Question 1

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

Accepted Answer

Venture capitalists typically do not seek to manage the firms themselves; they prefer to invest and allow the entrepreneur and management team to run the company.

Question 2

Private placement is a method of raising capital through the private placement of securities.

Accepted Answer

Private placement is indeed a method of raising capital through the private placement of securities, such as stocks or bonds, to a select group of investors rather than through a public offering.

Question 3

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

Accepted Answer

Sophisticated investors are typically defined as high net worth individuals who have experience and knowledge in investing, and who invest in a variety of different assets, including new and/or early- and late-stage ventures.

Question 4

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

Accepted Answer

Venture capitalists actually require a considerable amount of information before making an investment. This includes detailed business plans, financial projections, market analysis, and often multiple rounds of pitch meetings and due diligence.

Question 5

The main objective of Regulation D is to

Accepted Answer

Regulation D is a part of the U.S. federal securities law that allows companies to raise capital through the sale of equity or debt securities without having to register with the SEC. Its main objective is to make it easier and less expensive for small ventures to sell stock by providing exemptions from the registration requirements. This facilitates the raising of capital by reducing the regulatory burden and associated costs.

Question 6

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

Accepted Answer

These are all common sources of debt financing for businesses.

Question 7

The most common source of debt financing is

Accepted Answer

Commercial banks are the most common source of debt financing for businesses. They offer various types of loans such as term loans, revolving credit, and lines of credit, and often have lower interest rates compared to other sources of debt financing.

Question 8

One of the advantages of public offerings is

Accepted Answer

Public offerings increase liquidity by allowing shares to be bought and sold on the open market, making it easier for investors to trade the stock.

Question 9

A disadvantage of debt financing is

Accepted Answer

Debt financing requires regular interest payments, which can eat into profits and put a strain on cash flow.

Question 10

Informal risk capitalists are often referred to as "business angels."

Accepted Answer

This is true. Business angels are individuals who provide financial capital and business expertise to start-up ventures in exchange for an equity stake in the company. They are also known as informal risk capitalists.

Question 11

Advantages of debt financing include all of the following except:

Accepted Answer

Regular interest payments are not an advantage of debt financing; they are a financial obligation that the company must meet regardless of its financial situation. The other options (low interest rates justifying the opportunity cost, potential greater return on equity, and no relinquishment of ownership) are considered advantages because they can contribute to the company's growth and financial stability without sacrificing control.

Question 12

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

Accepted Answer

The answer of Regulation D augments the regulations for reports...

Question 13

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

Accepted Answer

The decision to go public depends on the specific circumstances of each corporation. While going public offers advantages such as access to capital, increased visibility, and liquidity for shareholders, it also comes with disadvantages such as loss of control, increased regulatory scrutiny, and the costs associated with maintaining a public listing.

Question 14

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

Accepted Answer

Equity financing is actually money invested in the venture in exchange for ownership, typically in the form of stocks or shares. There is no legal obligation to repay the principal amount with interest. Instead, investors receive a return on their investment through dividends, capital gains, or sale of their shares.

Question 15

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

Accepted Answer

The answer of Which of the following is not a...

Question 16

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

Accepted Answer

Venture capital funds are becoming more specialized and diverse, not less, to cater to specific industries and technologies.

Question 17

Which of the following terms is not synonymous with social lending?

Accepted Answer

Social lending typically refers to the practice of individuals lending money directly to other individuals or businesses, usually through an online platform. Crowdfunding and peer-to-peer (P2P) lending are often used interchangeably with social lending. Banking 2.0 generally refers to the shift towards online banking and financial technology innovations. Commercially viable lending, while related to social lending, specifically focuses on lending practices that are profitable and sustainable for financial institutions.

Question 18

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

Accepted Answer

Informal risk capitalists are usually high net worth individuals or successful entrepreneurs who invest their own personal funds and mentorship in startup ventures, typically in exchange for equity in the company. They are sometimes referred to as angel investors.

Question 19

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

Accepted Answer

Debt financing involves borrowing money that needs to be paid back with interest.

Question 20

Which of the following is a type of equity financing?

Accepted Answer

Common stock is a type of equity financing where investors buy shares in a company and become part-owners. Convertible debentures and loans with or without warrants are types of debt financing where investors lend money to a company and receive interest or repayment with or without the option to convert the debt into equity at a later date.

Quiz 8: Sources of Capital for Entrepreneurs