investment to a VC
B) You don't need to argue about valuations at an early stage
C) It allows investors to convert from A Round financing to B Round financing
D) You can set valuations before your company grows

Question 23

What is the difference between angel investors and VCs? Why would an entrepreneur prefer one over the other? What would be the logical type of investor for the venture you are working on for this class?

Question 24

For your term project venture, what are elements of it that you think are the strongest points for potential investors? Explain your thinking behind this. What are the weakest points? Also explain.

Question 25

What is an example of a covenant in a VC investment deal?

A) Preferred equity that also serves as debt instrument with an interest rate.
B) Board seat(s) for the investors.
C) Anti-dilution clauses so that the VC can preserve its current percentage ownership position, regardless of future investors.
D) Placing founders' equity back as stock options which vest over time, or do not vest should the founders be asked to leave the company by the Board.
E) All of the above.

Question 26

What is a convertible debt instrument?

A) A loan to a small business made by a bank that gets converted to a lower interest rate once the startup gets larger.
B) A mechanism for early-stage investment where the investor is issued a note with an interest rate for the invested amount, convertible to stock at certain price per share upon Series A investment or other events as specified in the note.
C) A debt instrument that converts to publically traded stock after one year.
D) None of the above

Question 27

How can you improve the valuation of your company for an early stage investment?

A) Have team members who have already successful started and development ventures.
B) Have an outstanding product strategy and business model for monetizing that strategy.
C) Start a company in a very hot industry segment or niche where there is already lots of investment and M&A activity.
D) All of the above
Essay questions