Ch. 12

When evaluating the prospects of a new venture, venture capital firms consider which of the following? a. characteristics of the proposal b. characteristics of the entrepreneur/team c. nature of the proposed industry d. both b and c e. all of the above

all of the above

Venture Capital firms tend to specialize in publicly identified niches because of the potential for value-added investing by venture capitalists. Which is not one of these niches? a. industry type b. venture stage c. size of investment d. management style e. geographic area

management style

When screening prospective new ventures, venture capital firms must consider the nature of the proposed industry. Which of the following is not part of the screening of the proposed industry? a. market attractiveness b. managerial references c. potential size d. technology e. threat resistance

managerial references

In a Venture Capital Fund Placement Memorandum, all of the following are included in the summary of terms except? a. indemnification b. objective c. liquidation d. valuation e. expenses

objective

After determining the next fund's objectives and policies, the "professional venture investing cycle's" next step is: a. solicit investments in new fund b. organize the new fund c. obtain commitments for a series of capital calls d. conduct due diligence and actively invest e. arrange harvest or liquidation

organize the new fund

Professional venture investing usually involves setting up a venture capital firm as a: a. proprietorship b. corporation c. partnership d. S corporation

partnership

Which of the following was the largest source of venture capital funds in 2009 (as reported in Figure 12.4)? a. pension funds and corporations b. individuals and families c. endowments and foundations d. finance and insurance

pension funds and corporations

When screening prospective new ventures, venture capital firms consider their own funds' requirements. Which of the following is not one of the venture firm's requirements relating to its own funds? a. investor control b. rate of return c. size of investment d. probable stock listing exchange for the mature venture e. financial provisions for investors

probable stock listing exchange for the mature venture

According to Figure 12.4 (Bloomberg, 2014), which of the following is the largest supplier of venture capital? a. financial and insurance b. public pension funds c. endowments and foundations d. family offices

public pension funds

If an investment management firm is known to be a "two and twenty shop", this implies that the firm: a. receives an annual 2% fee on invested capital, and a 20% carried interest b. receives an annual 20% fee on invested capital, and a 2% carried interest c. receives an annual 2% fee on gross operating profits, and a 20% carried interest d. receives an annual 20% fee on gross operating profits, and a 2% carried interest

receives an annual 2% fee on invested capital, and a 20% carried interest

All of the following are typically part of a venture fund's typical compensation and incentive structure except: a. some percent annual fee on invested capital b. a percent share of any profits to the managing general partner c. carried interest d. salary for the general partners

salary for the general partners

After a new professional venture capital fund is organized, the fund managers: a. conduct due diligence and actively invest b. solicit investments and obtain commitments c. arrange harvest or liquidation d. identify prospective venture investments and then solicit investments

solicit investments and obtain commitments

When screening possible investments, a venture capital firm might issue an SLOR which stands for: a. standard letter of rejection b. standing letter of reconciliation c. standard letter of reassessment d. senior letter of reference

standard letter of rejection

In a Venture Capital Fund Placement Memorandum, which of the following is not a front matter declaration? a. description of limited manner of the offering b. targeted fund size c. imposition of confidentiality d. notice of lack of SEC registration e. declaration of the highly risky nature of investment

targeted fund size

A summary of the investment terms and conditions accompanying an investment is referred to as a: a. term sheet b. business plan c. fund created by professional venture capitalists d. due diligence in venture investing e. capital call

term sheet

The beginning of professional venture capitalists is considered to have occurred: a. prior to World War II b. 1946 c. 1956 d. 1966 e. after the Vietnam War

1946

The beginning of professional venture capitalists is considered to have begun with the establishment or formation of: a. Small Business Administration b. Small Business Investment Companies c. American Research and Development organization d. Professional Venture Capitalists organization

American Research and Development organization

A venture fund calls upon its investors to deliver their investment funds. This is known as: a. due diligence b. deal flow c. a capital call d. carried interest e. a SLOR

a capital call

Which of the following is not one of the four likely outcomes of the venture firm's screening process? a. seek the lead investor position b. seek a non-lead investor position c. close the capital fund d. refer the venture to more appropriate financial market participants e. issue a standard letter of rejection

close the capital fund

In a Venture Capital Fund Placement Memorandum, which of the following is not part of the fund overview? a. fund size b. investment focus c. fund management d. portfolio size e. general partners' capital contributions

general partners' capital contributions

In a Venture Capital Fund Placement Memorandum, all of the following are part of the executive summary except? a. special limited partners b. general partners' capital contributions c. limitation of liability d. allocation of gains and losses e. imposition of confidentiality

imposition of confidentiality

In a Venture Capital Fund Placement Memorandum, which of the following is not part of the offering summary? a. objective of formation b. declaration of general partner c. management fee d. minimum capital restrictions e. targeted fund size

management fee

All of the following are typical issues addressed in a term sheet except? a. valuation b. board structure c. registration rights d. management fees e. employment contracts

management fees

When evaluating the prospects of a new venture, venture capital firms consider the characteristics of the entrepreneur and its team. Which of the following is not part of the review of the entrepreneur/team? a. its background and experience b. its managerial capabilities c. management's stake in the firm d. the VC firms' ability to cash out e. the capability to sustain an effort

the VC firms' ability to cash out

Term sheets are usually drafted by: a. the mangers of the venture seeking VC funding b. the VC fund seeking to fund the venture c. management and founders d. it is usually done by an third party, in order to ensure the fair treatment of both parties

the VC fund seeking to fund the venture

In a syndicate of venture investors, the investor who is responsible for governing the process of due diligence is: a. the primary investor b. the lead investor c. a small group of secondary investors d. the investor in charge of issuing SLORs for the syndicate e. it is a democratic process that is shared by all investors in the group

the lead investor

As venture firms attract money from investors, it is placed in a fund. Important issues that must be put in place with the establishment of the fund include all of the following except: a. determine the general partners b. establishing a fee structure c. a profit sharing arrangement d. establish its governance e. the management team assigned to each borrower

the management team assigned to each borrower

The term "carried interest" refers to: a. interest not currently paid but which must be paid in the future by a professional venture capitalist b. interest transported directly to a bank c. interest owed on a loan in default d. the portion of profits paid to the professional venture capitalist as incentive compensation

the portion of profits paid to the professional venture capitalist as incentive compensation