Deck 8: Sources of Capital for Entrepreneurial Ventures

Question 1

Sources of debt financing include trade credit, accounts receivable financing, factoring, and finance companies.

Answer 1

True

Question 2

The average size of social loans is around $17,000.

Answer 2

True

Question 3

Entrepreneurs with new ventures often use debt financing out of choice, not necessity.

Answer 3

False

Question 4

Large ventures often use private placements as a method of raising capital.

Question 5

P2P lenders charge fees for brokering and servicing loans and collect penalties for late payments.

Question 6

Regulation D augments the regulations for reports and statements required for selling stock to private parties, friends, employees, customers, relatives, and local professionals.

Question 7

Peer-to-peer lenders are friends of the entrepreneur who want to invest in the new venture.

Question 8

Social lending sites are different from so-called microlending sites.

Question 9

Because the advantages of going public outweigh the disadvantages, it is in a corporation's best interest to go public.

Question 10

Innovation has become more global and is no longer the exclusive domain of Silicon Valley and Route 128 in Boston.

Question 11

A good idea is important, but a good management team is even more important.

Question 12

Only a small number of informal risk capitalists are in the market today.

Question 13

Crowdfunding provides entrepreneurs with access to beta-testing and market feedback.

Question 14

Equity financing is money invested in the venture with legal obligations to repay the principal amount or pay interest on it.

Question 15

Common stock is the least basic form of ownership.

Question 16

The most common sources of debt financing are commercial banks.

Question 17

A method of raising capital is through the private placement of securities.

Question 18

Trade credit is given by suppliers who sell goods on account.

Question 19

The venture capital pool is rapidly declining due to overfunding.

Question 20

Informal risk capitalists are those who have already made their money and now seek to help new ventures.

Question 21

Venture capitalists are experienced professionals who provide a full range of services for new ventures including

A)supplying labor for start-up.
B)market research and strategy for pricing.
C)management consulting.
D)R&D knowledge.

Question 22

Venture capitalists are quick to invest.

Question 23

When securing a bank loan, which of the following is not a question an entrepreneur should be prepared to answer?

A)When do you need it?
B)How do you need it?
C)What do you need it for?
D)What is the price of your product?

Question 24

The business plan is a critical element in a new-venture proposal.

Question 25

Venture capitalists, surprisingly, require little information before they make an investment.

Question 26

When using P2P lending, one potential danger may be an uncertain regulatory environment.

Question 27

Long-term debt is used for

A)recurring purchases.
B)the purchase of property or equipment.
C)the payment of payroll.
D)a rainy day fund.

Question 28

Use of debt to finance a new venture involves a payback of the funds plus an interest fee (interest) for the use of the money.

Question 29

Because of how they are structured, traditional industries such as textiles, furniture manufacturing, and clothing manufacturing commonly use which of the following debt financing sources?

A)trade credit
B)investing
C)leasing
D)factoring

Question 30

An informal risk capitalist is referred to as

A)your neighbor.
B)a business angel.
C)a retiree.
D)a crowdfunder.

Question 31

Which of the following was a significant contributor to job growth, with the creation of 263,950 new jobs in the United States in 2016?

A)crowdfunding
B)angel investments
C)factoring
D)venture capital

Question 32

Sophisticated investors are wealthy individuals who invest more or less regularly in new or early- and late-stage ventures.

Question 33

Which of the following terms is synonymous with social lending?

A)accounts receivable lending
B)peer-to-peer (P2P) lending
C)tax lending
D)government-backed lending

Question 34

Informal risk capitalists are often referred to as business angels.

Question 35

Frugality is deemed a bootstrapping technique.

Question 36

Public offering is a term used to refer to corporations taking public donations to raise capital.

Question 37

Which of the following is not a stage of the evaluation process?

A)initial screening
B)evaluation of the business plan
C)beta-testing
D)final evaluation

Question 38

Which of the following is not typically identified as a bootstrapping technique?

A)sharing office space
B)hiring seasoned veterans
C)encouraging customers to pay early
D)trading equity for services

Question 39

Which of the following would be most commonly used for intermediate-term financing?

A)insurance companies
B)trade credit
C)finance companies
D)leasing companies

Question 40

Corporate venture capital can offer strategic and tactical advice, an operating budget, and credibility but started to decline in 2017, and this trend is expected to continue.

Question 41

The main objective of Regulation D is to

A)increase investment in private placement.
B)regulate new small-business investment.
C)make it easier and less expensive for small ventures to sell stock.
D)reduce debt financing by small enterprises.

Question 42

The most common source of debt financing is

A)trade credit.
B)factoring.
C)commercial banks.
D)finance companies.

Question 43

When starting a business, which of the following sources of financing is least likely to be used?

A)trade credit
B)factors
C)leasing companies
D)insurance companies

Question 44

Which of the following is not one of the eight critical factors that venture capitalists use in the evaluation of new ventures?

A)lead time
B)timing of entry
C)scope
D)managerial structure

Question 45

Which of the following statements is not true of venture capitalists?

A)They want the entrepreneur and the management to run the company.
B)They expect a high return on investments.
C)They are interested in managing firms themselves.
D)They take a long time to raise venture capital.

Question 46

Approximately how many commercial banks are there in this country?

A)about 40,000
B)about 5,500
C)about 17,000
D)about 20,000

Question 47

Which of the following would be most commonly used for short-term financing?

A)insurance companies
B)trade credit
C)finance companies
D)leasing companies

Question 48

Which of the following is one of the most important questions for entrepreneurs to ask regarding venture capitalists?

A)What is it like to work with their firm?
B)Are they good communicators?
C)Are they wealthy?
D)Are they good at financial computation?

Question 49

Which of the following does not represent a category of angel investors?

A)micromanagement angels
B)entrepreneurial angels
C)technology angels
D)corporate angels

Question 50

Many new ventures find that debt financing is

A)necessary.
B)a waste of time.
C)not an important consideration.
D)a minor source of funds.

Question 51

One of the advantages of public offerings is

A)image.
B)disclosure.
C)requirements.
D)cost.

Question 52

A disadvantage of debt financing is

A)regular interest payments.
B)possible cash flow enhancement.
C)inhibition of growth and development due to equity investments.
D)relinquishment of ownership.

Question 53

SEC stands for the

A)Stock Exchange Corporation.
B)Securities and Exchange Commission.
C)Standard Equity Commission.
D)Source of Equity Company.

Question 54

Equity capital is

A)paid back within one year.
B)paid back after five years.
C)not a loan but a form of stock.
D)a loan from family.

Question 55

Which of the following is not one of the most common questions typically required to be answered by entrepreneurs seeking funding?

A)What do you plan to do with the money?
B)How much money do you need?
C)When do you need the money?
D)What exact date will you repay the money?

Question 56

Which of the following statements about raising capital is true?

A)All capital is raised through formal sources.
B)All capital is raised through debt sources.
C)Capital is easy to get.
D)It often takes a great deal of time to raise capital.

Question 57

Which of the following is not a question commonly asked by banks of entrepreneurs?

A)What do you plan to do with the money?
B)How much do you need?
C)What interest rate did you have in mind?
D)How will you repay the loan?

Question 58

Which of the following would be most commonly used for long-term financing?

A)insurance companies
B)trade credit
C)finance companies
D)leasing companies

Question 59

The Regulation D exemptions include all of the following except

A)Rule 504-placements up to $1 million.
B)Rule 503-placements of less than $500,000.
C)Rule 505-placements of up to $5 million.
D)Rule 506-placements in excess of $5 million.

Question 60

Evaluation of new-venture proposals includes all the following processes except

A)oral presentation.
B)initial screening.
C)evaluation of the business plan.
D)a product prototype.

Question 61

Informal investors find projects to invest in through

A)networks of friends.
B)business classifieds.
C)Forbes.
D)university think tanks.

Question 62

_____ is one of the disadvantages of going public.

A)Value
B)Form 8-K
C)Shareholder pressure
D)Liquidity

Question 63

Which of the following is not a type of debt financing?

A)private placement
B)trade credit
C)finance companies
D)accounts receivable

Question 64

Which of the following is more likely than the others to be deemed a potential danger of social lending?

A)high funding success rate
B)business plan disclosure
C)potential tax advantage
D)regulatory certainty

Question 65

When going public with public offerings an advantage might be the

A)size of the company's capital amount.
B)company's size.
C)company's market share.
D)product price.

Question 66

Regulation D defines separate exemptions that are based on the amount of money being raised. Which of the following is not a rule that accompanies these exemptions?

A)Rule 503
B)Rule 504
C)Rule 505
D)Rule 506

Question 67

Which of the following is not a major trend that has occurred in venture capital over the last few years?

A)more innovation
B)more specialized funding
C)emerging syndicated deals
D)stronger small start-up investments

Question 68

According to the text, which of the following could be considered a "deal killer" by a venture capitalist?

A)the entrepreneur's education
B)the entrepreneur's travel expenses
C)the excessive founder salaries
D)the humility of the management team

Question 69

_____ bank loans are made on a discounted value of the receivables pledged.

A)Accounts receivable financing
B)Peer-to-peer
C)Trade lending
D)Convertible stock

Question 70

Which of the following is a type of equity financing?

A)convertible debentures
B)common stock
C)loan with warrants
D)loan without warrants

Question 71

Which of the following is a source of capital for entrepreneurs?

A)equity
B)debit
C)auto leasing
D)mortgages

Question 72

Venture capital in the United States has been highest in which of the following?

A)nanotechnology
B)health care
C)data mining
D)food services

Question 73

Advantages of debt financing include all of the following except

A)low interest rates that justify the opportunity cost.
B)regular interest payments.
C)potential greater return on equity.
D)no relinquishment of ownership.

Question 74

Major trends in the venture capital field today include all of the following except

A)less specialized and more homogenous funds.
B)emerging feeder funds.
C)a decrease in start-up investment amounts.
D)global reach.

Question 75

Short-term debt is paid back

A)in six months.
B)in one year.
C)after sales.
D)over an indefinite period of time.

Question 76

Financial equity instruments, which give investors a share of the ownership, may include

A)preferred stock.
B)option sales.
C)donations.
D)loans without warrants.

Question 77

According to Forbes, the net worth of the richest _____ Americans was $2.29 trillion ($5.73 billion per person).

A)400
B)1,000
C)5,000
D)100

Question 78

Which of the following is an important question for the entrepreneur to ask when evaluating the venture capitalist?

A)How many deals has the firm actually made in this field?
B)Is the person a close relative?
C)Is the person wealthy?
D)Does person have a degree?

Question 79

SBIC stands for

A)small business in capital.
B)securities, bonds, investment, capital.
C)small-business investment companies.
D)sources of business investment companies.

Question 80

Financing includes all of the following except

A)the owner's money.
B)angels.
C)equitable payback.
D)seed capital.