Question 1

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

Accepted Answer

Legal fees for a typical institutional investment can range from $20,000 or more depending on the complexity of the deal. While some VCs may cover some of these costs, it's not uncommon for the startup to cover a significant portion of the legal fees. Option A is incorrect because not all VCs cover legal fees, and Option B is often too low. Option D is incorrect as legal fees are not typically calculated as a percentage of the amount raised.

Question 2

What is the advantage of convertible debt?

Accepted Answer

Convertible debt allows startups to delay the valuation discussion until a future date, usually when they are in a better position to negotiate. This can save time and effort in the initial stages of fundraising, and can also potentially result in a higher valuation in the future.

Question 3

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?

Accepted Answer

The answer of What is the difference between angel investors...

Question 4

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.

Accepted Answer

The answer of For your term project venture, what are...

Question 5

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

Accepted Answer

All the options listed (A through D) are examples of covenants or terms that might be found in a venture capital (VC) investment deal. These terms are negotiated to protect the interests of the investors and to align the interests of the founders and investors for the success of the company.

Question 6

What is a convertible debt instrument?

Accepted Answer

A convertible debt instrument is a type of investment where the investor loans money to a startup in exchange for a note that can be converted to equity or stock at a later date. This is usually done at a discounted or predetermined price per share, and is often used in early-stage investing as a way for investors to get in before a company goes public. Option A is incorrect as there is no provision for conversion to equity. Option C is incorrect, as there is no automatic conversion to publicly traded stock. Option D is also incorrect, as B is the correct answer.

Question 7

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

Accepted Answer

All of the options provided contribute to improving the valuation of a company for an early-stage investment. Having team members with a successful track record, a strong product strategy and business model, and operating in a hot industry segment are all factors that can increase investor confidence and, consequently, the company's valuation.

Quiz 8: Financial Sources for Startups and Corporate Ventures