Question 1

During a 12-month period, a company is permitted to issue new securities through crowdfunding up to a limit of:

Accepted Answer

E

Question 2

Which one of the following statements concerning venture capitalists is correct?

Accepted Answer

Exit strategy, or the plan for how and when the venture capitalist will profit from their investment, is a crucial factor for both the venture capitalist and the entrepreneur seeking funding. The other statements are incorrect: A is incorrect because venture capitalists typically provide financial support but do not take on management responsibilities; C is incorrect because venture capitalists may also provide other forms of support to start-ups, such as advice and networking opportunities; D is incorrect because venture capitalists generally have an exit strategy and do not intend to be long-term investors; and E is incorrect because venture capitalists may invest at various stages of a company's development and may not always be involved from conception through an IPO.

Question 3

Equity financing of new, non-public companies is broadly referred to as:

Accepted Answer

Private equity refers to equity financing of new, non-public companies. It typically involves investing in early-stage or mature businesses that require substantial capital to grow or expand. Private equity firms provide the funding in exchange for a stake in the company and typically exit the investment through a sale or public offering after several years.

Question 4

When selecting a venture capitalist, which one of the following characteristics is probably the least important?

Accepted Answer

Underwriting experience is least important when selecting a venture capitalist because it is not directly related to their ability to invest and support a company. While it may be helpful for the VC to have some knowledge of underwriting, it is not a crucial factor in their ability to provide valuable resources and support to the startup. Financial strength, level of involvement, contacts, and exit strategy are all more important considerations when selecting a VC.

Question 5

It is common for venture capitalists to receive at least ________ percent of a start-up company's equity in exchange for the venture capital.

Accepted Answer

The answer of It is common for venture capitalists to...

Question 6

Which one of the following statements concerning venture capital financing is correct?

Accepted Answer

Venture capitalists should have key contacts and financial strength to be able to provide not only funding but also strategic support, industry expertise, and networking opportunities to the financed firm. Venture capital financing is not easy to obtain, and venture capitalists typically prefer preferred stock over common stock. They also often take active roles in the management of the financed firm. Additionally, venture capital is generally more expensive than other forms of financing due to the higher risk involved.

Question 7

The Securities and Exchange Commission:

Accepted Answer

The Securities and Exchange Commission reviews registration statements to ensure they comply with current laws and regulations. This is an important role of the SEC in protecting investors from fraudulent or misleading information. The other choices are not accurate - the SEC does not verify the accuracy of information in the prospectus, publish red herrings, examine the prospectus during the Green Shoe period, or determine the final offer price.

Question 8

JLK is a partnership that was formed two years ago and has been extremely successful thus far. The owners have decided to incorporate and offer shares of stock to the general public. What is this type of an equity offering called?

Accepted Answer

The type of equity offering described in the scenario is an initial public offering (IPO), where a company offers shares of stock to the general public for the first time after incorporating.

Question 9

Trevor is the CEO of Harvest Foods, which is a privately held corporation. What is the first step he must take if he wishes to take Harvest Foods public?

Accepted Answer

The first step in taking a privately held corporation public is to gain board approval. The board of directors must agree on the decision to go public before any further steps, such as selecting an underwriter or preparing a registration statement, can be taken.

Question 10

Alberto currently owns 2,500 shares of Southern Tools. He has just been notified that the company is issuing additional shares and he is being given a chance to purchase some of these shares prior to the shares being offered to the general public. What is this type of an offer called?

Accepted Answer

This type of offer is called a "rights offer." It allows current shareholders to purchase additional shares before they are offered to the general public.

Question 11

Advertisements in a financial newspaper announcing a public offering of securities, along with a list of the investment banks handling the offering, are called:

Accepted Answer

Advertisements in a financial newspaper announcing a public offering of securities, along with a list of the investment banks handling the offering, are called tombstones. Red herrings are preliminary prospectuses that are subject to change, Green Shoes are an over-allotment option for additional shares, registration statements are formal documents filed with the SEC, and cash offers refer to payment made in cash for the purchase of a security.

Question 12

Which one of these describes an exception to the registration filing requirement of the SEC?

Accepted Answer

The SEC provides an exemption for small offerings under Regulation A, which allows companies to raise up to $5 million without registering with the SEC.

Question 13

The raising of small amounts of capital from a large number of people is known as:

Accepted Answer

Crowdfunding is the process of raising small amounts of capital from a large number of individuals or investors, typically via the internet. This method has become popular for entrepreneurs, startups, and small businesses looking to fund their ventures. The other options (A, B, C, and E) do not accurately describe this funding method.

Question 14

What is the form called that is filed with the SEC and discloses the material information on a securities issuer when that issuer offers new securities to the general public?

Accepted Answer

A registration statement is filed with the SEC when an issuer wants to offer new securities to the general public. This statement discloses material information about the issuer, including financial statements, management background, and risk factors. It is required by law before any new securities can be offered for sale to the public.

Question 15

What is a prospectus?

Accepted Answer

A prospectus is a document that provides detailed information about the issuer and the proposed security offering. It includes information such as financial statements, management backgrounds, and risks associated with investing in the security. It is required by the SEC and is given to potential investors before they decide to invest in the security.

Question 16

What is a seasoned equity offering?

Accepted Answer

A seasoned equity offering (SEO) refers to the sale of newly issued equity shares by a publicly owned company. SEOs are typically offered by companies that are already listed on a stock exchange and have an established trading history. 
 
 Answer: E 
  This statement is incorrect. A seasoned equity offering (SEO) refers to the sale of newly issued equity shares by a publicly owned company, not outstanding shares being offered for sale by one of a company's original founders.

Question 17

Business Aid is funded by a group of wealthy investors for the sole purpose of providing funding for individuals and small firms that are trying to convert their new ideas into viable products. What is this type of funding called?

Accepted Answer

Venture capital is a type of funding provided by investors who are willing to take on high risks in exchange for potential high returns. The purpose of this type of funding is to help start-ups and emerging companies with high growth potential to bring their products or services to market. Business Aid's funding model fits the definition of venture capital.

Question 18

M&C Merchants is offering $2.5 million of new securities to the general public. Which SEC regulation governs this offering?

Accepted Answer

Regulation A governs public offerings of up to $5 million within a 12-month period. As M&C Merchants is offering $2.5 million, Regulation A is applicable. Regulations C, G, Q, and R are not relevant to this type of offering.

Question 19

Which one of the following is a preliminary prospectus?

Accepted Answer

A preliminary prospectus is also known as a red herring. It is a draft registration statement that companies file with the Securities and Exchange Commission (SEC) before their initial public offering (IPO) to generate interest from potential investors. The red herring includes key details about the company, such as its financials, management team, and industry, but it does not yet include a final price or offer size.

Question 20

What is an issue of securities that is offered for sale to the general public on a direct cash basis called?

Accepted Answer

A securities issue that is offered for sale to the general public on a direct cash basis is called a general cash offer. This means that the securities are offered at a set price to anyone who wants to purchase them, without the involvement of any underwriters. The other options refer to different types of underwriting or offerings, and do not fit the description given.

Quiz 15: Raising Capital