Question 1

The central items to be negotiated when seeking funds from venture capital firms and angel investors include all of the following EXCEPT:&#10;A) the amount of control&#10;B) the amount of future earnings&#10;C) the amount cash received today&#10;D) the number of shares&#10;E) percentage ownership

Accepted Answer

The amount of future earnings is not typically a central item negotiated directly when seeking funds from venture capital firms and angel investors. Instead, negotiations focus on the amount of control, cash received, number of shares, and percentage ownership, which indirectly influence future earnings.

Question 2

If an entrepreneur is able to sell a smaller percentage of the firm for the same amount of cash raised,&#10;A) she will have to issue more new shares&#10;B) the pre-money valuation will increase but the post money valuation will decrease&#10;C) the pre-money valuation will decrease but the post money valuation will increase&#10;D) both the pre-money and post money valuation will increase&#10;E) both the pre-money and post money valuation will decrease

Accepted Answer

Selling a smaller percentage of the firm for the same amount of cash implies that each share is valued higher, leading to an increase in both the pre-money and post-money valuations. The pre-money valuation increases because the valuation before the investment is based on a higher per-share price. The post-money valuation, which includes the cash raised, also increases because it starts from a higher pre-money valuation.

Question 3

Strategic partners include:&#10;A) friends and families&#10;B) venture capital firms and angel investors&#10;C) competitors or companies in a related industry&#10;D) A and B&#10;E) A, B, and C

Accepted Answer

Strategic partners are typically competitors or companies in a related industry that collaborate for mutual benefit, rather than personal connections like friends and families or financial investors like venture capital firms and angel investors.

Question 4

Anti-dilution provisions are also called&#10;A) poison pill provisions&#10;B) golden parachute provisions&#10;C) ratchet provisions&#10;D) wrench provisions&#10;E) trigger provisions

Accepted Answer

Anti-dilution provisions are also known as ratchet provisions. These are mechanisms in financial agreements to protect investors from dilution of their ownership percentage in a company, typically by adjusting the price at which new shares are issued.

Question 5

Anti-dilution provisions&#10;A) are always bad for entrepreneurs even in an up round&#10;B) always protects the new investor and bad for both entrepreneurs and early investors&#10;C) protects entrepreneurs in a down round but has no effect in an up round&#10;D) protects early investors in a down round but has no effect in an up round&#10;E) protects the new investor in a down round but has no effect in an up round

Accepted Answer

Anti-dilution provisions are designed to protect early investors in the event of a down round, where the company issues shares at a lower valuation than in previous rounds. They do not have an effect in an up round, where the company's valuation has increased.

Question 6

Post money valuation after each round is established by&#10;A) the entrepreneurs&#10;B) early investors&#10;C) the new investor&#10;D) jointly by A and B&#10;E) Jointly by B and C

Accepted Answer

The answer of Post money valuation after each round is...

Question 7

In a down round scenario with an anti-dilution provision and no minimum price,&#10;A) the new investor suffers all the losses and receives a smaller percentage ownership than she would in an up round&#10;B) early investors suffer all the losses and their percentage ownerships would be smaller than in an up round&#10;C) entrepreneurs suffer all the losses and their percentage ownerships would be smaller than in an up round&#10;D) A and B&#10;E) A, B, and C

Accepted Answer

In a down round with anti-dilution provisions, the entrepreneurs typically suffer the most as their ownership percentage is diluted to protect early investors.

Question 8

Advantages of going public include the following EXCEPT:&#10;A) higher cost of capital&#10;B) access to capital for future growth&#10;C) increased liquidity for shareholders&#10;D) diversification opportunity for entrepreneurs&#10;E) increased prestige and visibility

Accepted Answer

Going public typically results in a lower cost of capital due to increased access to capital markets and the liquidity provided to shareholders. The other options (B, C, D, E) are generally considered advantages of going public.

Question 9

Disadvantages of going public include the following EXCEPT:&#10;A) more time to focus on growth because of increased capital&#10;B) SEC regulations on financial reporting and public disclosure&#10;C) scrutiny by financial analysts&#10;D) pressure to meet investor and analyst expectation&#10;E) increased public scrutiny

Accepted Answer

Going public provides a company with increased capital, which can be used to focus on growth and expansion. The other options (B, C, D, E) are indeed disadvantages associated with going public, such as increased regulatory requirements and scrutiny.

Question 10

Core values of a business include:&#10;A) corporate creed&#10;B) mission statement&#10;C) human resource policies&#10;D) customer service policies&#10;E) all of the above

Accepted Answer

Core values of a business are fundamental beliefs or guiding principles that dictate behavior and can help people understand the difference between right and wrong within the organization. They can be reflected in all the given options: corporate creed, mission statement, human resource policies, and customer service policies, as these elements often embody and communicate the organization's core values to its stakeholders.

Deck 10: Exit and Harvest