Question 1

Jeremy founded a company. He issues 200 000 Class A preference shares for his own $100 000 investment. He then goes through three further rounds of investment, as shown below:  What is the post-money valuation for the Class D funding round?

Accepted Answer

To find the post-money valuation for the Class D funding round, we need to add up the total investment from all previous rounds and the current round, then divide by the total number of shares issued (including the new ones issued in the Class D funding round).

Total investment from previous rounds: $1,200,000 + $600,000 + $400,000 = $2,200,000

New investment in Class D funding round: $1,500,000

Total investment after Class D funding round: $2,200,000 + $1,500,000 = $3,700,000

Total number of shares issued (including new ones in Class D funding round): 200,000 + 80,000 + 60,000 + 50,000 = 390,000

Post-money valuation: $3,700,000 / 390,000 = $9.49 per share

So the post-money valuation for the Class D funding round is $9.49 per share times the 50,000 new shares issued in that round, which equals $474,500.

Therefore, the correct answer is B: $3.15 million.

Question 2

Simone founded her company using $150 000 of her own money, issuing herself 300 000 shares. An angel investor bought an additional 200 000 shares for $100 000. She now sells another 500 000 shares to a venture capitalist for $2 million. What is the post-money valuation of the company?

Accepted Answer

B

Question 3

Simone founded her company using $150 000 of her own money, issuing herself 300 000 shares. An angel investor bought an additional 200 000 shares for $100 000. She now sells another 500 000 shares to a venture capitalist for $2 million. What percentage of the firm does Simone now own?

Accepted Answer

Simone started with 300,000 shares out of a total of 300,000 shares, giving her 100% ownership.

After the angel investor bought 200,000 shares, the company had a total of 500,000 shares. The angel investor's share is

($100,000 ÷ $200,000) × 100% = 50%. Therefore, Simone now owns 50% of the company.

After selling 500,000 shares to a venture capitalist for $2 million, the company will have a total of 1,000,000 shares outstanding.

Simone will still own her original 300,000 shares, which is equivalent to 30% of the currently outstanding shares.

Therefore, the correct answer is B) 30%.

Question 4

Which of the following is NOT a common name for a corporation that invests in private companies?

Accepted Answer

"Venture partner" typically refers to an individual or entity involved in a venture capital firm, rather than a corporation investing in private companies. The other terms are commonly used to describe corporations that invest in or partner with private companies for strategic purposes.

Question 5

Why do most people launching a start-up company acquire their funds through the venture capital industry rather than through angel investors?

Accepted Answer

Angel investors are typically individuals with substantial capital who invest in early-stage companies, often providing not just funding but also mentorship and industry connections. However, many entrepreneurs may not have direct access to such individuals or their networks, making venture capital firms, which are more accessible through formal pitching processes, a more viable option for raising significant funds.

Question 6

An entrepreneur founded his company using $200 000 of his own money, issuing himself 200 000 shares. An angel investor bought an additional 100 000 shares for $200 000. The entrepreneur now sells another 400 000 shares to a venture capitalist for $1 million. What is the post-money valuation of the company?

Accepted Answer

The pre-money valuation of the company is the value of the company before the investment. This is equal to the total value of the company minus the investment, so the pre-money valuation is $200,000 (the value of the 200,000 shares already issued).

The post-money valuation is the value of the company after the investment. This is equal to the pre-money valuation plus the investment, so the post-money valuation is $1,200,000 ($200,000 pre-money valuation + $1,000,000 investment from the venture capitalist).

Therefore, the post-money valuation of the company is $1,200,000, making choice C the correct answer.

Question 7

The founder of a company issues 100 000 Class A preference shares for his own $250 000 investment. He then goes through three further rounds of investment, as shown below:  What is the post-money valuation for the Class D funding round?

Accepted Answer

The answer of The founder of a company issues 100...

Question 8

Equity investors in a private company usually plan to realise a return on their investment by selling their shares when that company is acquired by another firm or sold to the public in a public offering.

Accepted Answer

Equity investors typically invest in private companies with the intention of selling their shares for a profit, either through an acquisition or an IPO.

Question 9

Which of the following statements is NOT true regarding venture capitalists?

Accepted Answer

Venture capitalists primarily invest for financial returns rather than strategic objectives, which is more typical of corporate investors.

Question 10

A large publishing firm specialising in college textbooks wishes to expand into online delivery of its materials. In order to facilitate this, it invests in a number of small start-up companies that deliver college courses online and uses these companies to start diversifying the delivery of its content. Which of the following best describes the role of the publishing firm as described above?

Accepted Answer

The publishing firm is acting as a corporate investor because it is investing in small start-up companies to diversify and expand its own business operations into online delivery, which aligns with its strategic interests.

Question 11

When a company founder sells shares to outside investors in order to raise capital, the share of the company owned by the founder and the founder's control over the company will be reduced.

Accepted Answer

When outside investors purchase shares in a company, they obtain ownership and control proportional to their investment. This dilutes the founder's ownership and control in the company.

Question 12

The founder of a company issues 100 000 Class A preference shares for his own $250 000 investment. He then goes through three further rounds of investment, as shown below:  Which of the following is closest to the percentage of the company owned by the founder of the company?

Accepted Answer

The answer of The founder of a company issues 100...

Question 13

Jeremy founded a company. He issues 200 000 Class A preference shares for his own $100 000 investment. He then goes through three further rounds of investment, as shown below:  Which of the following is closest to the percentage of the company owned by the Class D investors?

Accepted Answer

The answer of Jeremy founded a company. He issues 200...

Question 14

Which of the following statements is NOT true regarding angel investors?

Accepted Answer

Angel investors are not typically arranged as limited partnerships. They often invest as individuals or through angel investor groups or networks.

Question 15

Which of the following is NOT a reason why an investor would choose to invest in new and growing firms as a limited partner in a venture capital firm rather than making those investments directly by themselves?

Accepted Answer

This is not a reason why an investor would choose to invest in new and growing firms as a limited partner in a venture capital firm rather than making those investments directly by themselves. In fact, as a limited partner, the investor would not have a direct say in how the companies are run. This is the role of the general partner(s) of the venture capital firm.

Question 16

Family investors are most likely to be a possible source of funds to finance a growing business.

Accepted Answer

The answer of Family investors are most likely to be...

Question 17

Venture Capital Firms are limited partnerships that specialises in raising money to invest in the private equity of young firms.

Accepted Answer

Venture Capital Firms are indeed limited partnerships that raise funds to invest in early-stage and high-growth companies.

Question 18

A firm's founder sells equity to outside investors for the first time in the form of preference shares. In what way are their preference shares most likely to differ from the preference shares issued by an established public firm?

Accepted Answer

Preference shares issued by a startup or a firm's founder for the first time to outside investors are less likely to pay cash dividends compared to those issued by an established public firm. Startups often reinvest profits to fuel growth rather than distribute them as dividends.

Question 19

Nature's Bounty, an organic seed company, is seeking to grow from a small company selling seeds in local markets into a company that sells seeds across several states. The funding for this expansion comes from a wealthy individual who uses his considerable inherited wealth to fund a variety of eco-friendly businesses. Which of the following best describes this individual's relationship with Nature's Bounty?

Accepted Answer

Angel investors are wealthy individuals who provide funding for startups and small businesses. They often invest their own money and provide support and guidance to help the company grow. In this scenario, the wealthy individual is using their own money to fund Nature's Bounty and promote eco-friendly businesses, which fits the description of an angel investor. The other options, such as corporate investors or institutional investors, are typically larger entities that invest on behalf of a group or organization and may have different goals and objectives than an individual angel investor. Venture capitalists may also invest in startups, but they typically look for high-growth potential and may take a more hands-on role in the management of the company.

Question 20

In Australia, AMP is a leading provider of retail and corporate superannuation and retirement income products. It has a large and diverse portfolio of investments, and as of 31 December 2016 it had net assets under management/advice of $110.6 billion. Which of the following best describes AMP?

Accepted Answer

AMP is a large and institutional investor with a diverse portfolio of investments in superannuation and retirement income products.

Quiz 14: Raising Capital

Jeremy founded a company. He issues 200 000 Class A preference shares for his own $100 000 investment. He then goes through three further rounds of investment, as shown below: What is the post-money valuation for the Class D funding round?