Question 1

In contrast to informal investments, classic venture capital invests only to companies with a ______.

Accepted Answer

Classic venture capital typically targets companies that exhibit both a high degree of innovation and a high rate of growth, as these factors suggest a strong potential for significant returns on investment.

Question 2

One of the principal reasons for the failure of classic venture capital in Europe at the start of the 1990s was the failure of the secondary markets after the general stock market crash of October 1987.

Accepted Answer

The crash of October 1987 severely impacted investor confidence and liquidity in the markets, making it harder for venture capital-backed companies to go public or find buyers, thus affecting the venture capital ecosystem in Europe.

Question 3

Who comprises the "4Fs"?

Accepted Answer

The "4Fs" typically refer to Founders, Family, Friends, and Foolhardy investors, representing the initial sources of capital for startups or new ventures.

Question 4

Eighty percent of the venture capital invested in the United States finances hi-tech companies; by contrast only 29 percent of the venture capital invested in other G7 nations is in hi-tech companies.

Accepted Answer

The statement compares the percentage of venture capital invested in hi-tech companies in the United States to that in other G7 nations, indicating a significant difference in investment focus.

Question 5

In every nation, there is far more informal than formal investment from venture capitalists.

Accepted Answer

Venture capitalists typically make more informal investments than formal investments in every nation. Informal investments are made without a formal contract or agreement, while formal investments are made with a formal contract or agreement.

Question 6

According to Figure 9.5, an R² of 0.86 indicates that 86% of the variation in annual amount per informal investor is explained by:

Accepted Answer

The answer of According to Figure 9.5, an R² of...

Question 7

While classic venture capitalists finance very few companies, some of the ones that they do finance play a crucial role in the development of ______industries.

Accepted Answer

Venture capitalists often invest in companies that are part of knowledge-based industries, such as technology and biotech, because these sectors have high growth potential and can significantly impact economic development.

Question 8

What is the average amount of a microenterprise loan through the Grameen Bank?

Accepted Answer

The answer of What is the average amount of a...

Question 9

In general, trade sales produce nearly as big a capital gain as IPOs. When a company executes a trade sale, it almost always has the option of an IPO, as well.

Accepted Answer

Trade sales often result in different financial outcomes compared to IPOs, and not all companies considering a trade sale have the option of an IPO due to various factors such as size, market conditions, and regulatory requirements.

Question 10

The companies are often up and running before ____ is raised.

Accepted Answer

Venture capital is often one of the first significant sources of funding for startups, so companies are typically operational before receiving their first investment from venture capital.

Question 11

The split of the percent of entrepreneurs who expect to profit from their ventures and the percent of those that do not is almost ________ of the split among informal investors.

Accepted Answer

The statement implies that the distribution of expectations among entrepreneurs is opposite to that of informal investors, indicating a reverse relationship.

Question 12

Venture capital funds are limited partnerships that typically begin with how long of a term?

Accepted Answer

Venture capital funds typically begin with a term of ten years, allowing sufficient time for investments to mature and generate returns.

Question 13

The amount of capital that entrepreneurs need to start their ventures depends mainly on______.

Accepted Answer

The amount of capital required for starting a venture can depend on various factors including the type of business, the ambitions of the entrepreneur, the location of the business, and the country of origin. Each of these factors can significantly influence the initial capital outlay needed.

Question 14

Which of the following categories of informal investors expects the highest return on his or her investment, since it is made in a more detached manner?

Accepted Answer

Foolhardy investors, often referred to as "angel investors" or "venture capitalists" in a more formal context, typically expect the highest return on their investments. This is because they often take on the highest risk by investing in startups or high-risk ventures without the personal connections that might motivate friends or family to invest.

Question 15

What subset of informal investor is relatively sophisticated and invests primarily in glamorous companies?

Accepted Answer

Business angels are relatively sophisticated investors who often invest in high-growth or "glamorous" companies, typically in early stages of development.

Question 16

The expected internal rate of return or IRR (compound annual return on investment) is calculated from the expected payback time and the times return for formal investors and entrepreneurs who reported both.

Accepted Answer

The IRR is a financial metric used to evaluate the profitability of an investment, and it can be derived from the expected payback time and the times return, as these factors influence the cash flow projections used in its calculation.

Question 17

For all the GEM nations, the prevalence rate of informal investors is positively correlated with social security taxes and with taxes on capital and property.

Accepted Answer

The prevalence rate of informal investors in GEM (Global Entrepreneurship Monitor) nations is generally negatively correlated with social security taxes and taxes on capital and property. Higher taxes can discourage informal investments by reducing disposable income and the attractiveness of investment returns.

Question 18

Almost every new business raises its initial money from the founders themselves and what we call informal investors, including:

Accepted Answer

The answer of Almost every new business raises its initial...

Question 19

The fact that a country has sufficient startup capital overall means that every deserving nascent business receives funding.

Accepted Answer

Having sufficient startup capital overall in a country does not guarantee that every deserving nascent business receives funding, as distribution of capital can be uneven and influenced by various factors such as location, industry, and access to networks.

Question 20

The rarest source of capital for nascent entrepreneurs is______.

Accepted Answer

Venture capital is the rarest source of capital for nascent entrepreneurs because it typically targets businesses with proven potential, leaving early-stage startups to rely on friends, family, or other more accessible sources of funding.

Quiz 10: Financing Entrepreneurial Ventures Worldwide